```

[Federal Register Volume 79, Number 235 (Monday, December 8, 2014)]
[Proposed Rules]
[Pages 72759-72872]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-28388]

[[Page 72759]]

Vol. 79

Monday,

No. 235

December 8, 2014

Part II

 Department of Health and Human Services

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 Centers for Medicare & Medicaid Services

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42 CFR Part 425

 Medicare Program; Medicare Shared Savings Program: Accountable Care 
Organizations; Proposed Rule

Federal Register / Vol. 79 , No. 235 / Monday, December 8, 2014 / 
Proposed Rules

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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Part 425

[CMS-1461-P]
RIN 0938-AS06

Medicare Program; Medicare Shared Savings Program: Accountable 
Care Organizations

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

ACTION: Proposed rule.

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SUMMARY: This proposed rule addresses changes to the Medicare Shared 
Savings Program (Shared Savings Program), including provisions relating 
to the payment of Accountable Care Organizations (ACOs) participating 
in the Shared Savings Program. Under the Shared Savings Program, 
providers of services and suppliers that participate in an ACO continue 
to receive traditional Medicare fee-for-service (FFS) payments under 
Parts A and B, but the ACO may be eligible to receive a shared savings 
payment if it meets specified quality and savings requirements.

DATES: To be assured consideration, comments must be received at one of 
the addresses provided below, no later than 5 p.m. on February 6, 2015.

ADDRESSES: In commenting, please refer to file code CMS-1461-P. Because 
of staff and resource limitations, we cannot accept comments by 
facsimile (FAX) transmission.
    You may submit comments in one of four ways (please choose only one 
of the ways listed):
    1. Electronically. You may submit electronic comments on this 
regulation to http://www.regulations.gov. Follow the ``Submit a 
comment'' instructions.
    2. By regular mail. You may mail written comments to the following 
address ONLY: Centers for Medicare & Medicaid Services, Department of 
Health and Human Services, Attention: CMS-1461-P, P.O. Box 8013, 
Baltimore, MD 21244-8013.
    Please allow sufficient time for mailed comments to be received 
before the close of the comment period.
    3. By express or overnight mail. You may send written comments to 
the following address ONLY: Centers for Medicare & Medicaid Services, 
Department of Health and Human Services, Attention: CMS-1461-P, Mail 
Stop C4-26-05, 7500 Security Boulevard, Baltimore, MD 21244-1850.
    4. By hand or courier. Alternatively, you may deliver (by hand or 
courier) your written comments ONLY to the following addresses prior to 
the close of the comment period:
a. For delivery in Washington, DC--Centers for Medicare & Medicaid 
Services, Department of Health and Human Services, Room 445-G, Hubert 
H. Humphrey Building, 200 Independence Avenue SW., Washington, DC 20201

(Because access to the interior of the Hubert H. Humphrey Building is 
not readily available to persons without Federal government 
identification, commenters are encouraged to leave their comments in 
the CMS drop slots located in the main lobby of the building. A stamp-
in clock is available for persons wishing to retain a proof of filing 
by stamping in and retaining an extra copy of the comments being 
filed.)
b. For delivery in Baltimore, MD--Centers for Medicare & Medicaid 
Services, Department of Health and Human Services, 7500 Security 
Boulevard, Baltimore, MD 21244-1850.

    If you intend to deliver your comments to the Baltimore address, 
call telephone number (410) 786-7195 in advance to schedule your 
arrival with one of our staff members.
    Comments erroneously mailed to the addresses indicated as 
appropriate for hand or courier delivery may be delayed and received 
after the comment period.
    For information on viewing public comments, see the beginning of 
the SUPPLEMENTARY INFORMATION section.

FOR FURTHER INFORMATION CONTACT: Dr. Terri Postma or Rick Ensor, 410-
786-8084, Email address: aco@cms.hhs.gov.

SUPPLEMENTARY INFORMATION:
    Inspection of Public Comments: All comments received before the 
close of the comment period are available for viewing by the public, 
including any personally identifiable or confidential business 
information that is included in a comment. We post all comments 
received before the close of the comment period on the following Web 
site as soon as possible after they have been received: http://www.regulations.gov. Follow the search instructions on that Web site to 
view public comments.
    Comments received timely will also be available for public 
inspection as they are received, generally beginning approximately 3 
weeks after publication of a document, at the headquarters of the 
Centers for Medicare & Medicaid Services, 7500 Security Boulevard, 
Baltimore, Maryland 21244, Monday through Friday of each week from 8:30 
a.m. to 4 p.m. To schedule an appointment to view public comments, 
phone 1-800-743-3951.

Table of Contents

    To assist readers in referencing sections contained in this 
preamble, we are providing a table of contents.

I. Executive Summary and Background
    A. Executive Summary
    1. Purpose
    2. Summary of the Major Provisions
    3. Summary of Costs and Benefits
    B. Background
II. Provisions of This Proposed Rule
    A. Definitions
    1. Proposed Definitions
    2. Proposed Revisions to Existing Definitions
    a. Definition of ACO Participant
    b. Definition of ACO Professional
    c. Definition of ACO Provider/Supplier
    d. Definition of Assignment
    e. Definition of Hospital
    f. Definition of Primary Care Services
    g. Definitions of Continuously Assigned Beneficiary and Newly 
Assigned Beneficiary
    h. Definition of Agreement Period
    B. ACO Eligibility Requirements
    1. Agreement Requirements
    a. Overview
    b. Proposed Revisions
    2. Sufficient Number of Primary Care Providers and Beneficiaries
    a. Overview
    b. Proposed Revisions
    3. Identification and Required Reporting of ACO Participants and 
ACO Providers/Suppliers
    a. Overview
    b. Proposed Revisions
    (1) Certified List of ACO Participants and ACO Providers/
Suppliers
    (2) Managing Changes to ACO Participants
    (3) Managing Changes to ACO Providers/Suppliers
    (4) Update of Medicare Enrollment Information
    4. Significant Changes to an ACO
    a. Overview
    b. Proposed Revisions
    5. Consideration of Claims Billed by Merged/Acquired Medicare-
Enrolled Entities
    a. Overview
    b. Proposal
    6. Legal Structure and Governance
    a. Legal Entity and Governing Body
    (1) Overview
    (2) Proposed Revisions
    b. Fiduciary Duties of Governing Body Members
    (1) Overview
    (2) Proposed Revisions
    c. Composition of the Governing Body
    (1) Overview
    (2) Proposed Revisions
    7. Leadership and Management Structure
    a. Overview
    b. Proposed Revisions
    8. Required Process To Coordinate Care
    a. Overview
    b. Accelerating Health Information Technology

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    c. Proposed Revisions
    9. Transition of Pioneer ACOs Into the Shared Savings Program
    a. Overview
    b. Proposed Revisions
    C. Establishing and Maintaining the Participation Agreement With 
the Secretary
    1. Background
    2. Application Deadlines
    a. Overview
    b. Proposed Revisions
    3. Renewal of Participation Agreements
    a. Overview
    b. Proposed Revisions
    4. Changes to Program Requirements During the 3-Year Agreement
    a. Overview
    b. Proposed Revisions
    D. Provision of Aggregate and Beneficiary Identifiable Data
    1. Background
    2. Aggregate Data Reports and Limited Identifiable Data
    a. Overview
    b. Proposed Revisions
    3. Claims Data Sharing and Beneficiary Opt-Out
    a. Overview
    b. Proposed Revisions
    E. Assignment of Medicare FFS Beneficiaries
    1. Background
    2. Basic Criteria for a Beneficiary To Be Assigned to an ACO
    3. Definition of Primary Care Services
    a. Overview
    b. Proposed Revisions
    4. Consideration of Physician Specialties and Non-Physician 
Practitioners in the Assignment Process
    a. Overview
    b. Proposed Revisions
    5. Assignment of Beneficiaries to ACOs That Include FQHCs, RHCs, 
CAHs, or ETA Hospitals
    a. Assignment of Beneficiaries to ACOs That Include FQHCs and 
RHCs
    (1) Overview
    (2) Proposed Revisions
    b. Assignment of Beneficiaries to ACOs That Include CAHs
    c. Assignment of Beneficiaries to ACOs That Include ETA 
Hospitals
    6. Effective Date for Finalization of Proposals Affecting 
Beneficiary Assignment
    F. Shared Savings and Losses
    1. Background
    2. Modifications to the Existing Payment Tracks
    a. Overview
    b. Proposals Related to Transition From the One-Sided to Two-
Sided Model
    c. Proposals for Modifications to the Track 2 Financial Model
    3. Creating Options for ACOs That Participate in Risk-Based 
Arrangements
    a. Overview
    b. Proposals for Assignment of Beneficiaries Under Track 3
    (1) Background
    (2) Proposal for Prospective Assignment Under Track 3
    c. Proposed Exclusion Criteria for Prospectively Assigned 
Beneficiaries
    d. Proposed Timing of Prospective Assignment
    e. Proposals for Addressing Interactions Between Prospective and 
Retrospective Assignment Models
    f. Proposals for Determining Benchmark and Performance Year 
Expenditures Under Track 3
    g. Proposals for Risk Adjusting the Updated Benchmark for Track 
3 ACOs
    h. Proposals for Final Sharing/Loss Rate and Performance 
Payment/Loss Recoupment Limit Under Track 3
    i. Proposals for Minimum Savings Rate and Minimum Loss Rate in 
Track 3
    4. Seeking Comment on Ways To Encourage ACOs Participation in 
Performance-Based Risk Arrangements
    a. Payment Requirements and Program Requirements That May Need 
To Be Waived in Order To Carry Out the Shared Savings Program
    (1) SNF 3-Day Rule
    (2) Billing and Payment for Telehealth Services
    (3) Homebound Requirement Under the Home Health Benefit
    (4) Waivers for Referrals to Postacute Care Settings
    (5) Waiver of Other Payment Rules
    b. Other Options for Improving the Transition to Two-Sided 
Performance-Based Risk Arrangements
    (1) Beneficiary Attestation
    (2) Seeking Comment on a Step-Wise Progression for ACOs To Take 
on Performance-Based Risk
    5. Modifications to Repayment Mechanism Requirements
    a. Overview
    b. Proposals for Amount and Duration of the Repayment Mechanism
    c. Proposals Regarding Permissible Repayment Mechanisms
    6. Seeking Comment on Methodology for Establishing, Updating, 
and Resetting the Benchmark
    a. Background on Establishing, Updating, and Resetting the 
Benchmark
    (1) Background on Use of National Growth Rate as a Benchmark 
Trending Factor
    (2) Background on Use of National FFS Growth Factors in Updating 
the Benchmark During the Agreement Period
    (3) Background on Managing Changes to ACOs During the Agreement 
Period
    (4) Background on Resetting the Benchmark
    (5) Background on Stakeholders' Concerns About Benchmarking 
Methodology
    b. Factors To Use in Resetting ACO Benchmarks and Alternative 
Benchmarking Methodologies
    (1) Equally Weighting the Three Benchmark Years
    (2) Accounting for Shared Savings Payments in Benchmarks
    (3) Use of Regional Factors (as opposed to national factors) in 
Establishing and Updating Benchmarks
    (4) Alternative Benchmark Resetting Methodology: Hold the ACO's 
Historical Costs Constant Relative to Its Region
    (5) Alternative Benchmark Methodology: Transition ACOs to 
Benchmarks Based Only on Regional FFS Costs Over the Course of 
Multiple Agreement Periods
    (6) Seeking Comment on the Benchmarking Alternatives Considered 
and the Applicability of These Approaches
    7. Seeking Comment on Technical Adjustments to the Benchmark and 
Performance Year Expenditures
    G. Additional Program Requirements and Beneficiary Protections
    1. Background
    2. Public Reporting and Transparency
    a. Overview
    b. Proposed Revisions
    3. Terminating Program Participation
    a. Overview
    b. Proposed Revisions
    (1) Grounds for Termination
    (2) Close-Out Procedures and Payment Consequences of Early 
Termination
    (3) Reconsideration Review Process
    (A) Overview
    (B) Proposed Changes
    (4) Monitoring ACO Compliance With Quality Performance Standards
III. Collection of Information Requirements
IV. Response to Comments
V. Regulatory Impact Analysis
    A. Statement of Need
    B. Overall Impact
    C. Anticipated Effects
    1. Effects on the Medicare Program
    a. Assumptions and Uncertainties
    b. Detailed Stochastic Modeling Results
    c. Further Considerations
    2. Effects on Beneficiaries
    3. Effect on Providers and Suppliers
    4. Effect on Small Entities
    5. Effect on Small Rural Hospitals
    6. Unfunded Mandates
    D. Alternatives Considered
    E. Accounting Statement and Table
    F. Conclusion

Regulations Text

Acronyms

ACO Accountable Care Organization
BIPA Medicare, Medicaid, and SCHIP Benefits Improvement and 
Protection Act of 2000 (Pub. L. 106-554)
CAHs Critical Access Hospitals
CCM Chronic Care Management
CEHRT Certified Electronic Health Record Technology
CG-CAHPS Clinician and Group Consumer Assessment of Health Providers 
and Systems
CHIP Children's Health Insurance Program
CMP Civil Monetary Penalties
CMS Centers for Medicare & Medicaid Services
CNM Certified Nurse Midwife
CMS-HCC CMS Hierarchal Condition Category
CPT [Physicians] Current Procedural Terminology (CPT codes, 
descriptions and other data only are copyright 2013 American Medical 
Association. All rights reserved.)
CWF Common Working File
DHHS Department of Health and Human Services
DOJ Department of Justice
DRA Deficit Reduction Act of 2005 (Pub. L. 109-171)
DSH Disproportionate Share Hospital
DUA Data Use Agreement

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EHR Electronic Health Record
ESRD End Stage Renal Disease
ETA hospital Electing Teaching Amendment Hospital
FFS Fee-for-service
FQHCs Federally Qualified Health Centers
FTC Federal Trade Commission
GPCI Geographic Practice Cost Index
GPRO Group Practice Reporting Option
HCC Hierarchal Condition Category
HCPCS Healthcare Common Procedure Coding System
HICN Health Insurance Claim Number
HIPAA Health Insurance Portability and Accountability Act of 1996 
(Pub. L. 104-191)
HVBP Hospital Value-based Purchasing
IPA Independent Practice Association
IPPS Inpatient Prospective Payment System
IRS Internal Revenue Service
MA Medicare Advantage
MedPAC Medicare Payment Advisory Commission
MLR Minimum Loss Rate
MSP Medicare Secondary Payer
MSR Minimum Savings Rate
MU Meaningful Use
NCQA National Committee for Quality Assurance
NP Nurse Practitioner
NPI National Provider Identifier
NQF National Quality Forum
OIG Office of Inspector General
PA Physician Assistant
PACE Program of All Inclusive Care for the Elderly
PECOS Provider Enrollment, Chain, and Ownership System
PFS Physician Fee Schedule
PGP Physician Group Practice
PHI Protected Health Information
PPS Prospective Payment System
PQRS Physician Quality Reporting System
PRA Paperwork Reduction Act
PSA Primary Service Areas
RHCs Rural Health Clinics
RIA Regulatory Impact Analysis
SNFs Skilled Nursing Facilities
SSA Social Security Act
SSN Social Security Number
TIN Taxpayer Identification Number
VM Value Modifier

CPT (Current Procedural Terminology) Copyright Notice

    Throughout this proposed rule, we use CPT codes and descriptions to 
refer to a variety of services. We note that CPT codes and descriptions 
are copyright 2013 American Medical Association. All Rights Reserved. 
CPT is a registered trademark of the American Medical Association 
(AMA). Applicable Federal Acquisition Regulations (FARs) and Defense 
Federal Acquisition Regulations (DFARs) apply.

I. Executive Summary and Background

A. Executive Summary

1. Purpose
    Section 1899 of the Social Security Act (the Act) established the 
Medicare Shared Savings Program, which promotes accountability for a 
patient population, fosters coordination of items and services under 
parts A and B, and encourages investment in infrastructure and 
redesigned care processes for high quality and efficient health care 
service delivery. This proposed rule would make changes to the 
regulations that were promulgated in November 2011 to implement the 
Shared Savings Program in order to make refinements based on our 
experience with the program and to respond to concerns raised by 
stakeholders. Unless otherwise noted, these changes would be effective 
60 days after publication of the final rule. Application or 
implementation dates may vary, depending on the nature of the policy; 
however, we anticipate all of the final policies and methodological 
changes would be applied for the 2016 performance year for all 
participating organizations unless otherwise noted.
2. Summary of the Major Provisions
    This proposed rule is designed to codify existing guidance, reduce 
administrative burden and improve program function and transparency in 
the following areas: (1) Data-sharing requirements; (2) requirements 
for ACO participant agreements, the ACO application process, and our 
review of applications; (3) identification and reporting of ACO 
participants and ACO providers/suppliers, including managing changes to 
the list of ACO participants and ACO providers/suppliers; (4) 
eligibility requirements related to the ACO's number of beneficiaries, 
required processes, the ACO's legal structure and governing body, and 
its leadership and management structure; (5) modification to assignment 
methodology; (6) repayment mechanisms for ACOs in two-sided 
performance-based risk tracks; (7) alternatives to encourage 
participation in risk-based models; (8) ACO public reporting and 
transparency; (9) the ACO termination process; and (10) the 
reconsideration review process. To achieve these goals, we make the 
following proposed modifications to our current program rules:
     Clarify existing and establish new definitions of terms 
including an ACO participant, ACO provider/supplier, and ACO 
participation agreement.
     Add a process for ACOs to renew the participation 
agreement for an additional agreement period.
     Add, clarify, and revise the beneficiary assignment 
algorithm, including the following--
    ++ Update the CPT codes that would be considered to be primary care 
services as well as changing the treatment of certain physician 
specialties in the assignment process;
    ++ Include the claims for primary care services furnished by NP, 
PAs, and CNSs in Step 1 of the assignment algorithm; and
    ++ Clarify how primary care services furnished in federally 
qualified health centers (FQHCs), rural health clinics (RHCs), and 
electing teaching amendment (ETA) hospitals will be considered in the 
assignment process.
     Expand the kinds of beneficiary-identifiable data that 
would be provided to ACOs in various reports under the Shared Savings 
Program as well as simplify the claims data sharing opt-out process to 
improve the timeliness of access to claims data.
     Add or change policies to encourage greater ACO 
participation in risk-based models by--
    ++ Offering the opportunity for ACOs to continue participating 
under a one-sided participation agreement after their first 3-year 
agreement;
    ++ Reducing risk under Track 2; and
    ++ Adopting an alternative risk-based model referred to as Track 3 
which includes proposals for a higher sharing rate and prospective 
assignment of beneficiaries.
    In addition, we seek comment on a number of options that we have 
been considering in order to encourage ACOs to take on two-sided 
performance-based risk under the Shared Savings Program. We also seek 
comment on issues related to resetting the benchmark in a subsequent 
performance year and the use of statutory waiver authority to improve 
participation in two-sided risk models.
3. Summary of Costs and Benefits
    We assume that our proposals to ease the transition to risk, reduce 
risk under Track 2, and adopt an alternative risk-based model (Track 3) 
would result in increased participation in the Shared Savings Program. 
As shown in our impact analysis, we expect the proposed changes to 
result in a significant increase in total shared savings, while shared 
losses would decrease. Moreover, as participation in the Shared Savings 
Program continues to expand, we anticipate there would be a broader 
focus on care coordination and quality improvement among providers and 
suppliers within the Medicare program that would lead to both increased 
efficiency in the provision of care and improved quality of the care 
provided to beneficiaries.
    The proposed changes detailed in this rule would result in median 
estimated federal savings of $280 million greater than the $730 million 
median net

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savings estimated at baseline for calendar years (CYs) 2016 through 
2018. We estimate that the provisions of this proposed rule would 
result in a reduction in the median shared loss dollars by $140 million 
and an increase in the median shared savings payments by $320 million 
dollars relative to the baseline for CYs 2016 through 2018. The 
estimated aggregate average start up investment and 3 year operating 
costs if all proposals are finalized is approximately $441 million.

B. Background

    On March 23, 2010, the Patient Protection and Affordable Care Act 
(Pub. L. 111-148) was enacted, followed by enactment of the Health Care 
and Education Reconciliation Act of 2010 (Pub. L. 111-152) on March 30, 
2010, which amended certain provisions of Public Law 111-148. 
Collectively known as the Affordable Care Act, these public laws 
include a number of provisions designed to improve the quality of 
Medicare services, support innovation and the establishment of new 
payment models, better align Medicare payments with provider costs, 
strengthen Medicare program integrity, and put Medicare on a firmer 
financial footing.
    Section 3022 of the Affordable Care Act amended Title XVIII of the 
Act (42 U.S.C. 1395 et seq.) by adding new section 1899 to the Act to 
establish a Shared Savings Program. This program is a key component of 
the Medicare delivery system reform initiatives included in the 
Affordable Care Act and is a new approach to the delivery of health 
care. The purpose of the Shared Savings Program is to promote 
accountability for a population of Medicare beneficiaries, improve the 
coordination of FFS items and services, encourage investment in 
infrastructure and redesigned care processes for high quality and 
efficient service delivery, and promote higher value care. ACOs that 
successfully meet quality and savings requirements share a percentage 
of the achieved savings with Medicare. Under the Shared Savings 
Program, ACOs share in savings only if they meet both the quality 
performance standards and generate shareable savings. Consistent with 
the purpose of the Shared Savings Program, we focused on developing 
policies aimed at achieving the three-part aim consisting of: (1) 
Better care for individuals; (2) better health for populations; and (3) 
lower growth in expenditures.
    In the November 2, 2011 Federal Register (76 FR 67802), we 
published the final rule entitled ``Medicare Program; Medicare Shared 
Savings Program: Accountable Care Organizations'' (November 2011 final 
rule). We viewed this final rule as a starting point for the program, 
and because of the scope and scale of the program and our limited 
experience with shared savings initiatives under FFS Medicare, we built 
a great deal of flexibility into the program rules. We anticipated that 
subsequent rulemaking for the Shared Savings Program would be informed 
by lessons learned from our experience with the program as well as from 
testing through the Pioneer ACO Model and other initiatives conducted 
by the Center for Medicare and Medicaid Innovation (Innovation Center) 
under section 1115A of the Act.
    Over 330 organizations are now participating in the Shared Savings 
Program. We are gratified by stakeholder interest in this program. In 
the November 2011 final rule (76 FR 67805), we stated that we intended 
to assess the policies for the Shared Savings Program and models being 
tested by the Innovation Center to determine how well they were working 
and if there were any modifications that would enhance them. As 
evidenced by the high degree of interest in participation in the Shared 
Savings Program, we believe that the policies adopted in the November 
2011 final rule are generally well-accepted. However, we have 
identified several policy areas we would like to revisit in light of 
the additional experience we have gained during the first 2 years of 
program implementation.
    We note that in developing the Shared Savings Program, and in 
response to stakeholder suggestions, we worked very closely with 
agencies across the federal government to develop policies to encourage 
participation in the program and to ensure a coordinated inter- and 
intra-agency program implementation. The result of this effort was the 
release of several documents regarding the application of other 
relevant laws and regulations to ACOs. These documents are described in 
more detail in section II.C.5. of the November 2011 final rule (76 FR 
67840) and include: (1) A joint CMS and DHHS OIG interim final rule 
with comment period establishing waivers of the application of the 
physician self-referral law, the Federal anti-kickback statute, and 
certain civil monetary penalties (CMP) law provisions for specified 
arrangements involving ACOs participating in the Shared Savings Program 
(76 FR 67992); (2) an Internal Revenue Service (IRS) notice (Notice 
2011-20) and fact sheet (FS-2011-11) issued in response to comments 
regarding the need for additional tax guidance for tax-exempt 
organizations, including tax-exempt hospitals, that may participate in 
the Shared Savings Program (see Notice 2011-20 at www.irs.gov//pub/irs-drop/n-11-20.pdf and FS-2011-11 at www.irs.gov/pub/irs-news/fs-2011-11.pdf); and (3) a final Statement of Antitrust Enforcement Policy 
Regarding Accountable Care Organizations Participating in the Shared 
Savings Program issued jointly by the FTC and DOJ (collectively, the 
Antitrust Agencies) and published in the October 28, 2011 Federal 
Register (76 FR 67026). We have continued working with these agencies 
as we have implemented this program and believe that these materials 
continue to offer valuable information regarding a number of issues of 
great importance both to our implementation of the Shared Savings 
Program and to the entities that participate in the program. We 
encourage ACOs and other stakeholders to review and comply with the 
referenced documents. Documents can be accessed through the links on 
our Web site at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/sharedsavingsprogram/Statutes_Regulations_Guidance.html.

II. Provisions of This Proposed Rule

    The purpose of this proposed rule is to propose revisions to some 
key policies adopted in the November 2011 final rule (76 FR 67802), to 
incorporate in our regulations certain guidance that we have issued 
since the Shared Savings Program was established, and to propose 
regulatory additions to support program compliance and growth. Our 
intent is to encourage continued and enhanced stakeholder 
participation, to reduce administrative burden for ACOs while 
facilitating their efforts to improve care outcomes, and to maintain 
excellence in program operations while bolstering program integrity.

A. Definitions

    In the November 2011 final rule (76 FR 67802), we adopted 
definitions of key terms for purposes of the Shared Savings Program at 
Sec.  425.20. These terms are used throughout this proposed rule. We 
encourage readers to review these definitions. Based on our experiences 
thus far with the Shared Savings Program and inquiries we received 
regarding the defined terms, we propose some additions to the 
definitions and a few revisions to the existing definitions.
1. Proposed Definitions
    We propose to add several new terms to the definitions in Sec.  
425.20. First, we propose to add a definition of ``participation 
agreement.'' Specifically,

[[Page 72764]]

we propose to define the term to mean the written agreement required 
under Sec.  425.208(a) between the ACO and CMS that, along with the 
regulations at part 425, governs the ACO's participation in the Shared 
Savings Program. We further propose to make conforming changes 
throughout part 425, replacing references to an ACO's agreement with 
CMS with the defined term ``participation agreement.'' In addition, we 
propose to make a conforming change in Sec.  425.204(c)(1)(i) to remove 
the incorrect reference to ``participation agreements'' and replace it 
with ``ACO participant agreements.''
    Second, we propose to add the related definition of ``ACO 
participant agreement.'' Specifically, we propose to define ``ACO 
participant agreement'' to mean the written agreement between an ACO 
and an ACO participant required at Sec.  425.116 in which the ACO 
participant agrees to participate in, and comply with, the requirements 
of the Shared Savings Program.
    Third, as discussed in greater detail in section II.F. of this 
proposed rule, we propose to add a definition for ``assignment 
window,'' to mean the 12-month period used to assign beneficiaries to 
an ACO.
2. Proposed Revisions to Existing Definitions
a. Definition of ACO Participant
    The current definition of ``ACO participant'' states that an ``ACO 
participant means an individual or group of ACO provider(s)/
supplier(s), that is identified by a Medicare-enrolled TIN, that alone 
or together with one or more other ACO participants comprise(s) an ACO, 
and that is included on the list of ACO participants that is required 
under Sec.  425.204(c)(5).'' Based on inquiries we have received since 
the publication of November 2011 final rule, we believe that there has 
been some confusion as to the distinction between an ACO participant 
and an ACO provider/supplier. The key point is that an ACO participant 
is an entity, not a practitioner, identified by a Medicare-enrolled TIN 
(that is, a TIN that is used to bill Medicare for services furnished to 
Medicare fee-for-service beneficiaries). An ACO participant may be 
composed of one or more ACO providers/suppliers whose services are 
billed under a Medicare billing number assigned to the TIN of the ACO 
participant. Additionally, we emphasize that the ACO is responsible for 
ensuring that all individuals and entities that have reassigned the 
right to receive Medicare payment to the TIN of the ACO participant 
have also agreed to be ACO providers/suppliers.
    We propose to revise the definition of ``ACO participant'' to 
clarify that an ACO participant is an entity identified by a Medicare-
enrolled TIN. Additionally, we are correcting a grammatical error by 
revising the definition to indicate that one or more ACO participants 
``compose,'' rather than ``comprise'' an ACO. We note that a related 
grammatical error is corrected at Sec.  425.204(c)(iv). These proposed 
changes to the definition of ``ACO participant'' are not intended to 
alter the way the Shared Savings Program currently operates.
b. Definition of ACO Professional
    Under the current definition at Sec.  425.20, an ``ACO 
professional'' means an ACO provider/supplier who is either of the 
following:
     A physician legally authorized to practice medicine and 
surgery by the State in which he performs such function or action.
     A practitioner who is one of the following:
    ++ A physician assistant (as defined at Sec.  410.74(a)(2)).
    ++ A nurse practitioner (as defined at Sec.  410.75(b)).
    ++ A clinical nurse specialist (as defined at Sec.  410.76(b)).
    We propose to revise the definition of ACO professional to remove 
the requirement that an ACO professional be an ACO provider/supplier. 
We also propose to revise the definition of ACO professional to 
indicate that an ACO professional is an individual who bills for items 
or services he or she furnishes to Medicare fee-for-service 
beneficiaries under a Medicare billing number assigned to the TIN of an 
ACO participant in accordance with Medicare regulations. We are 
proposing these modifications because there may be ACO professionals 
who furnished services billed through an ACO participant's TIN in the 
benchmarking years but are no longer affiliated with the ACO 
participant and therefore are not furnishing services billed through 
the TIN of the ACO participant during the performance years. These 
proposed changes to the definition of ``ACO professional'' are not 
intended to alter the way the Shared Savings Program currently 
operates.
c. Definition of ACO Provider/Supplier
    Under the current definition at Sec.  425.20, an ``ACO provider/
supplier'' means an individual or entity that--(1) is a provider (as 
defined at Sec.  400.202) or a supplier (as defined at Sec.  400.202); 
(2) is enrolled in Medicare; (3) bills for items and services it 
furnishes to Medicare fee-for-service beneficiaries under a Medicare 
billing number assigned to the TIN of an ACO participant in accordance 
with applicable Medicare regulations; and (4) is included on the 
certified list of ACO providers/suppliers that is submitted by the ACO. 
We propose to modify the definition to clarify that an individual or 
entity is an ACO provider/supplier only when it bills for items and 
services furnished to Medicare FFS beneficiaries during the agreement 
period under a Medicare billing number assigned to the TIN of an ACO 
participant and is included on the list of ACO providers/suppliers that 
is required under the proposed regulation at Sec.  425.118. We do not 
believe that an individual or entity that may previously have 
reassigned the right to receive Medicare payment to an ACO participant, 
but that is not participating in the activities of the ACO by 
furnishing care to Medicare FFS beneficiaries that is billed through 
the TIN of an ACO participant during the ACO's agreement period, should 
be considered to be an ACO provider/supplier. Thus, this modification 
is intended to clarify that a provider or supplier must bill for items 
or services furnished to Medicare FFS beneficiaries through the TIN of 
an ACO participant during the ACO's agreement period in order to be an 
ACO provider/supplier.
d. Definition of Assignment
    Under the current definition at Sec.  425.20, ``assignment'' means 
``the operational process by which CMS determines whether a beneficiary 
has chosen to receive a sufficient level of the requisite primary care 
services from a physician who is an ACO provider/supplier so that the 
ACO may be appropriately designated as exercising basic responsibility 
for that beneficiary's care.'' As discussed previously in this section, 
we are proposing to modify the definition of ``ACO professional'' to 
remove the requirement that an ACO professional be an ACO provider/
supplier. Similarly, we believe that for purposes of defining 
assignment, it is more appropriate to use the term ``ACO 
professional,'' as revised, than the term ``ACO provider/supplier'' 
because a physician or other practitioner can only be an ACO provider/
supplier if he or she bills for items and services through the TIN of 
an ACO participant during the ACO's agreement period and is included on 
the list of ACO providers/suppliers required under our regulations. 
However, as we discussed previously, there may be an ACO professional 
who furnished services billed through an ACO participant's TIN

[[Page 72765]]

in the benchmarking years but is no longer billing through the ACO 
participant's TIN during the performance years and therefore cannot be 
considered an ACO provider/supplier. For example, a practitioner that 
retired before the ACO entered into a participation agreement with CMS 
and is no longer billing through the TIN of an ACO participant, and 
therefore was not included on the ACO provider/supplier list is not an 
ACO provider/supplier. Nevertheless, the services furnished by this ACO 
professional and billed through the TIN of an ACO participant would be 
considered for purposes of determining beneficiary assignment to the 
ACO during the benchmarking period.
    In the interests of clarity, we therefore propose to modify the 
definition of assignment to reflect that our assignment methodology 
takes into account claims for primary care services furnished by ACO 
professionals, not solely claims for primary care services furnished by 
physicians in the ACO. This revision will ensure consistency with 
program operations and alignment with the definition of ``ACO 
professional'' since it is the aggregation of the ACO professionals' 
claims that impacts assignment. Consistent with section 1899(c) of the 
Act, a beneficiary must have at least one primary care service 
furnished by a physician in the ACO in order to be eligible for 
assignment to the ACO, and this is reflected in the assignment 
methodology articulated under subpart E of the Shared Savings Program 
regulations. Once a beneficiary is determined to be eligible for 
assignment, the beneficiary is then assigned to the ACO if its ACO 
professionals have rendered the plurality of primary care services for 
the beneficiary as determined under the stepwise assignment methodology 
in Sec.  425.402. Thus, we believe the proposed modification to the 
definition of ``assignment'' would more accurately reflect the use of 
claims for primary care services furnished by ACO professionals that 
are submitted through an ACO participant's TIN in determining 
beneficiary assignment in the ACO's benchmark and performance years.
    Additionally, we propose to make conforming changes as necessary to 
the regulations governing the assignment methodology in subpart E of 
part 425, to revise the references to ``ACO provider/supplier'' to read 
``ACO professional.''
e. Definition of Hospital
    We are proposing a technical revision to the definition of 
``hospital'' for purposes of the Shared Savings Program. Section 
1899(h)(2) of the Act provides that, for purposes of the Shared Savings 
Program, the term ``hospital'' means a subsection (d) hospital as 
defined in section 1886(d)(1)(B) of the Act. In the November 2011 final 
rule (76 FR 67812), we stated that this statutory definition of 
hospital thus limits: ''. . . the definition to include only acute care 
hospitals paid under the hospital inpatient prospective payment system 
(IPPS).'' Consistent with this interpretation, we proposed and 
finalized the following definition of ``hospital'' for purposes of the 
Shared Savings Program at Sec.  425.20: ``Hospital means a hospital 
subject to the prospective payment system specified in Sec.  
412.1(a)(1) of this chapter.''
    Under this regulatory definition, Maryland acute care hospitals 
would not be considered to be hospitals for purposes of the Shared 
Savings Program because hospitals in the state of Maryland are subject 
to a waiver from the Medicare payment methodologies under which they 
would otherwise be paid. However, we have taken the position in other 
contexts, for example, for purposes of electronic health record (EHR) 
incentive payments (75 FR 44448) and in the FY 2014 IPPS final rule (78 
FR 50623), that Maryland acute care hospitals remain subsection (d) 
hospitals. This is because these hospitals are ``located in one of the 
fifty states or the District of Columbia'' (as provided in the 
definition of subsection (d) hospitals at section 1886(d)(1)(B) of the 
Act) and are not hospitals that are specifically excluded from that 
category, such as cancer hospitals and psychiatric hospitals.
    Therefore, we propose to revise the definition of ``hospital'' for 
purposes of the Shared Savings Program to provide that a ``hospital'' 
means a hospital as defined in section 1886(d)(1)(B) of the Act. The 
proposed regulation text is consistent with both the statutory 
definition of ``hospital'' for purposes of the Shared Savings Program 
in section 1899(h)(2) of the Act and the position we have taken in 
other contexts in referring to subsection (d) hospitals. The effect of 
this change is to clarify that a Maryland acute care hospital is a 
``hospital'' for purposes of the Shared Savings Program.
f. Definition of Primary Care Services
    We propose to modify the definition of ``primary care services.'' 
We refer the reader to section II.E.3. of this proposed rule for a more 
detailed discussion of the proposed revision to this definition, which 
is relevant to the assignment of a Medicare beneficiary to an ACO.
g. Definitions of ``Continuously Assigned Beneficiary'' and ``Newly 
Assigned Beneficiary''
    As discussed in greater detail in section II.F.3.b. of this 
proposed rule, we propose revisions to the definitions of 
``continuously assigned beneficiary'' and ``newly assigned 
beneficiary.'' These definitions relate to risk adjustment for the 
assigned population and require minor modification to accommodate the 
newly proposed Track 3.
h. Definition of Agreement Period
    In connection with our discussion of the applicability of certain 
changes that are made to program requirements during the agreement 
period, we propose revisions to the definition of ``agreement period.'' 
Readers should refer to section II.C.4. of this proposed rule for a 
discussion of the proposed changes to the definition.

B. ACO Eligibility Requirements

1. Agreement Requirements
a. Overview
    Section 1899(b)(2)(B) of the Act requires participating ACOs to 
``enter into an agreement with the Secretary to participate in the 
program for not less than a 3-year period.'' If the ACO is approved for 
participation in the Shared Savings Program, an executive who has the 
ability to legally bind the ACO must sign and submit a participation 
agreement to CMS (Sec.  425.208(a)(1)). Under the participation 
agreement with CMS, the ACO agrees to comply with the regulations 
governing the Shared Savings Program (Sec.  425.208(a)(2)). In 
addition, the ACO must require its ACO participants, ACO providers/
suppliers, and other individuals or entities performing functions or 
services related to the ACO's activities to agree to comply with the 
Shared Savings Program regulations and all other applicable laws and 
regulations (Sec.  425.208(b) and Sec.  425.210(b)). The ACO must 
provide a copy of its participation agreement with CMS to all ACO 
participants, ACO providers/suppliers, and other individuals and 
entities involved in ACO governance (Sec.  425.210(a)). As part of its 
application, we currently require each ACO to submit a sample of the 
agreement it executes with each of its ACO participants (the ``ACO 
participant agreement''). Also, as part of its application and when 
requesting the addition of new ACO participants, we require an ACO to 
submit evidence that it has a signed written agreement with each of its 
ACO participants. (See guidance on our Web site at http://

[[Page 72766]]

www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/
sharedsavingsprogram/Downloads/
Memo_Additional_Guidance_on_ACO_Participants.pdf.) An ACO's application 
to participate in the Shared Savings Program and any subsequent request 
to add new ACO participants will not be approved if the ACO does not 
have an agreement in place with each of its ACO participants in which 
each ACO participant agrees to participate in the Shared Savings 
Program and to comply with the requirements of the Shared Savings 
Program.
    In our review of applications to participate in the Shared Savings 
Program, we received many ACO participant agreements that were not 
properly executed, were not between the correct parties, lacked the 
required provisions, contained incorrect information, or failed to 
comply with Sec.  425.304(c) relating to the prohibition on certain 
required referrals and cost shifting. When we identified such 
agreements, ACOs experienced processing delays, and in some cases, we 
were unable to approve the ACO applicant and/or its ACO participant to 
participate in the Shared Savings Program. Consequently, we issued 
guidance for ACO applicants in which we reiterated the required 
elements for ACO participant agreements and strongly recommended that 
ACOs employ good contracting practices to ensure that each of their ACO 
participant agreements met our requirements (see http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/sharedsavingsprogram/Downloads/Tips-ACO-Developing-Participant-Agreements.pdf).
    The ACO participant agreements are necessary for purposes of 
program transparency and to ensure an ACO's compliance with program 
requirements. Moreover, many important program operations (including 
calculation of shared savings, assignment of beneficiaries, and 
financial benchmarking), use claims and other information that are 
submitted to CMS by the ACO participant. Our guidance clarified that 
ACO participant agreements and any agreements with ACO providers/
suppliers must contain the following:
     An explicit requirement that the ACO participant or the 
ACO provider/supplier will comply with the requirements and conditions 
of the Shared Savings Program (part 425), including, but not limited 
to, those specified in the participation agreement with CMS.
     A description of the ACO participants' and ACO providers'/
suppliers' rights and obligations in and representation by the ACO.
     A description of how the opportunity to get shared savings 
or other financial arrangements will encourage ACO participants and ACO 
providers/suppliers to follow the quality assurance and improvement 
program and evidence-based clinical guidelines.
     Remedial measures that will apply to ACO participants and 
ACO providers/suppliers who do not comply with the requirements of 
their agreements with the ACO.
    Our guidance also requires that the ACO participant agreements be 
made directly between the ACO and the ACO participant. We believe it is 
important that the parties entering into the agreement have a direct 
legal relationship to ensure that the requirements of the agreement are 
fully and directly enforceable by the ACO, including the ability of the 
ACO to terminate an agreement with an ACO participant that is not 
complying with the requirements of the Shared Savings Program. 
Additionally, a direct legal relationship ensures that the ACO 
participant may, if necessary, terminate the agreement with the ACO 
according to the terms of the agreement without interrupting other 
contracts or agreements with third parties. Therefore, the ACO and the 
ACO participant must be the only parties to an ACO participant 
agreement; the agreements may not include a third party to the 
agreement. For example, the agreement may not be between the ACO and 
another entity, such as an independent practice association (IPA) or 
management company that in turn has an agreement with one or more ACO 
participants. Similarly, existing contracts between ACOs and ACO 
participants that include third parties should not be used.
    We recognize that there are existing contractual agreements between 
entities (for example, contracts that permit organizations like IPAs to 
negotiate contracts with health care payers on behalf of individual 
practitioners). However, because it is important to ensure that there 
is a direct legal relationship between the ACO and the ACO participant 
evidenced by a written agreement, and because ACO participants continue 
to bill and receive payments as usual under the Medicare FFS rules 
(that is, there is no negotiation for payment under the program) we 
believe that typical IPA contracts are generally inappropriate and 
unnecessary for purposes of participation in the Shared Savings 
Program. An ACO and ACO participant may use a contract unrelated to the 
Shared Savings Program as an ACO participant agreement only when it is 
between the two parties and is amended to satisfy the requirements for 
ACO participant agreements under the Shared Savings Program.
    It is the ACO's responsibility to make sure that each ACO 
participant agreement identifies the parties entering into the 
agreement using their correct legal names, specifies the term of the 
agreement, and is signed by both parties to the agreement. We validate 
the legal names of the parties based on information the ACO submitted 
in its application and the legal name of the entity associated with the 
ACO participant's TIN in the Provider Enrollment Chain & Ownership 
System (PECOS). We reject an ACO participant agreement if the party 
names do not match our records. It may be necessary for the ACO to 
execute a new or amended ACO participant agreement.
    Although the ACO participant must ensure that each of its ACO 
providers/suppliers (as identified by a National Provider Identifier 
(NPI)) has agreed to participate in the ACO and will comply with 
program rules, the ACO has the ultimate responsibility for ensuring 
that all the ACO providers/suppliers that bill through the TIN of the 
ACO participant (that is, reassign their right to receive Medicare 
payment to the ACO participant) have also agreed to participate in the 
Shared Savings Program and comply with our program regulations. The ACO 
may ensure this by directly contracting with each ACO provider/supplier 
(NPI) or by contractually requiring the ACO participant to ensure that 
all ACO providers/suppliers that bill through its TIN have agreed to 
participate in, and comply with the requirements of, the Shared Saving 
Program. If the ACO chooses to contract directly with the ACO 
providers/suppliers, the agreements must meet the same requirements as 
the agreements with ACO participants. We emphasize that even if an ACO 
chooses to contract directly with the ACO providers/suppliers (NPIs), 
it must still have the required ACO participant agreement. In other 
words, the ACO must be able to produce valid written agreements for 
each ACO participant and each ACO provider/supplier. Furthermore, since 
we use TINs (and not merely some of the NPIs that make up the entity 
identified by a TIN) 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

[[Page 72767]]

enrolled providers and suppliers billing under that entity's TIN have 
agreed to participate in the ACO as ACO providers/suppliers.
    To illustrate the requirement that all ACO providers/suppliers must 
agree to participate in and comply with the terms of the Shared Savings 
Program before the ACO can include the ACO participant's TIN on its 
list of ACO participants, we offer the following scenarios that 
describe when an ACO participant's TIN may and may not be included on 
the applicant's ACO participant list:
    Correct: A large group practice (Medicare-enrolled TIN) decides to 
participate in an ACO as an ACO participant. Its owner signs an 
agreement with the ACO on behalf of the practice to participate in the 
program and follow program regulations. Also, all practitioners that 
have reassigned their right to receive Medicare payments to the TIN of 
the large group practice have also agreed to participate and follow 
program regulations. Therefore, the ACO may include this group practice 
TIN on its list of ACO participants.
    Incorrect: A large group practice (Medicare-enrolled TIN) decides 
to participate in an ACO as an ACO participant. Its owner signs an 
agreement to participate in the program and follow program regulations. 
However, not all practitioners that have reassigned their right to 
receive Medicare payment to the group practice TIN have agreed to 
participate in the ACO and follow Shared Savings Program regulations. 
Therefore, the ACO may not include this group practice TIN on its list 
of ACO participants.
    Incorrect: Several practitioners in a large group practice 
(Medicare-enrolled TIN) decide to participate in an ACO. However, the 
group practice as a whole has not agreed to participate in the program. 
Therefore, the ACO may not include this group practice TIN on its list 
of ACO participants.
    We propose to codify much of our guidance regarding the content of 
the ACO participant and ACO provider/supplier agreements.
b. Proposed Revisions
    First, we propose to add new Sec.  425.116 to set forth the 
requirements for agreements between an ACO and an ACO participant or 
ACO provider/supplier. We believe the new provision would promote a 
better general understanding of the Shared Savings Program and 
transparency for ACO participants and ACO providers/suppliers. It is 
our intent to provide requirements that would facilitate and enhance 
the relationships between ACOs and ACO participants, and reduce 
uncertainties and misunderstandings leading to rejection of ACO 
participant agreements during application review. Specifically, we 
propose to require that ACO participant agreements satisfy the 
following criteria:
     The ACO and the ACO participant are the only parties to 
the agreement.
     The agreement must be signed on behalf of the ACO and the 
ACO participant by individuals who are authorized to bind the ACO and 
the ACO participant, respectively.
     The agreement must expressly require the ACO participant 
to agree, and to ensure that each ACO provider/supplier billing through 
the TIN of the ACO participant agrees, to participate in the Shared 
Savings Program and to comply with the requirements of the Shared 
Savings Program and all other applicable laws and regulations 
(including, but not limited to, those specified at Sec.  425.208(b)).
     The agreement must set forth the ACO participant's rights 
and obligations in, and representation by, the ACO, including without 
limitation, the quality reporting requirements set forth in Subpart F, 
the beneficiary notification requirements set forth at Sec.  425.312, 
and how participation in the Shared Savings Program affects the ability 
of the ACO participant and its ACO providers/suppliers to participate 
in other Medicare demonstration projects or programs that involve 
shared savings.
     The agreement must describe how the opportunity to receive 
shared savings or other financial arrangements will encourage the ACO 
participant to adhere to the quality assurance and improvement program 
and evidence-based medicine guidelines established by the ACO.
     The agreement must require the ACO participant to update 
enrollment information with its Medicare contractor using the PECOS, 
including the addition and deletion of ACO professionals billing 
through the TIN of the ACO participant, on a timely basis in accordance 
with Medicare program requirements. The Agreement must also require ACO 
participants to notify the ACO within 30 days after any addition or 
deletion of an ACO provider/supplier.
     The agreement must permit the ACO to take remedial action 
against the ACO participant, and must require the ACO participant to 
take remedial action against its ACO providers/suppliers, including 
imposition of a corrective action plan, denial of shared savings 
payments (that is, the ability of the ACO participant or ACO provider/
supplier to receive a distribution of the ACO's shared savings) and 
termination of the ACO participant agreement, to address noncompliance 
with the requirements of the Shared Savings Program and other program 
integrity issues, including those identified by CMS.
     The term of the agreement must be for at least 1 
performance year and must articulate potential consequences for early 
termination from the ACO.
     The agreement must require completion of a close-out 
process upon the termination or expiration of the ACO's participation 
agreement that requires the ACO participant to furnish data necessary 
to complete the annual assessment of the ACO's quality of care and 
addresses other relevant matters.
    Although we propose that the term of an ACO participant agreement 
be for at least 1 performance year, we do not intend to prohibit early 
termination of the agreement. We recognize that there may be legitimate 
reasons to terminate an ACO participant agreement. However, because 
care coordination and quality improvement requires commitment from ACO 
participants, we believe this requirement would improve the likelihood 
of success in the Shared Savings Program. We are also considering 
whether and how ACO participant agreements should encourage 
participation to continue for subsequent performance years. We seek 
comment on this issue.
    In the case of an ACO that chooses to contract directly with its 
ACO providers/suppliers, we propose virtually identical requirements 
for its agreements with ACO providers/suppliers. We note that 
agreements with ACO providers/suppliers would not be required to be for 
a term of 1 year, because we do not want to impede individual 
practitioners from activities such as retirement, reassignment of 
billing rights, or changing employers. In the case of ACO providers/
suppliers that do not have a contract directly with the ACO, we are 
considering requiring each ACO to ensure that its ACO participants 
contract with or otherwise arrange for the services of its ACO 
providers/suppliers on the same or similar terms as those required for 
contracts made directly between the ACO and ACO providers/suppliers.
    In addition, we propose to add at Sec.  425.204(c)(6) a requirement 
that, as part of the application process and upon request thereafter, 
the ACO must submit documents demonstrating that its ACO participants, 
ACO providers/suppliers, and other individuals or entities performing 
functions or services related to ACO activities are required to comply

[[Page 72768]]

with the requirements of the Shared Savings Program. In the case of ACO 
participants, the evidence to be submitted must, consistent with our 
past guidance, include executed agreements or sample form agreements 
together with the first and last (signature) page of each form 
agreement that has been fully executed by the parties to the agreement. 
However, we reserve the right, to request all pages of an executed ACO 
participant agreement to confirm that it conforms to the sample form 
agreement submitted by the ACO. We further propose at Sec.  425.116(c) 
that executed ACO participant agreements must also be submitted when an 
ACO seeks approval to add new ACO participants. The agreements may be 
submitted in the same form and manner as set forth in Sec.  
425.204(c)(6). Finally, although we would not routinely request an ACO 
to submit copies of executed agreements with its ACO providers/
suppliers or other individuals or entities performing functions or 
services related to ACO activities as part of the ACO's application or 
continued participation in each performance year, we reserve our right 
to request this information during the application or renewal process 
and at any other time for audit or monitoring purposes in accordance 
with Sec.  425.314 and Sec.  425.316.
    We believe that the proposed requirements regarding agreements 
between ACOs and ACO participants, together with our earlier guidance 
regarding good contracting practices, would enhance transparency 
between the ACO, ACO participants, and ACO professionals, reduce 
turnover among ACO participants, prevent misunderstandings related to 
participation in the Shared Savings Program, and assist prospective 
ACOs in submitting complete applications and requests for adding ACO 
participants. We believe that codifying these requirements would assist 
the ACO, ACO participants, and ACO providers/suppliers in better 
understanding the program and their rights and responsibilities while 
participating in the program. We solicit comment on the proposed new 
requirements and on whether there are additional elements that should 
be considered for inclusion in the agreements the ACO has with its ACO 
participants and ACO providers/suppliers.
2. Sufficient Number of Primary Care Providers and Beneficiaries
a. Overview
    Section 1899(b)(2)(D) of the Act requires participating ACOs to 
``include primary care ACO professionals that are sufficient for the 
number of Medicare fee-for-service beneficiaries assigned to the ACO . 
. .'' and that at a minimum, ``the ACO must have at least 5,000 such 
beneficiaries assigned to it. . . .'' Under Sec.  425.110(a)(2) of the 
regulations, an ACO is deemed to have initially satisfied the 
requirement to have at least 5,000 assigned beneficiaries if the number 
of Medicare beneficiaries historically assigned to the ACO participants 
in each of the 3 years before the start of the agreement period is 
5,000 or more.
    Under the beneficiary assignment methodology set forth in the 
regulations at part 425, subpart E, the assignment of beneficiaries to 
a particular ACO for a calendar year is dependent upon a number of 
factors, including where the beneficiary elected to receive primary 
care services and whether the beneficiary received primary care 
services from ACO professionals participating in one or more Shared 
Savings Program ACOs. We note that to ensure no duplication in shared 
savings payments for care provided to the same beneficiaries, 
assignment of a beneficiary may also be dependent on whether the 
beneficiary has been assigned to another initiative involving shared 
savings, such as the Pioneer ACO Model (Sec.  425.114(c)). While a 
final assignment determination can be made for the first 2 benchmark 
years (BY1 and BY2, respectively) for an ACO applying to participate in 
the Shared Savings Program, it is not possible to determine the final 
assignment for the third benchmark year (BY3) (that is, the calendar 
year immediately prior to the start of the agreement period) because 
application review and determination of whether the ACO has met the 
required 5,000 assignment must take place during BY3 before all claims 
are submitted for the calendar year. Further, there is a lag period 
after the end of a calendar year during which additional claims for the 
year are billed and processed. Therefore, the final historical 
benchmark for the 3-year period and the preliminary prospective 
assignment for PY1 must be determined after the ACO's agreement period 
has already started. We note that we currently estimate the number of 
historically assigned beneficiaries for the third benchmark year for 
Tracks 1 and 2 by using claims with dates of service for the last 3 
months of benchmark year 2 (October through December) and the first 9 
months of benchmark year 3 (January through September, with up to 3 
months claims run out, as available). We use this approach to calculate 
the number of assigned beneficiaries for BY3 in order to be as 
consistent as possible with the timeframes (that is, 12 month period) 
and claims run out used for the BY1 and BY2 calculations.
    Section 425.110(b) provides that an ACO that falls below 5,000 
assigned beneficiaries at any time during the agreement period will be 
allowed to continue in the program, but CMS must issue a warning letter 
and place the ACO on a CAP. The purpose of this provision is to ensure 
that the ACO is aware that its number of assigned beneficiaries is 
below 5,000, is notified of the consequences of remaining under 5,000, 
and that the ACO is taking appropriate steps to correct the deficiency.
    Section 425.110(b)(1) provides that, while under the CAP, the ACO 
will remain eligible to share in savings for the performance year in 
which it fell below the 5,000, and the MSR will be adjusted according 
to the number of assigned beneficiaries determined at the time of 
reconciliation. For example, according to Table 6 in the November 2011 
final rule (42 FR 67928), a Track 1 ACO with an assigned population of 
5,000 would have an MSR of 3.9. 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 (Sec.  425.110(b)(2)).
b. Proposed Revisions
    First, we propose to revise Sec.  425.110(a)(2) to clarify the data 
used during the application review process to estimate the number of 
beneficiaries historically assigned in each of the 3 years of the 
benchmarking period. Specifically, we propose that the number of 
assigned beneficiaries would be calculated for each benchmark year 
using the assignment methodology set forth in Subpart E of part 425, 
and in the case of BY3, we would use the most recent data available 
with up to a 3-month claims run out to estimate the number of assigned 
beneficiaries. This proposed revision would reflect current operational 
processes under which we assign beneficiaries to ACOs using complete 
claims data for BY1 and BY2 but must rely on incomplete claims data for 
BY3. We would likely continue to

[[Page 72769]]

estimate the number of historically assigned beneficiaries for the 
third benchmark year by using claims with dates of service for the last 
3 months of BY2 and the first 9 months of BY3, with up to 3 months 
claims run out. However, that could vary from year to year depending on 
data availability during the application review process. As discussed 
previously, we believe that using this approach to calculate the number 
of assigned beneficiaries for BY3 is consistent with the timeframes and 
claims run out used for BY1 and BY2 calculations because we would be 
using a full 12 months of claims, rather than the only available claims 
for the calendar year, which would be less than 12 months.
    The estimates of the number of assigned beneficiaries would be used 
during the ACO application review process to determine whether the ACO 
exceeds the 5,000 assigned beneficiary threshold for each year of the 
historical benchmark period. If based upon these estimates, we 
determine that an ACO had at least 5,000 assigned beneficiaries in each 
of the benchmark years, it would be deemed to have initially satisfied 
the eligibility requirement that the ACO have at least 5,000 assigned 
beneficiaries. The specific data to be used for computing these initial 
estimates during the ACO application review process would be designated 
through program instructions and guidance. Although unlikely, it is 
possible that when final benchmark year assignment numbers are 
generated after the ACO has been accepted into the program, the number 
of assigned beneficiaries could be below 5,000. In this event, the ACO 
will be allowed to continue in the program, but may be subject to the 
actions set forth in Sec.  425.110(b).
    Second, given our experience with the program and the timing of 
performance year determinations regarding beneficiary assignment 
provided during reconciliation, we wish to modify our rules to provide 
greater flexibility to address situations in which an ACO's assigned 
beneficiary population falls below 5,000 assigned beneficiaries. 
Specifically, we have concerns that in some cases it may be very 
difficult for an ACO to increase its number of assigned beneficiaries 
by the end of the next performance year, as currently required by Sec.  
425.110(b)(2). For example, assume an ACO with a start date of January 
2013 were to get its third quarterly report for PY1 in November or 
December 2013, and the report indicated that the ACO's preliminary 
prospectively assigned beneficiary population had fallen below 5,000. 
Under our current regulations, we would send the ACO a warning letter 
and place the ACO on a CAP. If the ACO were to fail to increase its 
assigned beneficiary population to at least 5,000 by the end of the 
next performance year (PY2), it would be terminated. We note that 
increasing the number of assigned beneficiaries generally involves 
adding new ACO participants and/or ACO providers/suppliers. However, in 
the previous example, by the time the ACO had been notified that its 
assigned beneficiary population had fallen below 5,000 beneficiaries, 
it would have been too late for the ACO to add new ACO participants for 
PY2, leaving the ACO with more limited options for timely correction of 
the deficit. We believe that Sec.  425.110(b) should be modified to 
provide ACOs with adequate time to successfully complete a CAP. 
Therefore, we propose to revise Sec.  425.110(b)(2) to state that CMS 
will specify in its request for a CAP the performance year during which 
the ACO's assigned population must meet or exceed 5,000 beneficiaries. 
This modification would permit some flexibility for ACOs whose assigned 
populations fall below 5,000 late in a performance year to take 
appropriate actions to address the deficit.
    Additionally, we do not believe it is necessary to request a CAP 
from every ACO whose assigned beneficiary population falls below 5,000. 
For example, we should have the discretion not to impose a CAP when the 
ACO has already submitted a request to add ACO participants effective 
at the beginning of the next performance year and CMS has a reasonable 
expectation that the addition of these new ACO participants would 
increase the assigned beneficiary population above the 5,000 minimum 
beneficiary threshold. Therefore, we propose to revise Sec.  425.110(b) 
to indicate that we have the discretion whether to impose any remedial 
measures or to terminate an ACO for failure to satisfy the minimum 
assigned beneficiary threshold. Specifically, we propose to revise 
Sec.  425.110(b) to state that the ACO ``may'' be subject to any of the 
actions described in Sec.  425.216 (actions prior to termination, 
including a warning letter or request for CAP) and Sec.  425.218 
(termination). However, we note that although we are proposing to 
retain discretion as to whether to impose remedial measures or 
terminate an ACO whose assigned beneficiary population falls below 
5,000, we recognize that the requirement that an ACO have at least 
5,000 assigned beneficiaries is a condition of eligibility to 
participate in the Shared Savings Program under Sec.  1899(b)(2)(D), 
and would exercise our discretion accordingly and consistently.
3. Identification and Required Reporting of ACO Participants and ACO 
Providers/Suppliers
a. Overview
    For purposes of the Shared Savings Program, an ACO is an entity 
that is identified by a TIN and comprised of one or more Medicare-
enrolled TINs associated with ACO participants (see Sec.  425.20). The 
Medicare-enrolled TINs of ACO participants, in turn, are associated 
with Medicare enrolled individuals and entities that bill through the 
TIN of the ACO participant. (For example, in the case of a physician, 
the physician has reassigned to the TIN of the ACO participant his or 
her right to receive Medicare payments, and their services to Medicare 
beneficiaries are billed by the ACO participant under a billing number 
assigned to the TIN of the ACO participant).
    As part of the application process and annually thereafter, the ACO 
must submit a certified list identifying all of its ACO participants 
and their Medicare-enrolled TINs (the ``ACO participant list'') (Sec.  
425.204(c)(5)(i)). Additionally, for each ACO participant, the ACO must 
submit a list identifying all ACO providers/suppliers (including their 
NPIs or other provider identifiers) that bill Medicare during the 
agreement period under a billing number assigned to the TIN of an ACO 
participant (the ``ACO provider/supplier list'') (Sec.  
425.204(c)(5)(i)(A)). Our regulations require the ACO to indicate on 
the ACO provider/supplier list whether an individual is a primary care 
physician as defined at Sec.  425.20. All Medicare enrolled individuals 
and entities that bill through an ACO participant's TIN during the 
agreement period must be on the certified ACO provider/supplier list 
and agree to participate in the ACO. ACOs are required to maintain, 
update, and annually furnish the ACO participant and ACO provider/
supplier lists to CMS at the beginning of each performance year and at 
such other times as may be specified by CMS (Sec.  425.304(d)).
    We use TINs identified on the ACO participant list to identify 
claims billed to Medicare in order to support the assignment of 
Medicare fee-for-service beneficiaries to the ACO, the implementation 
of quality and other reporting requirements, and the determination of 
shared savings and losses (see section 1899(b)(2)(E) of the Act). We 
also use the ACO's initial (and annually updated) ACO participant list 
to: Identify parties subject to the

[[Page 72770]]

screenings under Sec.  425.304(b); determine whether the ACO satisfies 
the requirement to have a minimum of 5,000 assigned beneficiaries; 
establish the historical benchmark; perform financial calculations 
associated with quarterly and annual reports; determine preliminary 
prospective assignment for and during the performance year; determine a 
sample of beneficiaries for quality reporting; and coordinate 
participation in the Physician Quality Reporting System (PQRS) under 
the Shared Savings Program. Both the ACO participant and ACO provider/
supplier lists are used to ensure compliance with program requirements. 
We refer readers to our guidance at http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/sharedsavingsprogram/Updating-ACO-Participant-List.html for more information.
    In this section, we discuss current policy and procedures regarding 
the identification and required reporting of ACO participants and ACO 
providers/suppliers. In addition, we propose revisions to our 
regulations to improve program transparency by ensuring that all ACO 
participants and ACO providers/suppliers are accurately identified.
b. Proposed Revisions
    In order to administer the Shared Savings Program, we need to 
identify accurately the ACO participants and ACO providers/suppliers 
associated with each ACO that participates in the program. An accurate 
understanding of the ACO participants is critical for assignment of 
beneficiaries to the ACO as well as assessing the quality of care 
provided by the ACO to its assigned beneficiaries. An accurate 
understanding of the ACO providers/suppliers is also critical for 
ensuring compliance with program rules. We believe that this 
information is equally critical to the ACO for its own operational and 
compliance purposes. Thus, both CMS and the ACO need to have a common 
understanding of the individuals and entities that comprise the ACO 
participants and ACO providers/suppliers in the ACO. We obtain this 
common understanding by requiring the ACO to certify the accuracy of 
its ACO participant and ACO provider/supplier lists prior to the start 
of each performance year and to update the lists as changes occur 
during the performance year. Because we rely on these lists for both 
operational and program integrity purposes, we must have a transparent 
process that results in the accurate identification of all ACO 
participants and ACO providers/suppliers that compose each ACO in the 
Shared Savings Program.
    We propose to add a new Sec.  425.118 to reflect with more 
specificity the requirements for submitting ACO participant and ACO 
provider/supplier lists and the reporting of changes to those lists. In 
addition, we propose to revise Sec.  425.204(c)(5) and to remove Sec.  
425.214(a) and Sec.  425.304(d) because these provisions are addressed 
in new Sec.  425.118.
(1) Certified Lists of ACO Participants and ACO Providers/Suppliers
    We intend to continue to require ACOs to maintain, update and 
submit to CMS accurate and complete ACO participant and ACO provider/
supplier lists, but are proposing to establish new Sec.  425.118 to set 
forth the requirements and processes for maintaining, updating, and 
submitting the required ACO participant and ACO provider/supplier 
lists. New Sec.  425.118 would consolidate and revise provisions at 
Sec.  425.204(c)(5), Sec.  425.214(a) and Sec.  425.304(d) regarding 
the ACO participant and ACO provider/supplier lists. Specifically, we 
propose at Sec.  425.118(a) that prior to the start of the agreement 
period and before each performance year thereafter, the ACO must 
provide CMS with a complete and certified list of its ACO participants 
and their Medicare-enrolled TINs. We would use this ACO participant 
list to identify the Medicare-enrolled individuals and entities that 
are affiliated with the ACO participant's TIN in PECOS, the CMS 
enrollment system. Because these individuals and entities are currently 
billing through the Medicare enrolled TIN identified by the ACO as an 
ACO participant, they must be included on the ACO provider/supplier 
list. We would provide the ACO with a list of all ACO providers/
suppliers (NPIs) that we have identified as billing through each ACO 
participant's Medicare-enrolled TIN. In accordance with Sec.  
425.118(a), the ACO would be required to review the list, make any 
necessary corrections, and certify the lists of all of its ACO 
participants and ACO providers/suppliers (including their TINs and 
NPIs) as true, accurate, and complete. In addition, we propose that an 
ACO must submit certified ACO participant and ACO provider/supplier 
lists at any time upon CMS request. We note that all NPIs that reassign 
their right to receive Medicare payment to an ACO participant must be 
on the certified list of ACO providers/suppliers and must agree to be 
ACO providers/suppliers. We propose to clarify this point in 
regulations text at Sec.  425.118(a)(4).
    Finally, in accordance with developing and certifying the ACO 
participant and provider/supplier lists, we propose at Sec.  425.118(d) 
to require the ACO to report changes in ACO participant and ACO 
provider/supplier enrollment status in PECOS within 30 days after such 
changes have occurred (for example, to report changes in an ACO 
provider's/supplier's reassignment of the right to receive Medicare 
payment or revocation of billing rights). This requirement corresponds 
with our longstanding policy that requires enrolled providers and 
suppliers to notify their Medicare contractors through PECOS within 
specified timeframes for certain reportable events. We recognize that 
PECOS is generally not accessible to ACOs to make these changes 
directly because most ACOs are not enrolled in Medicare. Therefore, an 
ACO may satisfy the requirement to update PECOS throughout the 
performance year by requiring its ACO participants to submit the 
required information directly in PECOS within 30 days after the change, 
provided that the ACO participant actually submits the required 
information within 30 days. We propose to require ACOs to include 
language in their ACO participant agreements (discussed in section 
II.B.1. of this proposed rule) to ensure compliance with this 
requirement. We are not proposing to change the current 30-day 
timeframe required for such reporting in PECOS. These changes are 
consistent with the current requirements regarding ACO participant and 
ACO provider/supplier list updates under Sec.  425.304(d) and we 
believe that they would enhance transparency and accuracy within the 
Shared Savings Program. We further propose to remove Sec.  425.304(d) 
because the requirements, although not modified, would be incorporated 
into new Sec.  425.118(d).
    This revised process should afford the ACO the opportunity to work 
with its ACO participants to identify its ACO providers/suppliers and 
to ensure compliance with Shared Savings Program requirements. 
Currently, we also require the ACO to indicate whether the ACO 
provider/supplier is a primary care physician as defined in Sec.  
425.20. Because this information is derived from the claims submitted 
under the ACO participant's TINs (FQHCs and RHCs being the exception), 
we have found this unnecessary to implement the program, so we are 
proposing to remove this requirement, which currently appears in Sec.  
425.204(c)(5)(i)(A).

[[Page 72771]]

(2) Managing Changes to ACO Participants
    Except for rare instances, such as the cessation of ACO participant 
operations or exclusion from the Medicare program, we expect ACO 
participants to remain in the ACO for the entire 3 year agreement 
period. This is due to our belief that care coordination and quality 
improvement require the commitment of ACO participants. Moreover, as 
noted previously, we utilize the ACO participant list, among other 
things, for assigning beneficiaries to the ACO, determining the ACO's 
benchmark and performance year expenditures, and drawing the sample for 
ACO quality reporting. Nevertheless, we understand that there are 
legitimate reasons why an ACO may need to update its list of ACO 
participants during the 3-year agreement period. Thus, under current 
Sec.  425.214(a), an ACO may add or remove ACO participants (identified 
by TINs) throughout a performance year, provided that it notifies CMS 
within 30 days of such addition or removal.
    If such changes occur, we may, at our discretion, adjust the ACO's 
benchmark, risk scores, and preliminary prospective assignment (Sec.  
425.214(a)(3)). We articulated the timing of these changes in our 
guidance (http://cms.gov/Medicare/Medicare-Fee-for-Service-Payment/sharedsavingsprogram/Updating-ACO-Participant-List.html), which states 
that we adjust the ACO's historical benchmark at the start of a 
performance year if the ACO participant list that the ACO certified at 
the start of that performance year differs from the one it certified at 
the start of the prior performance year. We use the updated certified 
ACO participant list to assign beneficiaries to the ACO in the 
benchmark period (the 3 years prior to the start of the ACO's agreement 
period) in order to determine the ACO's adjusted historical benchmark. 
Our guidance provides that, as a result of changes to the ACO's 
certified ACO participant list, we may adjust the historical benchmark 
upward or downward. We use the new annually certified list of ACO 
participants and the adjusted benchmark for the following program 
operations: The new performance year's assignment; quality measurement 
and sampling; reports for the new performance year; and financial 
reconciliation. We provide ACOs with the adjusted Historical Benchmark 
Report reflecting these changes.
    However, our guidance stated that absent unusual circumstances, 
changes in ACO participants that occur in the middle of a performance 
year will not result in midyear changes to assignment, sampling for 
quality reporting, financial reconciliation, or other matters. As 
indicated in our guidance, the midyear removal of an entity from the 
ACO participant list due to program integrity issues is one unusual 
circumstance that could result in midyear changes to assignment and 
other matters. Finally, our guidance states that we do not make 
adjustments upon Medicare payment changes such as wage-index 
adjustments, or the addition or deletion of ACO participants during the 
course of the performance year made by the ACO and ACO participants.
    We propose to add new provisions at Sec.  425.118(b) to address the 
procedures for adding and removing ACO participants during the 
agreement period. These proposals revise the regulations to incorporate 
some of the important policies that we have implemented through our 
operational guidance as well as some additional proposals to ease the 
administrative burden generated by the magnitude of changes made to ACO 
participant lists to date.
    First, we propose under Sec.  425.118(b)(1) that an ACO must submit 
a request to add a new entity to its ACO participant list in the form 
and manner specified by CMS and that CMS must approve additions to the 
ACO participant list before they can become effective. We do not 
believe ACO participants should be admitted into the program if, for 
example, the screening conducted under Sec.  425.304(b) reveals that 
the entity has a history of program integrity issues, or if the ACO 
participant agreement with the entity does not comply with program 
requirements, or if the entity is participating in another Medicare 
shared savings initiative (Sec.  425.114). If CMS denies the request to 
add an entity to the ACO participant list, then the entity is not 
eligible to participate in the ACO for the upcoming performance year.
    Second, we propose that, if CMS approves the request, the entity 
will be added to the ACO participant list at the beginning of the 
following performance year. That is, entities that are approved for 
addition to the ACO participant list will not become ACO participants, 
and their claims would not be considered for purposes of benchmarking, 
assignment and other operational purposes, until the beginning of the 
next performance year. For example, if an ACO notifies CMS of the 
addition of an entity in June of the second performance year (PY2), the 
entity would not become an ACO participant and its claims would not be 
included in program operations until January 1 of PY3 if CMS approves 
the entity's addition.
    Third, we propose that an ACO must notify CMS no later than 30 days 
after the date of termination of the entity's ACO participant 
agreement. The ACO may notify CMS in advance of such termination. The 
ACO must submit the notice of removal, which must include the date of 
termination, in the form and manner specified by CMS. We propose that 
the removal of the ACO participant from the ACO participant list would 
be effective on the date of termination of the ACO participation 
agreement.
    We propose at Sec.  425.118(b)(3)(i) that changes made by an ACO to 
its annually certified ACO participant list would result in adjustments 
to its historical benchmark, assignment, quality reporting sample, and 
the obligation of the ACO to report on behalf of eligible professionals 
for certain CMS quality initiatives. We would annually adjust the ACO's 
benchmark calculations to include (or exclude) the claims submitted 
during the benchmark years by the newly added (or removed) ACO 
participants. In other words, the annually certified ACO participant 
list is used under Subparts E (assignment of beneficiaries), F (quality 
performance assessment), and G (calculation of shared savings/losses) 
for the performance year. For example, if an ACO began program 
participation in 2013, the PY1 certified list generates an historical 
benchmark calculated from claims submitted by the TINs on the PY1 
certified list during CY 2010, 2011, and 2012. If the ACO adds ACO 
participants during 2013 and certifies an updated list for PY2 
reflecting those additions, we would adjust the historical benchmark to 
accommodate those changes by recalculating the benchmark using the 
claims submitted by the PY2 list of certified ACO participants during 
the ACO's same benchmark years (CYs 2010, 2011, and 2012). In this way, 
the ACO's benchmark continues to be based on the same 3 years prior to 
the start of the ACO's agreement, but ensures that the changes in ACO 
composition and performance year calculations retain a consistent 
comparison between benchmark and performance during the agreement 
period.
    As noted previously, adjustment to the ACO's historical benchmark 
as a result of changes to the ACO's certified ACO participant list may 
move the benchmark upward or downward. We would use the annual 
certified ACO participant list and the adjusted benchmark for the new 
performance year's beneficiary assignment, quality measurement and 
other operations that

[[Page 72772]]

are dependent on the ACO participant list as outlined in our guidance. 
We would provide ACOs with an adjusted Historical Benchmark Report that 
reflects the new certified ACO participant list. We propose to add this 
requirement at Sec.  425.118(b)(3).
    We propose at Sec.  425.118(b)(3)(ii) to codify the policy we 
established in guidance that, absent unusual circumstances, the removal 
of an ACO participant from the ACO participant list during the 
performance year must not affect certain program calculations for the 
remainder of the performance year in which the removal becomes 
effective. Namely, the removal of an entity from the ACO participant 
list during the performance year would not affect the ACO's beneficiary 
assignment or, by extension, such program operations as the calculation 
of the ACO's historical benchmark, financial calculations for quarterly 
and annual reporting, the sample of beneficiaries for quality 
reporting, or the obligation of the ACO to report on behalf of eligible 
professionals for certain quality initiatives. In other words, absent 
unusual circumstances, CMS uses only the ACO participant list that is 
certified at the beginning of a performance year to assign 
beneficiaries to the ACO under Subpart E and to determine the ACO's 
quality and financial performance for that performance year under 
Subparts F and G. Examples of unusual circumstances that might justify 
midyear changes include the midyear removal of an ACO participant due 
to avoidance of at-risk beneficiaries or another program integrity 
issue.
    For example, if an ACO participant is on the ACO's certified list 
of ACO participants for the second performance year, and the ACO timely 
notifies CMS of the termination of the entity's ACO participant 
agreement effective June 30th of PY2, the ACO participant would be 
removed from the ACO participant list effective June 30th of PY2. 
However, the former ACO participant's TIN would still be used for 
purposes of calculating the quality reporting requirements, financial 
reports, benchmarking, assignment and reporting of PQRS, meaningful use 
of EHR, and the value-based modifier. The ACO participant list that was 
certified at the start of the performance year governs the assessment 
of the ACO's financial and quality performance for that year, 
regardless of changes to the list during the performance year. We 
believe this is necessary to help create some stability in the 
assessment of the ACO's quality and financial performance for each 
performance year. If CMS had to modify underlying program operations 
each time an ACO added or removed a TIN from its list of ACO 
participants, the ACO would not be able to rely on information (such as 
the calculation of the historical benchmark) that we provide before the 
beginning of the performance year. We would not make adjustments upon 
Medicare payment changes such as wage index adjustments.
    We further believe it is important for ACOs to communicate 
effectively with ACO participants that seek to join an ACO so that they 
understand the potential impact to the ACO, the ACO participant, and 
the ACO providers/suppliers affiliated with the ACO participant when an 
ACO participant leaves during a performance year. For example, it is 
likely that the ACO would be required to report quality data for 
beneficiaries that were seen by the former ACO participant in the 
previous 12 months. The ACO must work with the former ACO participant 
to obtain the necessary quality reporting data. Additionally, the ACO 
participant would not be able to qualify for PQRS incentive payment or 
avoid the PQRS payment adjustment apart from the ACO for that 
performance year. Therefore, it is in the best interest of both parties 
to understand this in advance and to commit to working together to 
fulfill the obligations for the performance year. To assist ACO and ACO 
participants, we have proposed criteria for ACO participant agreements 
addressing this issue (see section II.B.1. of this proposed rule).
(3) Managing Changes to ACO Providers/Suppliers
    We recognize that ACO providers/suppliers may terminate their 
affiliation with an ACO participant or affiliate with new or additional 
Medicare-enrolled TINs (which may or may not be ACO participants) on a 
frequent basis. Thus, the annual certified ACO provider/supplier list 
may quickly become outdated. In order to ensure that CMS and the ACO 
have a common understanding of which NPIs are part of the ACO at any 
particular point in time, our regulations at Sec.  425.214 set forth 
requirements for managing changes to the ACO during the term of the 
participation agreement. Specifically, Sec.  425.214(a)(2) and Sec.  
425.304(d)(2) require an ACO to notify CMS within 30 days of the 
addition or removal of an ACO provider/supplier from the ACO provider/
supplier list.
    We are proposing new Sec.  425.118(c) on how to report changes to 
the ACO provider/supplier list that occur during the performance year. 
Under proposed Sec.  425.118(c), ACOs will continue to be required to 
report these changes within 30 days. As discussed later in this 
section, we would require the ACO to ensure that changes in ACO 
participant and ACO provider/supplier enrollment status are reported in 
PECOS. However, because the lists of ACO providers/suppliers cannot be 
maintained in PECOS, we propose to require ACOs to notify CMS' Shared 
Savings Program separately, in the form and manner specified by CMS, of 
the addition or removal of an ACO provider/supplier. At this time, we 
anticipate that ACOs will be required to send such notifications via 
electronic mail; however, specific guidance regarding this notification 
process would be provided by the Secretary on the CMS Web site and/or 
through the ACO intranet portal.
    We propose that an ACO may add an individual or entity to the ACO 
provider/supplier list if it notifies CMS within 30 days after the 
individual or entity became a Medicare-enrolled provider or supplier 
that bills for items and services it furnishes to Medicare fee-for-
service beneficiaries under a billing number assigned to the TIN of an 
ACO participant. If the ACO provides such notice by the 30-day 
deadline, the addition of an ACO provider/supplier would be effective 
on the date specified in the notice furnished to CMS but no earlier 
than 30 days before the date of notice. If the ACO fails to provide 
timely notice to CMS regarding the addition of an individual or entity 
to the ACO provider/supplier list, then the addition becomes effective 
on the date CMS receives notice from the ACO. However, we note that 
when an individual has begun billing through the TIN of an ACO 
participant but is not on the ACO provider/supplier list, the 
individual satisfies the definition of an ACO professional, in which 
case his or her claims for services furnished to Medicare fee-for-
service beneficiaries are considered for assignment and other 
operational purposes previously described.
    Each potential ACO provider/supplier that reassigns his or her 
billing rights under the TIN of an ACO participant is screened by CMS 
through the enrollment process and PECOS system. Additionally, the 
Shared Savings Program conducts additional screening on a biannual 
basis for each ACO provider/supplier through the CMS Fraud Prevention 
System. In spite of this, we are concerned that our proposed effective 
date for the addition of an individual or entity to the ACO provider/
supplier list will prevent us from conducting a robust program 
integrity screening of such individuals

[[Page 72773]]

and entities. Therefore, we are considering whether to delay the 
effective date of any additions to the ACO provider/supplier list until 
after we have completed a program integrity screening of the 
individuals or entities that the ACO wishes to add to the list. For 
example, we are considering whether to delay the effective date of 
additions to the ACO provider/supplier list until the start of the next 
performance year, similar to the timing for adding TINs of ACO 
participants to the list of ACO participants. In this way, a complete 
yearly screening, including screening with the assistance of our law 
enforcement partners, could occur at one time for both the ACO 
participant list and the ACO provider/supplier list. As noted 
previously, until the individual or entity has been officially 
designated as an ACO provider/supplier, that individual or entity would 
be an ACO professional because of its billing relationship with the ACO 
participant. Thus, any claims billed by the ACO professional through 
the TIN of the ACO participant would be used for assignment and related 
activities during the performance year in which the change takes place, 
regardless of whether the individual or entity subsequently becomes an 
ACO provider/supplier. We seek comment on this proposal.
    We propose that to remove an ACO provider/supplier from the ACO 
provider/supplier list, an ACO must notify CMS no later than 30 days 
after the individual or entity ceases to be a Medicare-enrolled 
provider or supplier that bills for items and services it furnishes to 
Medicare fee-for-service beneficiaries under a billing number assigned 
to the TIN of an ACO participant. The individual or entity would be 
removed from the ACO provider/supplier list effective as of the date 
the individual or entity terminates its affiliation with the ACO 
participant.
(4) Update of Medicare Enrollment Information
    We propose at Sec.  425.118(d) to require the ACO to ensure that 
changes in ACO participant and ACO provider/supplier enrollment status 
are reported in PECOS consistent with Sec.  424.516 (for example, 
changes in an ACO provider's/supplier's reassignment of the right to 
receive Medicare payment or revocation of billing rights). As 
previously discussed in detail, this requirement corresponds with our 
longstanding policy that requires enrolled providers and suppliers to 
notify their Medicare contractors through PECOS within specified 
timeframes for certain reportable events.
4. Significant Changes to an ACO
a. Overview
    Section 425.214(b) requires an ACO to notify CMS within 30 days of 
any significant change. A significant change occurs when an ACO is no 
longer able to meet the Shared Savings Program eligibility or program 
requirements (Sec.  425.214(b)). Upon receiving an ACO's notice of a 
significant change, CMS reviews the ACO's eligibility to continue 
participating in the Shared Savings Program and, if necessary, may 
terminate the ACO's participation agreement (Sec.  425.214 (c)). In 
addition, Sec.  425.214(c)(2) provides that CMS may determine that a 
significant change has caused the ACO's structure to be so different 
from what was approved in the ACO's initial application that it is no 
longer able to meet the eligibility or program requirements. Under such 
circumstances, CMS would terminate the ACO's participation agreement, 
and permit the ACO to submit a new application for program 
participation. In the November 2011 final rule (76 FR 67840), we noted 
that changes to an ACO participant list could constitute a significant 
change to an ACO if, for example, the removal of a large primary care 
practice from the list of ACO participants caused the number of 
assigned beneficiaries to fall below 5,000.
b. Proposed Revisions
    In light of changes proposed in the previous section of this 
preamble, we propose to redesignate Sec.  425.214(b) and (c) as Sec.  
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 Sec.  425.106 or other eligibility requirements. We 
note that some changes to the ACO participant list may be of such a 
magnitude that the ACO is no longer the entity that was originally 
approved for program participation. In addition, depending on the 
nature of the change in ownership, the ACO would need to execute a new 
participation agreement with CMS if the existing participation 
agreement is no longer with the correct legal entity. We believe that 
such changes constitute significant changes and should be subject to 
the actions outlined under Sec.  425.214(b).
    Therefore, we are proposing to specify at Sec.  425.214(a) that a 
significant change occurs when the ACO is no longer able to meet the 
eligibility or other requirements of the Shared Savings Program, or 
when the number or identity of ACO participants included on the ACO 
participant list, as updated in accordance with Sec.  425.118, changes 
by 50 percent or more during an agreement period. For example, in the 
case of an ACO whose initial certified ACO participant list contained 
ten ACO participants, five of which gradually left the ACO and either 
were not replaced or were replaced with five different ACO 
participants, the ACO would have undergone a significant change because 
the number or identity of its ACO participants changed by 50 percent. 
Similarly, if an ACO's initial certified ACO participant list contains 
20 ACO participants, and the ACO incrementally adds 10 new ACO 
participants for a total of 30 ACO participants, it would have 
undergone a significant change with the addition of the 10th new ACO 
participant.
    Upon notice that an ACO has experienced a significant change, we 
would evaluate the ACO's eligibility to continue participating in the 
Shared Savings Program and make one of the determinations listed in the 
provision we propose to redesignate as Sec.  425.214(b). We may request 
additional information to determine whether and under what terms the 
ACO may continue in the program. We note that a determination that a 
significant change has occurred would not necessarily result in the 
termination of the ACO's participation agreement. We further propose to 
modify Sec.  425.214 to provide that an ACO's failure to notify CMS of 
a significant change must not preclude CMS from determining that the 
ACO has experienced a significant change.
    In addition, we are seeking comment on whether we should consider 
amending our regulations to clarify that the ACO's notice of a 
significant change must be furnished prior to the occurrence of the 
significant change. We believe some significant changes could benefit 
from a longer notice period, particularly in the case of a change of 
ownership that causes the ACO to be unable to comply with program 
requirements. Therefore, we seek comment on whether ACOs should be 
required to provide 45 or 60 days' advance notice of a significant 
change. We also seek comment on what changes in the ACO participant 
list should constitute a significant change.

[[Page 72774]]

5. Consideration of Claims Billed by Merged/Acquired Medicare-Enrolled 
Entities
a. Overview
    As discussed in the November 2011 final rule (76 FR 67843), we do 
not believe that mergers and acquisitions by ACO providers and 
suppliers are the only way for an entity to become an ACO. The statute 
and our regulations permit ACO participants that form an ACO to use a 
variety of collaborative organizational structures, including 
collaborations other than merger. We reject the proposition that an 
entity under single control, that is, an entity formed through a 
merger, would be more likely to meet the goals of improved health at a 
lower cost. However, we have received questions from industry 
stakeholders regarding how previous mergers and acquisitions of 
entities with Medicare enrolled billing TINs will be treated for 
purposes of the Shared Savings Program. In particular, some applicants 
have inquired whether the claims billed to Medicare in previous years 
by an entity that has since been merged with, or acquired by, a 
different entity could be used to determine whether an applicant meets 
the requirement to have at least 5,000 beneficiaries assigned to it in 
each of the benchmark years (Sec.  425.110) and to establish the ACO's 
historical benchmark and preliminary prospective assignment. To 
illustrate, suppose a large group practice that is a prospective ACO 
participant recently purchased two small primary care practices, and 
the primary care practitioners from those small practices have 
reassigned the right to receive Medicare payment to the larger group 
practice Medicare-enrolled TIN. In this instance, it is likely that the 
primary care providers will continue to serve the same patient 
population they served before the practices were purchased, and that 
their patients may appear on the ACO's list of assigned beneficiaries 
at the end of the performance year. Therefore, applicants and 
established ACOs have inquired whether there is a way to take into 
account the claims billed by the Medicare-enrolled TINs of practices 
acquired by sale or merger for purposes of meeting the minimum assigned 
beneficiary threshold and creating a more accurate benchmark and 
preliminary prospective list of assigned beneficiaries for the upcoming 
performance year. Similarly, an established ACO may request 
consideration of the claims billed by the Medicare-enrolled TINs of 
entities acquired during the course of a performance year for the same 
purposes.
    In response to questions from industry stakeholders, we provided 
additional guidance on our Web site to all Shared Savings Program 
applicants about the requirements related to mergers and acquisitions 
(see http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/sharedsavingsprogram/Downloads/Merger-Acquisitions-FAQ.pdf). In this 
guidance, we indicated that under the following circumstances, we may 
take the claims billed under TINs of entities acquired through purchase 
or merger into account for purposes of beneficiary assignment and the 
ACO's historical benchmark:
     The ACO participant must have subsumed the acquired 
entity's TIN in its entirety, including all the providers and suppliers 
that reassigned the right to receive Medicare payment to that acquired 
entity's TIN.
     All the providers and suppliers that previously reassigned 
the right to receive Medicare payment to the acquired entity's TIN must 
reassign that right to the TIN of the acquiring ACO participant.
     The acquired entity's TIN must no longer be used to bill 
Medicare.
    In order to attribute the billings of merged or acquired TINs to 
the ACO's benchmark, the ACO applicant must--
     Submit the acquired entity's TIN on the ACO participant 
list, along with an attestation stating that all providers and/
suppliers that previously billed under the acquired entity's TIN have 
reassigned their right to receive Medicare payment to an ACO 
participant's TIN;
     Indicate the acquired entity's TIN and which ACO 
participant acquired it; and
     Submit supporting documentation demonstrating that the 
entity's TIN was acquired by an ACO participant through a sale or 
merger and submit a letter attesting that the acquired entity's TIN 
will no longer be used to bill Medicare.
    We note that we require an applicant's list of ACO providers/
suppliers to include all individuals who previously billed under the 
acquired entity's TIN to have reassigned their right to receive 
Medicare payment to an ACO participant's TIN.
    We believe that these requirements are necessary to ensure that 
these entities have actually been completely merged or acquired and 
that it would be likely that the primary care providers will continue 
to serve the same patient population. In this way, the beneficiary 
assignments and the benchmarks would be more accurate for ACOs that 
include merged or acquired Medicare-enrolled TINs under which their ACO 
professionals billed during application or updates to the ACO 
participant list.
b. Proposal
    We believe the current criteria and processes have been working 
well and have benefited both CMS (for example, by providing assurance 
that an entity's Medicare-enrolled billing TIN have actually been 
acquired through sale or merger) and the affected ACOs (for example, by 
allowing for an increase in the ACO's number of appropriately assigned 
beneficiaries and 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 Sec.  425.204(g) with some minor revisions to 
more precisely and accurately describe our proposed policy. Proposed 
Sec.  425.204(g) would add the option for ACOs to request consideration 
of claims submitted by the Medicare-enrolled TINs of acquired entities 
as part of their application, and would address the documentation 
requirements for such requests. Although this provision is added in a 
section regarding the content of the initial application, we propose to 
permit ACOs to annually request consideration of claims submitted by 
the TINs of entities acquired through sale or merger upon submission of 
the ACO's updated list of ACO participants.
6. Legal Structure and Governance
    Section 1899(b)(1) of the Act requires ACO participants to have 
established a ``mechanism for shared governance'' in order to be 
eligible to participate as ACOs in the Shared Savings Program. In 
addition, section 1899(b)(2)(C) of the Act requires the ACO to have a 
formal legal structure that allows the organization to receive and 
distribute shared savings payments to ACO participants and ACO 
providers/suppliers. We believe this requirement is important because a 
formal legal structure can ensure the ACO is protected against improper 
influence. In this section, we propose clarifications to our rules 
related to the ACO's legal entity and governing body. The purpose of 
these changes is to clarify our regulations and to ensure that ACO 
decision making is governed by individuals who have a fiduciary duty, 
including a duty of loyalty, to the ACO alone and not to any other 
individuals or entities. We believe these clarifications are relatively 
minor and would not significantly impact the program as currently 
implemented.

[[Page 72775]]

a. Legal Entity and Governing Body
(1) Overview
    As specified in the November 2011 final rule (76 FR 67816) and at 
Sec.  425.104(a), an ACO must be a legal entity, formed under 
applicable state, federal, or tribal law, and authorized to conduct 
business in each state in which it operates for purposes of the 
following:
     Receiving and distributing shared savings.
     Repaying shared losses or other monies determined to be 
owed to CMS.
     Establishing, reporting, and ensuring provider compliance 
with health care quality criteria, including quality performance 
standards.
     Fulfilling other ACO functions identified in this part.
    Additionally, under Sec.  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 Sec.  
425.106(b)(4) further specify that when an ACO comprises ``multiple, 
otherwise independent ACO participants,'' the governing body of the ACO 
must be ``separate and unique to the ACO''. In contrast, if the ACO is 
an ``existing legal entity,'' the ACO governing body may be the same as 
the governing body of that existing legal entity, provided it satisfies 
all other requirements of Sec.  425.106, including provisions regarding 
the fiduciary duties of governing body members, the composition of the 
governing body, and conflict of interest policies (Sec.  
425.106(b)(5)).
    Some applicants have questioned when an ACO needs to be formed as a 
separate legal entity, particularly the meaning in Sec.  425.104(b) of 
``otherwise independent'' ACO participants. Specifically, applicants 
have questioned whether multiple prospective ACO participants are 
``otherwise independent'' when they have a prior relationship through, 
for example, an integrated health system. In addition, we received some 
questions regarding compliance with the governing body requirements set 
forth in Sec.  425.106(b)(4) and (5). For example, we received 
questions from some IPAs, each of which wanted to apply to the Shared 
Savings Program as an ACO using its existing legal structure and 
governing body. In some cases, the IPA represented many group 
practices, but not every group practice represented by an IPA had 
agreed to be an ACO participant. We believe that such an IPA would need 
to organize its ACO as a separate legal entity with its own governing 
body to ensure that the governing body members would have a fiduciary 
duty to the ACO alone, as required by Sec.  425.106(b)(3), and not to 
an entity comprised in part by entities that are not ACO participants.
(2) Proposed Revisions
    We propose to clarify our regulation text regarding when an ACO 
must be formed as a separate legal entity. Specifically, we propose to 
remove the reference to ``otherwise independent ACO participants'' in 
Sec.  425.104(b). The revised regulation would provide that an ACO 
formed by ``two or more ACO participants, each of which is identified 
by a unique TIN,'' must be a legal entity separate from any of its ACO 
participants. For example, if an ACO is composed of three ACO 
participants, each of which belongs to the same health system or IPA, 
the ACO must be a legal entity separate and distinct from any one of 
the three ACO participants.
    In addition, we propose to clarify Sec.  425.106(a), which sets 
forth the general requirement that an ACO have an identifiable 
governing body with the authority to execute the functions of an ACO. 
Specifically, we propose that the governing body must satisfy three 
criteria. First, the governing body of the ACO must be the same as the 
governing body of the legal entity that is the ACO. Second, in the case 
of an ACO that comprises multiple ACO participants the governing body 
must be separate and unique to the ACO and must not be the same as the 
governing body of any ACO participant. Third, the governing body must 
satisfy all other requirements set forth in Sec.  425.106, including 
the fiduciary duty requirement. We note that the second criterion 
incorporates the requirement that currently appears at Sec.  
425.106(b)(4), which provides that the governing body of the ACO must 
be separate and unique to the ACO in cases where there are multiple ACO 
participants. Accordingly, we propose to remove Sec.  425.106(b)(4). We 
further propose to remove Sec.  425.106(b)(5), which provides that if 
an ACO is an existing legal entity, its governing body may be the same 
as the governing body of that existing entity, provided that it 
satisfies the other requirements of Sec.  425.106. In light of our 
proposed revision to Sec.  425.106(a), we believe this provision is 
unnecessary and should be removed to avoid confusion.
    In proposing that the governing body be the same as the governing 
body of the legal entity that is the ACO, we intend to preclude 
delegation of all ACO decision-making authority to a committee of the 
governing body or retention of ACO decision-making authority by a 
parent company; ultimate authority for the ACO must still reside with 
the governing body. We recognize that the governing body of the legal 
entity that is the ACO may wish to organize committees that address 
certain matters pertaining to the ACO, but we do not believe that such 
committees can constitute the governing body of the ACO. We also 
recognize that a parent organization may wish to retain certain 
authorities to protect the parent company and ensure the subsidiary's 
success; however, the ACO's governing body must retain the ultimate 
authority to execute the functions of an ACO. As stated in the 
regulations, we believe such functions include such things as 
developing and implementing the required processes under Sec.  425.112 
and holding leadership and management accountable for the ACO's 
activities. We also believe this authority extends to such activities 
including the appointment and removal of members of the governing body, 
leadership, and management, and determining how shared savings are used 
and distributed among ACO participants and ACO providers/suppliers. We 
seek comments on this proposal that the ultimate authority for the ACO 
to carry out its activities must reside with the governing body of the 
ACO.
    The purpose of the new provision precluding the governing body of 
the ACO from being the same as the governing body of an ACO participant 
is to ensure that decisions made on behalf of the ACO are not 
improperly influenced by the interests of individuals and entities 
other than the ACO. In order to comply with the requirement that the 
governing body be separate and unique to the ACO, it must not be 
responsible for representing the interests of any entity participating 
in the ACO or any entity that is not participating in the ACO. Thus, we 
propose the requirement that an ACO's governing body must not be the 
same as the governing body of any of the ACO participants.
b. Fiduciary Duties of Governing Body Members
(1) Overview
    Our current regulations at Sec.  425.106(b)(3) require that the 
governing body members have a fiduciary duty to the ACO and must act 
consistent with that fiduciary duty. We have clarified in guidance that 
the governing body members cannot meet the fiduciary duty requirement 
if the governing body is also responsible for governing the activities 
of individuals or entities that are not part of the ACO (See 
``Additional Guidance for Medicare Shared Savings Program Accountable 
Care Organization (ACO) Applicants''

[[Page 72776]]

located online at http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/sharedsavingsprogram/Downloads/Memo_Additional_Guidance_on_ACO_Participants.pdf). For example, in the 
case of an IPA that applies as an ACO to the Shared Savings Program, we 
believe it would be difficult for the members of the IPA's governing 
body to make decisions in the best interests of the ACO if only some of 
the group practices that compose the IPA are ACO participants; 
decisions affecting the ACO may be improperly influenced by the 
interests of group practices that are part of the IPA but are not ACO 
participants. For this reason, our regulations require the IPA to 
establish the ACO as a separate legal entity. This new legal entity 
must have a governing body whose members have a fiduciary 
responsibility to the ACO alone and not to any other individual or 
entity.
    We wish to emphasize that the ACO's governing body decisions must 
be free from the influence of interests that may conflict with the 
ACO's interests.
(2) Proposed Revisions
    We propose to clarify in Sec.  425.106(b)(3) that the fiduciary 
duty owed to an ACO by its governing body members includes the duty of 
loyalty. This proposal does not represent a change in policy and is 
simply intended to emphasize that members of an ACO governing body must 
not have divided loyalties; they must act only in the best interests of 
the ACO and not another individual or entity, including the individual 
interests of ACO participants, ACO professionals, ACO providers/
suppliers, or other individuals or entities.
c. Composition of the Governing Body
(1) Overview
    Section 1899(b)(1) requires an ACO to have a ``mechanism for shared 
governance'' among ACO participants. Section 425.106(c)(1) of the 
regulations requires an ACO to provide for meaningful participation in 
the composition and control of the ACO's governing body for ACO 
participants or their designated representatives. As we explained in 
the November 2011 final rule (76 FR 67819), we believe that an ACO 
should be operated and directed by Medicare-enrolled entities that 
directly provide health care services to beneficiaries. However, we 
acknowledged, that small groups of providers often lack both the 
capital and infrastructure necessary to form an ACO and to administer 
the programmatic requirements of the Shared Savings Program and could 
benefit from partnerships with non-Medicare enrolled entities. For this 
reason, we proposed (76 FR 19541) that to be eligible for participation 
in the Shared Savings Program, the ACO participants must have at least 
75 percent control of the ACO's governing body. In the November 2011 
final rule, we explained that this requirement would ensure that ACOs 
remain provider-driven, but also leave room for nonproviders to 
participate in the program.
    In addition, to provide for patient involvement in the ACO 
governing process, we specified at Sec.  425.106(c)(2) that an ACO's 
governing body must include a Medicare beneficiary served by the ACO 
who does not have a conflict of interest with the ACO. We acknowledged 
that beneficiary representation on an ACO's governing body may not 
always be feasible. For example, commenters raised concerns that 
requiring a beneficiary on the governing body could conflict with State 
corporate practice of medicine laws or other local laws regarding 
governing body requirements for public health or higher education 
institutions (76 FR 67821). As a result, we believed it was appropriate 
to provide some flexibility for us to permit an ACO to adopt an 
alternative structure for its governing body, while still ensuring that 
ACO participants and Medicare FFS beneficiaries are involved in ACO 
governance.
    Accordingly, the November 2011 final rule, offers some flexibility 
to permit an ACO to participate in the Shared Savings Program even if 
its governing body fails to include a beneficiary or satisfy the 
requirement that 75 percent of the governing body be controlled by ACO 
participants. Specifically, Sec.  425.106(c)(5) provides that if an 
ACO's governing body does not meet either the 75 percent threshold or 
the requirement regarding beneficiary representation, it must describe 
in its application how the proposed structure of its governing body 
would involve ACO participants in innovative ways in ACO governance or 
provide a meaningful opportunity for beneficiaries to participate in 
the governance of the ACO. For example, under this provision, we 
anticipated that exceptions might be needed for ACOs that operate in 
states with Corporate Practice of Medicine restrictions to structure 
beneficiary representation accordingly. We contemplated that this 
provision could also be used by an existing entity to explain why it 
should not be required to reconfigure its board if it had other means 
of addressing the requirement to include a consumer perspective in 
governance (see 76 FR 67821).
(2) Proposed Revisions
    We propose to revise Sec.  425.106(c)(5) to remove the flexibility 
for ACOs to deviate from the requirement that at least 75 percent 
control of an ACO's governing body must be held by ACO participants. 
Based on our experience to date with implementing the program, we have 
learned that ACO applicants do not have difficulty meeting the 
requirement under Sec.  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 Sec.  425.106(c)(5). To the contrary, we have found the 
75 percent control requirement to be necessary and protective of the 
ACO participant's interests. Accordingly, we believe there is no reason 
to continue to offer an exception to the rule.
    We continue to believe it is important to maintain the flexibility 
for ACOs to request innovative ways to provide meaningful 
representation of Medicare beneficiaries on ACO governing bodies. Based 
on our experience, some ACOs have been unable to include a beneficiary 
on their governing body, and these entities have used the process under 
Sec.  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 Sec.  425.106(c)(2) to explicitly 
prohibit an ACO provider/supplier from being the beneficiary 
representative on the governing body. Some ACO applicants have proposed 
that one of their ACO providers/suppliers would serve as the 
beneficiary representative on the governing body. We believe it would 
be very difficult for an ACO provider/supplier who is Medicare 
beneficiary to represent only the interests of beneficiaries, rather 
than his or her own interests as an ACO provider/supplier, the 
interests of other ACO providers/suppliers, or the interests of the ACO 
participant through which he or she bills Medicare. Finally, we are 
proposing to revise Sec.  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

[[Page 72777]]

ACO participant be a member of the ACO's governing body (76 FR 67818), 
the governing body must nevertheless represent a mechanism for shared 
governance among ACO participants. To that end, the governing body of 
an ACO that is composed of more than one ACO participant should not, 
for example, include representatives from only one ACO participant. For 
ACOs that have extensive ACO participant lists, we would expect to see 
representatives from many different ACO participants on the governing 
body. Our proposal to reiterate the statutory standard for shared 
governance in our regulations at Sec.  425.106(c)(1) does not 
constitute a substantive change to the program.
7. Leadership and Management Structure
a. Overview
    Section 1899(b)(2)(F) of the Act requires an eligible ACO to ``have 
in place a leadership and management structure that includes clinical 
and administrative systems.'' Under this authority, we incorporated 
certain leadership and management requirements into the Shared Savings 
Program, as part of the eligibility requirements for program 
participation. In the November 2011 final rule (76 FR 67822), we stated 
that we believed an ACO's leadership and management structure should 
align with and support the goals of the Shared Savings Program and the 
three-part aim of better care for individuals, better health for 
populations, and lower growth in expenditures.
    In the November 2011 final rule (76 FR 67825), we established the 
requirement that the ACO's operations be managed by an executive, 
officer, manager, general partner, or similar party whose appointment 
and removal are under the control of the ACO's governing body and whose 
leadership team has demonstrated the ability to influence or direct 
clinical practice to improve efficiency, processes, and outcomes (see 
Sec.  425.108(b)). In addition, under Sec.  425.108(c), clinical 
management and oversight must be managed by a senior-level medical 
director who is one of the ACO providers/suppliers, who is physically 
present on a regular basis in an established ACO location (clinic, 
office or other location participating in the ACO), and who is a board-
certified physician licensed in a State in which the ACO operates. In 
Sec.  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 Sec.  425.108.
    In the November 2011 final rule (76 FR 67825), we provided 
flexibility for ACOs to request an exception to the leadership and 
management requirements set forth under Sec.  425.108(b) and (c). We 
believed that affording this flexibility was appropriate in order to 
encourage innovation in ACO leadership and management structures. In 
accordance with Sec.  425.108(e), we reserve the right to give 
consideration to an innovative ACO leadership and management structure 
that does not comply with the requirements of Sec.  425.108(b) and (c).
    We continue to believe that having these key leaders (operational 
manager and clinical medical director) is necessary for a well-
functioning and clinically integrated ACO. We have learned from our 
experience with the program, over four application cycles, that ACO 
applicants generally do not have difficulty in meeting the operational 
manager and clinical medical director requirements. Only one ACO has 
requested an exception to the medical director requirements. In that 
case, the ACO sought the exception in order to allow a physician, who 
had retired after a long tenure with the organization to serve as the 
medical director of the ACO. We approved this request because, although 
the retired physician was not an ACO provider/supplier because he was 
no longer billing for physician services furnished during the agreement 
period, he was closely associated with the clinical operations of the 
ACO, familiar with the ACO's organizational culture, and dedicated to 
this one ACO.
    In addition, we have received a number of questions from ACO 
applicants regarding the other types of roles for which CMS requires 
documentation under Sec.  425.204(c)(1)(iii) to evaluate whether an 
applicant has a ``. . . leadership and management structure that 
includes clinical and administrative systems'' that support the 
purposes of the Shared Savings Program and the aims of better care for 
individuals, better health for populations, and lower growth in 
expenditures, as articulated at Sec.  425.108(a)). In response to such 
inquiries regard, we have indicated that we consider an ACO's ``. . . 
leadership and management structure that includes clinical and 
administrative systems'' to be comprised of the operational manager and 
clinical medical director (referenced under Sec.  425.108(b) and (c)) 
as well as the qualified healthcare professional that is required under 
Sec.  425.112(a) to be responsible for the ACO's quality assurance and 
improvement program.
b. Proposed Revisions
    We propose to amend Sec.  425.108 to provide some additional 
flexibility regarding the qualifications of the ACO medical director 
and to eliminate the provision permitting some ACOs to enter the 
program without satisfying the requirements at Sec.  425.108(b) and (c) 
for operations and clinical management. In addition, we propose to 
amend Sec.  425.204(c)(iii) to clarify that applicants must submit 
materials regarding the qualified health care professional responsible 
for the ACO's quality assurance and improvement program. We discuss 
each proposal later in this section.
    We believe that it is appropriate to amend the medical director 
requirement at Sec.  425.108(c) to allow some additional flexibility. 
Specifically, we propose to remove the requirement that the medical 
director be an ACO provider/supplier. This change would permit an ACO 
to have a medical director who was, for example, previously closely 
associated with an ACO participant but who is not an ACO provider/
supplier because he or she does not bill through the TIN of an ACO 
participant and is not on the list of ACO providers/suppliers. 
Alternatively, we may retain the requirement that an ACO's medical 
director be an ACO provider/supplier, but permit ACOs to request CMS 
approval to designate as its medical director a physician who is not an 
ACO provider/supplier but who is closely associated with the ACO and 
satisfies all of the other medical director requirements. We seek 
comment on whether an ACO medical director who is not an ACO provider/
supplier must have been closely associated with the ACO or an ACO 
participant in the recent past. In addition, we propose to clarify that 
the medical director must be physically present on a regular basis ``at 
any clinic, office, or other location of the ACO, ACO participant or 
ACO provider/supplier.'' Currently, the provision incorrectly refers 
only to locations ``participating in the ACO.''
    However, we continue to strongly believe that the medical director 
of the ACO should be directly associated with the ACO's clinical 
operations and familiar with the ACO's organizational culture. This is 
one purpose of the provision requiring medical directors to be 
physically present on a regular basis at any clinic, office, or other 
ACO location. A close working relationship with the ACO and its 
clinical operations is necessary in order for the medical director to 
lead the ACO's efforts to achieve quality improvement and cost 
efficiencies.

[[Page 72778]]

    We propose to eliminate Sec.  425.108(e), which permits us to 
approve applications from innovative ACOs that do not satisfy the 
leadership and management requirements related to operations management 
and clinical management and oversight set forth at Sec.  425.108(b) and 
(c). Based on our experience with the program and the proposed change 
to the medical director requirement, we believe it is unnecessary to 
continue to allow ACOs the flexibility to request an exception to the 
leadership and management requirements related to operations management 
and clinical management and oversight (Sec.  425.108(b) and (c)). These 
requirements are broad and flexible and have not posed a barrier to 
participation in the Shared Savings Program; in fact, in only one 
instance has an ACO requested an exception to the operations management 
criterion (Sec.  425.108(b)). We are unaware of any alternative 
operations management structure that might be considered acceptable, 
and we have modified Sec.  425.108(c) to accommodate the one exception 
we have granted to date. Accordingly, we propose to revise the 
regulations by striking Sec.  425.108(e) to eliminate the flexibility 
for ACOs to request an exception to the leadership and management 
requirements at Sec.  425.108(b) and (c).
    Finally, to clarify questions that have been raised by ACO 
applicants and to reduce the need for application corrections, we 
propose to modify Sec.  425.204(c)(1)(iii) to require a Shared Savings 
Program applicant to submit documentation regarding the qualified 
healthcare professional responsible for the ACO's quality assurance and 
improvement program (as required by Sec.  425.112(a)).
    We seek comment on these changes to the requirements for ACO 
leadership and management.
8. Required Process To Coordinate Care
a. Overview
    Section 1899(b)(2)(G) of the Act requires an ACO to ``define 
processes to . . . coordinate care, such as through the use of 
telehealth, remote patient monitoring, and other such enabling 
technologies.'' In the November 2011 final rule (76 FR 67829 through 
67830), we established requirements under Sec.  425.112(b)(4) that ACOs 
define their care coordination processes across and among primary care 
physicians, specialists, and acute and postacute providers. As part of 
this requirement, an ACO must define its methods and processes to 
coordinate care throughout an episode of care and during its 
transitions. In its application to participate in the Shared Savings 
Program, the ACO must submit a description of its individualized care 
program, along with a sample care plan, and explain how this program is 
used to promote improved outcomes for, at a minimum, its high-risk and 
multiple chronic condition patients. In addition, an ACO's application 
must describe target populations that would benefit from individualized 
care plans.
    In developing these policies for the November 2011 final rule (76 
FR 67819), we received comments acknowledging that requiring ACOs to 
define processes to promote coordination of care is vital to the 
success of the Shared Savings Program. Commenters stressed the 
importance of health information exchanges in coordination of care 
activities and recommended that CMS allow ACOs the flexibility to use 
any standards-based electronic care coordination tools that meet their 
needs. Other commenters suggested that the proposed rule anticipated a 
level of functional health information exchange and technology adoption 
that may be too aggressive.
    As stated in Sec.  425.204(c)(1)(ii), applicants to the Shared 
Savings Program must provide a description, or documents sufficient to 
describe, how the ACO will implement the required processes and 
patient-centeredness criteria under Sec.  425.112, including 
descriptions of the remedial processes and penalties (including the 
potential for expulsion) that will apply if an ACO participant or an 
ACO provider/supplier fails to comply with and implement these 
processes. Under Sec.  425.112(b), an ACO must establish processes to 
accomplish the following: promote evidence-based medicine; Promote 
patient engagement; develop an infrastructure to internally report on 
quality and cost metrics required for monitoring and feedback; and 
coordinate care across and among primary care physicians, specialists 
and acute and postacute providers and suppliers.
    In addition to the processes described previously, we believe it is 
important for applicants to explain how they will develop the health 
information technology tools and infrastructure to accomplish care 
coordination across and among physicians and providers Adoption of 
health information technology is important for supporting care 
coordination by ACO participants and other providers outside the ACO in 
the following ways: Secure, private sharing of patient information; 
reporting on quality data and aggregating data across providers and 
sites to track quality measures; and deploying clinical decision 
support tools that provide access to alerts and evidence based-
guidelines. As ACOs establish more mature processes for risk 
management, information technology infrastructure allows ACOs and 
providers to conduct robust financial management of beneficiary 
populations, deliver cost and quality feedback reporting to individual 
providers, and streamline the administration of risk based contracts 
across multiple payers. We believe that requiring ACOs to address 
health information technology infrastructure in their application to 
the Shared Savings program would support more careful planning and 
increased focus on this issue.
b. Accelerating Health Information Technology
    HHS believes all patients, their families, and their healthcare 
providers should have consistent and timely access to their health 
information in a standardized format that can be securely exchanged 
between the patient, providers, and others involved in the patient's 
care. (HHS August 2013 Statement, ``Principles and Strategies for 
Accelerating Health Information Exchange'') HHS is committed to 
accelerating health information exchange (HIE) through the use of EHRs 
and other types of health information technology (HIT) across the 
broader care continuum through a number of initiatives including: (1) 
Alignment of incentives and payment adjustments to encourage provider 
adoption and optimization of HIT and HIE services through Medicare and 
Medicaid payment policies; (2) adoption of common standards and 
certification requirements for interoperable HIT; (3) support for 
privacy and security of patient information across all HIE-focused 
initiatives; and (4) governance of health information networks. These 
initiatives are designed to encourage HIE among health care providers, 
including professionals and hospitals eligible for the Medicare and 
Medicaid EHR Incentive Programs and those who are not eligible for the 
EHR Incentive programs as well as those providers that are 
participating in the Medicare Shared Savings Program as an ACO and 
those that are not, and are designed to improve care delivery and 
coordination across the entire care continuum. For example, the 
Transition of Care Measure #2 in Stage 2 of the Medicare and Medicaid 
EHR Incentive Programs requires HIE to share summary records for at 
least 10 percent of care transitions.
    We believe that HIE and the use of certified EHRs can effectively 
and

[[Page 72779]]

efficiently help ACOs and participating providers improve internal care 
delivery practices, support management of patient care across the 
continuum, and support the reporting of electronically specified 
clinical quality measures (eCQMs).
c. Proposed Revisions
    We continue to believe that ACOs should coordinate care between all 
types of providers and across all services, and that the secure, 
electronic exchange of health information across all providers in a 
community is of the utmost importance for both effective care 
coordination activities and the success of the Shared Savings Program. 
We understand that ACOs will differ in their ability to adopt the 
appropriate health information exchange technologies, but we continue 
to underscore the importance of robust health information exchange 
tools in effective care coordination.
    ACOs have reported how important access to real time data is for 
providers to improve care coordination across all sites of care, 
including outpatient, acute, and postacute sites of care. We believe 
that providers across the continuum of care are essential partners to 
physicians in the management of patient care. ACOs participating in the 
program indicate that they are actively developing the necessary 
infrastructure and have been encouraging the use of technologies that 
enable real time data sharing among and between sites of care. We 
believe having a process and plan in place to coordinate a 
beneficiary's care by electronically sharing health information 
improves care, and that this helps all clinicians involved in the care 
of a patient to securely access the necessary health information in a 
timely manner. It also can also be used to engage beneficiaries in 
their own care. We further believe that Shared Savings Program 
applicants should provide, as part of the application, their plans for 
improving care coordination by developing, encouraging, and using 
enabling technologies and electronic health records to make health 
information electronically available to all practitioners involved in a 
beneficiary's care.
    Therefore, we propose to add a new requirement to the eligibility 
requirements under Sec.  425.112(b)(4)(ii)(C) which would require an 
ACO to describe in its application how it will encourage and promote 
the use of enabling technologies for improving care coordination for 
beneficiaries. Such enabling technologies and services may include 
electronic health records and other health IT tools (such as population 
health management and data aggregation and analytic tools), telehealth 
services (including remote patient monitoring), health information 
exchange services, or other electronic tools to engage patients in 
their care. We also propose to add a new provision at Sec.  
425.112(b)(4)(ii)(D) to require the applicant to describe how the ACO 
intends to partner with long-term and postacute care providers to 
improve care coordination for the ACO's assigned beneficiaries. 
Finally, we propose to add a provision under Sec.  425.112(b)(4)(ii)(E) 
to require that an ACO define and submit major milestones or 
performance targets it will use in each performance year to assess the 
progress of its ACO participants in implementing the elements required 
under Sec.  425.112(b)(4). For instance, providers would be required to 
submit milestones and targets such as: Projected dates for 
implementation of an electronic quality reporting infrastructure for 
participants; the number of providers expected to be connected to 
health information exchange services by year; or the projected dates 
for implementing elements of their care coordination approach, such as 
alert notifications on emergency department and hospital visits or e-
care plan tools for virtual care teams. We believe this information 
would allow us to better understand and support ACOs' plans to put into 
place the systems and processes needed to deliver high quality care to 
beneficiaries.
    We also note that ACOs have flexibility to use telehealth services 
as they deem appropriate for their efforts to improve care and avoid 
unnecessary costs. Some ACOs have already reported that they are 
actively using telehealth services to improve care for their 
beneficiaries. We welcome information from ACOs and other stakeholders 
about the use of such technologies. We seek comment on the specific 
services and functions of this technology that might be appropriately 
adopted by ACOs. For example, does the use of telehealth services and 
other technologies necessitate any additional protections for 
beneficiaries? Are these technologies necessary for care coordination 
or could other methods be used for care coordination? If a particular 
technology is necessary, under what circumstances?
9. Transition of Pioneer ACOs Into the Shared Savings Program
a. Overview
    The Center for Medicare and Medicaid Innovation (the Innovation 
Center) at CMS was established by section 1115A of the Act (as added by 
section 3021 of the Affordable Care Act) for the purpose of testing 
``innovative payment and service delivery models to reduce program 
expenditures . . . while preserving or enhancing the quality of care'' 
for those individuals who receive Medicare, Medicaid, or Children's 
Health Insurance Program (CHIP) benefits. The Pioneer ACO Model is an 
Innovation Center initiative designed for organizations with experience 
operating as ACOs or in similar arrangements. The Pioneer ACO Model is 
testing the impact of using different payment arrangements in helping 
these experienced organizations achieve the goals of providing better 
care to patients, and reducing Medicare costs. Under section 1899(b)(4) 
of the Act, to be eligible to participate in the Shared Savings 
Program, a provider of services or supplier may not also be 
participating in a program or demonstration project that involves 
shared savings, such as the Pioneer ACO Model. Thus, Pioneer ACOs are 
not permitted to participate concurrently in the Shared Savings 
Program. As Pioneer ACOs complete the model test (the agreement is for 
a minimum of 3 years with an option to participate for an additional 2 
years), they would have an opportunity to transition to the Shared 
Savings Program. We believe it would be appropriate to establish an 
efficient process to facilitate this transition in a way that minimizes 
any unnecessary burdens on these ACOs and on CMS.
b. Proposed Revisions
    In order to do this, we propose to use a transition process that is 
similar to the transition process we established previously for 
Physician Group Practice (PGP) demonstration participants applying to 
participate in the Shared Savings Program. The PGP demonstration, 
authorized under section 1866A of the Act, was our first experience 
with a shared savings program in Medicare and served as a model for 
many aspects of the Shared Savings Program.
    In the November 2011 final rule (76 FR 67834), we finalized Sec.  
425.202(b), which provides that PGP sites applying for participation in 
the Shared Savings Program will be given the opportunity to complete a 
condensed application form. This condensed application form requires a 
PGP site to provide the information that was required for the standard 
Shared Savings Program application but that was not already obtained 
through its application for or via its participation in the PGP 
demonstration. Also, a PGP participant

[[Page 72780]]

would be required to update any information contained in its 
application for the PGP demonstration that was also required on the 
standard Shared Savings Program application. Former PGP participants 
qualified to use a condensed application form if their ACO legal entity 
and TINs of ACO participant were the same as those that participated 
under the PGP demonstration.
    As we continue to implement the Shared Savings program, we will 
likely have a similar situation with regard to Pioneer ACOs that have 
completed their current agreement and wish to transition to the Shared 
Savings Program. Given that we have been working with and have a level 
of familiarity with these organizations similar to that with the PGP 
participants, we believe it is also appropriate to consider offering 
some latitude with regard to the process for applying to the Shared 
Savings Program for these ACOs.
    Thus, we propose to revise Sec.  425.202(b) to offer Pioneer ACOs 
the opportunity to apply to the Shared Savings Program using a 
condensed application if three criteria are satisfied. First, the 
applicant ACO must be the same legal entity as the Pioneer ACO. Second, 
all of the TINs on the applicant's ACO participant list must have 
appeared on the ``Confirmed Annual TIN/NPI List'' (as defined in the 
Pioneer ACO Model Innovation Agreement with CMS) for the applicant 
ACO's last full performance year in the Pioneer ACO Model. Third, the 
applicant must be applying to participate in a two-sided model. We note 
that, consistent with the statute and our regulation at Sec.  425.114, 
any Pioneer ACO transitioning to the Shared Savings Program must apply 
to participate in the Shared Savings Program for an agreement period 
that would start after its participation in the Pioneer ACO Model has 
ceased. We further note that Pioneer ACOs transitioning to the Shared 
Savings Program would be subject to the standard program integrity 
screening and an evaluation of their history of compliance with the 
requirements of the Pioneer ACO Model.
    Regarding the second criterion, we recognize there are differences 
between the Pioneer ACO Model and the Shared Savings Program, and that 
only some of the NPIs within a TIN might have participated in the 
Pioneer ACO. Therefore, for purposes of determining whether a condensed 
application will be appropriate under the Shared Savings Program, we 
will only compare the TINs and not NPIs. We also recognize that some 
TINs may not be able to obtain the consent of all NPIs billing through 
the TIN to participate in the Shared Savings Program, which 
disqualifies the TIN from participating in the program. Therefore, 
unlike with the PGP demonstration sites, we propose to allow the ACO 
applicant to complete a condensed application form even if it drops 
TINs that participated in its Pioneer ACO. However, if the applicant 
ACO includes TINs that were not on the Pioneer ACO's Confirmed Annual 
TIN/NPI List for its last full performance year in the Pioneer ACO 
Model, the applicant must use the standard application for the Shared 
Savings Program. A Pioneer ACO applying to the Shared Savings Program 
using a condensed application form will be required to include a 
narrative description of the modifications they need to make to fulfill 
our requirements (for example, making changes to the governing body and 
obtaining or revising agreements with ACO participants and ACO 
providers/suppliers).
    Because the Pioneer ACO Model is a risk-bearing model designed for 
more experienced organizations, the third proposed criterion would 
permit Pioneer ACOs to use the condensed application only if they apply 
to participate in the Shared Savings Program under a two-sided model. 
We established Track 1 of the Shared Savings Program as an on-ramp for 
ACOs while they gain experience and become ready to accept risk. In 
this case, the Pioneer ACOs are already experienced and will have 
already accepted significant financial risk. Therefore, under this 
proposal, former Pioneer ACOs would not be permitted to enter the 
Shared Savings Program under Track 1. We further note that the rules 
and methodologies used under the Pioneer ACO Model to assess 
performance-based risk are different than under the Shared Savings 
Program. Therefore, we encourage former Pioneer Model ACOs to carefully 
consider the risk-based track to which they apply under the Shared 
Savings Program, and to be cognizant of the differences in rules and 
methodologies.
    We seek comments on this proposal to establish a condensed 
application process for Pioneer ACOs applying to participate in the 
Shared Savings Program and to require such Pioneer ACOs to participate 
under a track that includes performance-based risk. Pioneer ACOs that 
do not meet criteria for the condensed application would have to apply 
through the regular application process.

C. Establishing and Maintaining the Participation Agreement With the 
Secretary

1. Background
    The November 2011 final rule established procedures for applying to 
participate in the Shared Savings Program, including the need to submit 
a complete application, the content of the application, and CMS's 
criteria for evaluating applications (see Sec.  425.202 through Sec.  
425.206). In addition, Sec.  425.212 specifies which changes to program 
requirements will apply during the term of an ACO's participation 
agreement. In this section we discuss our proposals to clarify and to 
supplement the rules related to these requirements.
    In addition, while the current regulations address certain issues 
with respect to ACOs that wish to reapply after termination or 
experiencing a loss during their initial agreement period (Sec.  
425.222 and Sec.  425.600(c), respectively). The regulations are 
generally silent with respect to the procedures that apply to ACOs that 
successfully complete a 3-year agreement and would like to reapply for 
a subsequent agreement period in the Shared Savings Program. In this 
section, we discuss our proposal to establish the procedure for an ACO 
to renew its participation agreement for a subsequent agreement period.
2. Application Deadlines
a. Overview
    To obtain a determination on whether a prospective ACO meets the 
requirements to participate in the Shared Savings Program, our rules at 
Sec.  425.202(a) require that an ACO submit a complete application in 
the form and manner required by CMS by the deadline established by CMS. 
Information on the required content of applications can be found in 
Sec.  425.204, as well as in guidance published at http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/sharedsavingsprogram/Application.html. Among other requirements, applications must include 
certain information such as an ACO's prior participation in or 
termination from the program (Sec.  425.204(b)); documents such as 
participation agreements, employment contracts and operating policies 
(Sec.  425.204(c)(1)(i)); and a list of all ACO participants and their 
Medicare-enrolled TINs (Sec.  425.204(c)(5)(i)).
    We determine and publish in advance on our Web site the relevant 
due dates for the initial submission of applications

[[Page 72781]]

for each application cycle. While ACOs must submit a completed 
application by the initial application due date specified on our Web 
site, we recognize that there may be portions of the application where 
additional information is necessary for CMS to make a determination. 
Therefore, according to Sec.  425.206(a)(2), we notify an applicant 
when its application is incomplete and provide an opportunity to submit 
information to complete the application by the deadline specified by 
CMS.
    As stated in Sec.  425.206(a), CMS evaluates an ACO's application 
on the basis of the information contained in and submitted with the 
application. Applications that remain incomplete after the deadline 
specified by CMS are denied. It is incumbent upon the ACO applicant to 
submit the information that is required for CMS to decide whether the 
applicant is eligible to participate in the program.
b. Proposed Revisions
    In implementing the Shared Savings Program, we found that some 
applicants misunderstood our application process and the need to submit 
all required information by the specified deadline for submission of 
applications and supporting information. Thus, we propose to revise our 
application review process set forth at Sec.  425.206(a) to better 
reflect our review procedures.
    First, we propose to consolidate at Sec.  425.206 two similar 
provisions regarding application review. Currently, Sec.  425.202(c)(1) 
regarding application review provides that CMS determines whether an 
applicant satisfies the requirements of Part 425 and is qualified to 
participate in the Shared Savings Program, and Sec.  425.202(c)(2) 
provides that CMS approves or denies applications accordingly. We 
propose to amend Sec.  425.206(a)(1) to address the concept of 
application review currently set forth at Sec.  425.202(c)(1), and we 
propose to amend Sec.  425.202(c) by replacing the existing text with 
language clarifying that CMS reviews applications in accordance with 
Sec.  425.206.
    Second, we propose to revise Sec.  425.206(a) to better reflect our 
application review process and the meaning of the reference to 
``application due date.'' Specifically, we propose to revise Sec.  
425.206(a)(1) to clarify that CMS approves or denies an application on 
the basis of the following: Information contained in and submitted with 
the application by the deadline specified by CMS; any supplemental 
information submitted by a deadline specified by CMS in response to 
CMS' request for information; and other information available to CMS 
(including information on the ACO's program integrity history). In 
addition, we propose to amend Sec.  425.206(a)(2) to clarify our 
process for requesting supplemental information and to add a new 
paragraph (a)(3) to specify that CMS may deny an application if an ACO 
applicant fails to submit information by the deadlines specified by 
CMS. We believe that additional clarity may result in more timely 
submission of the information necessary to evaluate applications. 
Moreover, it is critical that ACOs submit information on a timely basis 
so that we can perform other necessary operational processes before the 
start of the approved ACO's first performance year (for example, 
determining the number of beneficiaries assigned to the ACO, screening 
prospective ACO participants and ACO providers or suppliers, 
identifying the preliminary prospective list of assigned beneficiaries, 
and calculating the ACO's historical benchmark).
    These proposed changes are consistent with our current regulations 
and practice. For example, as part of the application review process, 
CMS provides feedback to the ACO applicant regarding its list of ACO 
participants, and the number of assigned beneficiaries is determined 
using this list of ACO participants. If the number of assigned 
beneficiaries based on the list of ACO participants submitted with the 
application is under 5,000, which is the threshold for eligibility 
under Sec.  425.110(a), we give the ACO applicant an opportunity to add 
ACO participant TINs. However, the ACO applicant must do so by the 
deadline indicated by CMS or the application is denied. Similarly, CMS 
denies an application if an ACO applicant fails to timely submit 
additional information that is required for CMS to determine whether 
the ACO applicant meets program requirements.
3. Renewal of Participation Agreements
a. Overview
    For ACOs that would like to continue participating in the Shared 
Savings Program after the expiration of their current agreement period, 
we propose a process for renewing their existing participation 
agreements, rather than requiring submission of a new or condensed 
application for continued program participation. Therefore, we propose 
to add new Sec.  425.224 to establish procedures for renewing the 
participation agreements of ACOs. In addition, we propose to modify the 
definition of ``agreement period'' at Sec.  425.20 to clarify its 
meaning in the context of participation agreement renewals.
b. Proposed Revisions
    Under proposed Sec.  425.224(a), an ACO would be permitted to 
request renewal of its participation agreement prior to its expiration 
in a form and manner and by the deadline specified by CMS in guidance. 
An ACO executive who has the authority to legally bind the ACO must 
certify that the information contained in the renewal request is 
accurate, complete, and truthful. Further, an ACO that seeks renewal of 
its participation agreement and was newly formed after March 23, 2010, 
as defined in the Antitrust Policy Statement, must agree that CMS can 
share a copy of its renewal request with the Antitrust Agencies. We 
anticipate that our operational guidance will outline a process 
permitting renewal requests during the last performance year of an 
ACO's participation agreement. For example, an ACO with a participation 
agreement ending on December 31, 2015 would be offered the opportunity 
to renew its participation agreement sometime during the 2015 calendar 
year in preparation to begin a new 3-year agreement period on January 
1, 2016. To streamline program operations, we anticipate specifying a 
timeframe for submission and supplementation of renewal requests that 
would generally coincide with the deadlines applicable to submission 
and supplementation of applications by new ACO applicants under Sec.  
425.202.
    Under proposed Sec.  425.224(b), we propose to determine whether to 
renew a participation agreement based on an evaluation of all of the 
following factors:
     Whether the ACO satisfies the criteria for operating under 
the selected risk model.
     The ACO's history of compliance with the requirements of 
the Shared Savings Program.
     Whether the ACO has established that it is in compliance 
with the eligibility and other requirements of the Shared Savings 
Program, including the ability to repay losses, if applicable.
     Whether the ACO met the quality performance standards 
during at least 1 of the first 2 years of the previous agreement 
period.
     Whether an ACO under a two-sided model has repaid losses 
owed to the program that it generated during the first 2 years of the 
previous agreement period.
     The results of a program integrity screening of the ACO, 
its ACO participants, and its ACO providers/suppliers (conducted in 
accordance with Sec.  425.304(b)).

[[Page 72782]]

    We solicit comments on these criteria and any additional criteria 
that would help ensure the success of the program.
    We further propose to approve or deny a renewal request based on 
the information submitted in the request and other information 
available to CMS. We propose to notify the ACO when the request is 
incomplete or inadequate and to provide an opportunity for the ACO to 
submit supplemental information to correct the deficiency. The ACO must 
submit both the renewal request and any additional information needed 
to evaluate the request in the form and manner and by the deadlines 
specified by CMS.
    Under Sec.  425.224(c), we propose to notify each ACO in writing of 
our determination to approve or deny the ACO's renewal request. If we 
deny the renewal request, the notice would specify the reasons for the 
denial and inform the ACO of any rights to request reconsideration 
review in accordance with the procedures specified in part 425 subpart 
I.
    We believe that a simple renewal process would reduce the burden 
for ACOs that wish to continue in the program and minimize the 
administrative burden on CMS, which would allow us to focus our 
attention on new applicants that have not yet established their 
eligibility to participate. We intend to establish the deadlines and 
other operational details for this renewal process through guidance and 
instructions. Finally, we note that under our proposal to modify the 
definition of the participation ``agreement period'' (section II.C.4 of 
this proposed rule), a new agreement period would begin upon the start 
of the first performance year of the renewed participation agreement.
4. Changes to Program Requirements During the 3-Year Agreement
a. Overview
    In the November 2011 final rule (76 FR 67838), we recognized that 
we might promulgate changes to the Shared Savings Program regulations 
that would become effective while participating ACOs are in the middle 
of an agreement period. Therefore, we promulgated a rule to specify 
under what conditions an ACO would be subject to regulatory changes 
that become effective after the start of its agreement period. 
Specifically, we finalized Sec.  425.212(a)(2), which provides that 
ACOs are subject to all regulatory changes with the exception of 
changes to the eligibility requirements concerning ACO structure and 
governance, the calculation of the sharing rate, and the assignment of 
beneficiaries (Sec.  425.212(a)(2)). We did not exempt ACOs from 
becoming immediately subject to other regulatory changes. For example, 
we did not exempt changes such as those related to quality measures 
because we believed that requiring ACOs to adhere to changes related to 
quality measures would ensure that they keep pace with changes in 
clinical practices and developments in evidence-based medicine.
    The November 2011 final rule did not require ACOs to be subject to 
any regulatory changes regarding beneficiary assignment that become 
effective during an agreement period because we recognized that changes 
in the beneficiary assignment methodology could necessitate changes to 
ACOs' financial benchmarks. At the time we published the November 2011 
final rule (76 FR 67838), we had not developed a methodology for 
adjusting an ACO's benchmark to reflect changes in the beneficiary 
assignment methodology during an agreement period. We anticipated that 
ACOs would complete their 3-year agreement period with a relatively 
stable set of ACO participants, and therefore they would all have 
stable benchmarks during the 3-year agreement period that would require 
updates only to reflect annual national FFS trends and changes in 
beneficiary characteristics, consistent with statutory requirements. 
Without a methodology for adjusting benchmarks to reflect changes in 
the beneficiary assignment methodology during the agreement period, we 
were reluctant to subject ACOs to immediate regulatory changes that 
could impact their benchmarks during the term of a participation 
agreement. However, in light of the extensive changes that ACOs have 
made to their lists of ACO participants during the first two 
performance years, the significant effect that these changes have had 
upon beneficiary assignment, and our subsequent development of 
additional policies regarding benchmark adjustment at the start of each 
performance year to reflect such changes (see http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/sharedsavingsprogram/Updating-ACO-Participant-List.html), we wish to revisit the types of 
regulatory changes an ACO would become subject to during its agreement 
period. We also propose to clarify Sec.  425.212(a) regarding the 
applicability of certain regulatory changes and to clarify the 
definition of ``agreement period'' under Sec.  425.20.
b. Proposed Revisions
    First, we propose to modify Sec.  425.212(a) to provide that ACOs 
are subject to all regulatory changes ``that become effective during 
the agreement period,'' except for regulations regarding certain 
specified program areas, ``unless otherwise required by statute.'' This 
proposed revision corrects the omission of temporal language in the 
requirement regarding regulatory changes. In addition, it clarifies 
that ACOs would be subject to regulatory changes regarding ACO 
structure and governance, and calculation of the sharing rate during an 
agreement period if CMS is mandated by statute to implement such 
changes by regulation in the middle of a performance year.
    Second, we propose to modify the definition of ``agreement period'' 
at Sec.  425.20. The term ``agreement period'' is currently defined at 
Sec.  425.20 to mean ``the term of the participation agreement which 
begins at the start of the first performance year and concludes at the 
end of the final performance year.'' However, the reference to ``final 
performance year'' in the existing definition is ambiguous in light of 
our proposal to renew participation agreements (see section II.C.4. of 
this proposed rule). For example, if the ``final performance year'' of 
the agreement period includes the last performance year of a renewed 
participation agreement, an ACO would never be subject to regulatory 
changes regarding ACO structure and governance or calculation of the 
sharing rate. Therefore, we propose to amend the definition to provide 
that the agreement period would be 3 performance years, unless 
otherwise specified in the participation agreement. Thus, an ACO whose 
participation agreement is renewed for a second or subsequent agreement 
period would be subject, beginning at the start of that second or 
subsequent agreement period, to any regulatory changes regarding ACO 
structure and governance that became effective during the previous 3 
years (that is, during the preceding agreement period).
    Third, we propose to require ACOs to be subject to any regulatory 
changes regarding beneficiary assignment that become effective during 
an agreement period. Specifically, we propose to remove beneficiary 
assignment as an exception under Sec.  425.212(a). Consistent with our 
authority under section 1899(d)(1)(B)(ii) of the Act to adjust the 
benchmark ``for beneficiary characteristics and other factors as the 
Secretary determines appropriate,'' we have now developed operational

[[Page 72783]]

policies under which we are able to adjust the benchmark on a yearly 
basis to account for changes in beneficiary assignment resulting from 
changes in the ACO's list of ACO participants. For more detailed 
information on these policies see http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/sharedsavingsprogram/Updating-ACO-Participant-List.html. Given that these operational policies enable annual 
adjustments to ACO benchmarks to account for changes in beneficiary 
assignment resulting from changes in ACO participants, we believe we 
would also be able to adjust an ACO's benchmark to account for 
regulatory changes regarding beneficiary assignment methodology that 
become effective during an agreement period. Accordingly, we do not 
believe our proposal to make regulatory changes regarding beneficiary 
assignment applicable to ACOs during an agreement period would 
inappropriately affect the calculation of an ACO's benchmark or shared 
savings for a given performance year. Rather, our adjustment 
methodology would ensure continued and appropriate comparison between 
benchmark and performance year expenditures.
    Under this proposal, regulatory changes regarding beneficiary 
assignment would apply to all ACOs, including those ACOs that are in 
the middle of an agreement period. However, as discussed in section 
II.E.6. of this proposed rule, we also propose that any final policies 
that affect beneficiary assignment would not be applicable until the 
start of the next performance year. We believe that implementing any 
revisions to the assignment methodology at the beginning of a 
performance year is reasonable and appropriate because it would permit 
time for us to make the necessary programming changes and would not 
disrupt the assessment of ACOs for the current performance year. 
Moreover, we would adjust all benchmarks at the start of the first 
performance year in which the new assignment rules are applied so that 
the benchmark for an ACO reflects the use of the same assignment rules 
that would apply in the performance year.
    We also note that we carefully consider the timing and effect on 
both current and future ACOs of any new regulatory proposal, and when 
promulgating new regulatory changes, we intend to solicit comment on 
these matters. Additionally, when implementing a final rule that 
changes our processes and methodologies, we intend to alert current and 
prospective ACOs of such changes via CMS communications and updates to 
guidance. We request comment on this proposed change to Sec.  
425.212(a).

D. Provision of Aggregate and Beneficiary Identifiable Data

1. Background
    Under section 1899(b)(2)(A) of the Act, an ACO must ``be willing to 
become accountable for the quality, cost, and overall care of the 
Medicare fee-for-service beneficiaries assigned to it.'' Further, in 
order to be eligible to participate in the Shared Savings Program, 
section 1899(b)(2)(G) of the Act states an ``ACO shall define processes 
to . . . report on quality and cost measures, and coordinate care. . . 
.'' However, section 1899 of the Act does not address what data, if 
any, we should make available to ACOs on their assigned beneficiary 
populations to support them in evaluating the performance of ACO 
participants and ACO providers/suppliers, conducting quality assessment 
and improvement activities, or conducting population-based activities 
relating to improved health.
    As we explained in the November 2011 final rule (76 FR 67844), in 
agreeing to become accountable for a group of Medicare beneficiaries, 
and as a condition of participation in the Shared Savings Program, we 
expect that ACOs will have, or are working towards having, processes in 
place to independently identify and produce the data they believe are 
necessary to best evaluate the health needs of their patient 
population, improve health outcomes, monitor provider/supplier quality 
of care and patient experience of care, and produce efficiencies in 
utilization of services. Therefore, it is our expectation that ACOs are 
actively working on developing and refining these processes. Moreover, 
we continue to believe this ability to independently identify and 
produce data for evaluating, improving, and monitoring the health of 
their patient population is a critical skill for each ACO to develop, 
leading to an understanding of the patient population that it serves. 
Once the ACO achieves an understanding of its patient population, it 
can work toward redesigning appropriate care processes to address the 
specific needs of its patient population.
    However, as we noted previously (76 FR 67844), while an ACO 
typically should have, or at least be moving towards having complete 
information for the services its ACO providers/suppliers furnish to 
Medicare FFS beneficiaries, we recognize that the ACO may not have 
access to information about services provided to its assigned 
beneficiaries by health care providers and suppliers outside the ACO--
information that may be key to the ACO's coordination of care efforts. 
Therefore, during the original rulemaking process for the Shared 
Savings Program, we proposed and made final a policy: (1) To distribute 
aggregate-level data reports to ACOs; (2) upon request from the ACO, to 
share limited identifying information about beneficiaries who are 
preliminarily prospectively assigned to the ACO and whose information 
serves as the basis for the aggregate reports; and (3) upon request 
from the ACO, to share certain beneficiary identifiable claims data 
with the ACO to enable it to conduct quality assessment and improvement 
activities and/or conduct care coordination, on its own behalf as a 
covered entity, or on behalf of its ACO participants and ACO providers/
suppliers that are covered entities, unless the beneficiary chooses to 
decline to share his or her claims data.
    As we stated in the November 2011 final rule (76 FR 67844), we 
believe that access to beneficiary identifiable information would 
provide ACOs with a more complete picture about the care their assigned 
beneficiaries receive, both within and outside the ACO. Further, it is 
our view that this information would help ACOs evaluate providers'/
suppliers' performance, conduct quality assessment and improvement 
activities, perform care coordination activities, and conduct 
population-based activities relating to improved health.
    In the April 2011 proposed rule (76 FR 19558), we described the 
circumstances under which we believed that the HIPAA Privacy Rule would 
permit our disclosure of certain Medicare Part A and B data to ACOs 
participating in the Shared Savings Program. Specifically, under the 
Shared Savings Program statute and regulations, ACOs are tasked with 
working with their ACO participants and ACO providers/suppliers to 
evaluate their performance, conduct quality assessment and improvement 
activities, perform care coordination activities, and conduct 
population-based activities relating to improved health for their 
assigned beneficiary population. When done by or on behalf of a covered 
entity, these are functions and activities that would qualify as 
``health care operations'' under the first and second paragraphs of the 
definition of health care operations at 45 CFR 164.501. As such, these 
activities can be done by an ACO either on its own behalf, if it is 
itself a covered entity, or on behalf of its covered entity ACO 
participants and

[[Page 72784]]

ACO providers/suppliers, in which case the ACO would be acting as the 
business associate of its covered entity ACO participants and ACO 
providers/suppliers. Accordingly we concluded that the disclosure of 
Part A and B claims data would be permitted by the HIPAA Privacy Rule 
provisions governing disclosures for ``health care operations,'' 
provided certain conditions are met.
    As we also discussed, upon receipt of a request for protected 
health information (PHI), a covered entity or its business associate is 
permitted to disclose PHI to another covered entity or its business 
associate for the requestor's health care operations if both entities 
have or had a relationship with the subject of the records to be 
disclosed (which is true in the Shared Savings Program), the records 
pertain to that relationship (which is also true in the Shared Savings 
Program), and the recipient asserts in its request for the data that it 
plans to use the records for a ``health care operations'' function that 
falls within the first two paragraphs of the definition of ``health 
care operations'' in the HIPAA Privacy Rule and that the data requested 
are the ``minimum necessary'' to carry out those health care 
operations. (See, the HIPAA Privacy Rule at 45 CFR 164.502(b) and 
164.506(c)(4)). The first two paragraphs of the definition of health 
care operations under 45 CFR 164.501 include evaluating a provider's or 
supplier's performance, conducting quality assessment and improvement 
activities, care coordination activities, and conducting population-
based activities relating to improved health.
    With respect to the relationship requirements in 45 CFR 
164.506(c)(4), we have a relationship with the individuals who are the 
subjects of the requested PHI because they are Medicare beneficiaries. 
The ACO has a relationship with such individuals, either as a covered 
entity itself or on behalf of its covered entity ACO participants and 
ACO providers/suppliers as a business associate, because the 
individuals are either preliminarily prospectively assigned to the ACO 
or have received a primary care service during the past 12 month period 
from an ACO participant upon whom assignment is based. In addition, the 
requested PHI pertains to the individuals' relationship with both CMS 
and the ACO, in that we provide health care coverage for Medicare FFS 
beneficiaries and have an interest in ensuring that they receive high 
quality and efficient care, and the ACO is responsible for managing and 
coordinating the care of these individuals, who are part of the ACO's 
assigned beneficiary population.
    Beneficiary identifiable Medicare prescription drug information 
could also be used by ACOs to improve the care coordination of their 
patient populations. Accordingly, consistent with the regulations 
governing the release of Part D data, in the April 2011 proposed rule 
(76 FR 19559), we also proposed to make available the minimum Part D 
data necessary to allow for the evaluation of the performance of ACO 
participants and ACO providers/suppliers, to conduct quality assessment 
and improvement, to perform care coordination, and to conduct 
population-based activities relating to improved health.
    In the November 2011 final rule (76 FR 67846 and 67851), we adopted 
a policy that defined when we would share beneficiary identifiable 
information (including Part A and B claims data and Part D prescription 
drug event data) for preliminarily prospectively assigned beneficiaries 
and those beneficiaries who have a primary care visit with an ACO 
participant that is used to assign beneficiaries to the ACO. As a basic 
requirement, in order to receive such data an ACO that chooses to 
access beneficiary identifiable data is required under 42 CFR 425.704 
to request the minimum data necessary for the ACO to conduct health 
care operations work, either as a HIPAA-covered entity in its own 
right, or as the business associate of one or more HIPAA-covered 
entities (where such covered entities are the ACO participants and ACO 
providers/suppliers), for ``health care operations'' activities that 
fall within the first or second paragraph of the definition of health 
care operations at 45 CFR 164.501. We note that as part of their 
application to participate in the Shared Savings Program, ACOs certify 
whether they intend to request beneficiary identifiable information, 
and that the requested data reflects the minimum necessary for the ACO 
to conduct health care operations either on its own behalf or on behalf 
of its covered entity ACO participants and ACO provider/suppliers. 
Thus, the ACO's formal request to receive data is accomplished at the 
time of its application to the Shared Savings Program. The ACO must 
also enter into a data use agreement (DUA) with CMS. If all of these 
conditions are satisfied, CMS makes available certain limited PHI 
regarding the preliminarily prospectively assigned beneficiaries whose 
data were used to generate the aggregate data reports provided to the 
ACO under Sec.  425.702(b) and other beneficiaries who have a primary 
care visit during the performance year with an ACO participant upon 
whom assignment is based. In order to enhance transparency and 
beneficiary engagement, we also finalized a policy that before ACOs may 
start receiving PHI in the form of beneficiary identifiable claims 
data, they must give beneficiaries the opportunity to decline sharing 
of their claims data as required under Sec.  425.708.
    Since the publication of the November 2011 final rule, we have 
gained further experience with sharing data with ACOs participating in 
the Shared Savings Program. We continue to believe that distributing 
aggregate reports, paired with making available certain beneficiary 
identifiable information related to preliminarily prospectively 
assigned beneficiaries, as well as making available the claims data for 
preliminarily prospectively assigned FFS beneficiaries and other FFS 
beneficiaries that have primary care service visits with ACO 
participants that submit claims for primary care services that are used 
to determine the ACO's assigned population, is worthwhile and 
consistent with the goals of the Shared Savings Program. The aggregate 
data reports and the beneficiary identifiable information related to 
preliminarily prospectively assigned beneficiaries give ACOs valuable 
information that can be used to better understand their patient 
population, redesign care processes, and better coordinate the care of 
their beneficiaries. ACOs participating in the Shared Savings Program 
have reported that the beneficiary identifiable claims data that they 
receive from us are being used effectively to better understand the FFS 
beneficiaries that are served by their ACO participants and ACO 
providers/suppliers. These data give ACOs valuable insight into 
patterns of care for their beneficiary population; enable them to 
improve care coordination among and across providers and suppliers and 
sites of care, including providers and suppliers and sites of care not 
affiliated with the ACO; and allow them to identify and address gaps in 
patient care.
    However, based upon our experiences administering the Shared 
Savings Program and feedback from stakeholders, we believe that we can 
improve our data sharing policies and processes to streamline access to 
such data to better support program and ACO function and goals and 
better serve Medicare beneficiaries. It is with this in mind that we 
propose the following modifications to our data sharing policies and 
procedures under the Shared Savings Program.

[[Page 72785]]

2. Aggregate Data Reports and Limited Identifiable Data
a. Overview
    Under Sec.  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 Sec.  425.702(a) and (b) contain 
certain de-identified beneficiary information including all of the 
following:
     Aggregated metrics on the ACO's preliminarily 
prospectively assigned beneficiary population, including 
characteristics of the assigned beneficiary population, the number of 
primary care services provided to the assigned beneficiary population 
by the ACO, and the proportion of primary care services provided to the 
assigned beneficiary population by ACO participants upon whom 
assignment is based.
     Expenditure data for the ACO's assigned beneficiary 
population by Medicare enrollment type (ESRD, disabled, aged/dual 
eligible, aged/non-dual eligible) and type of service (for example, 
inpatient hospital, physician, etc.).
     Utilization data on select metrics for the assigned 
population, such as ambulatory care sensitive conditions discharge 
rates per 1,000 beneficiaries for conditions such as congestive heart 
failure (CHF) or uncontrolled diabetes, and utilization rates for 
imaging, emergency department visits, hospitalizations, and primary 
care services.
    In addition, under Sec.  425.702(c), we also provide a report that 
includes certain beneficiary identifiable information about the 
beneficiaries who are preliminarily prospectively assigned to the ACO 
and whose data were used to generate the de-identified aggregate data 
reports. The information currently contained in this assignment report 
includes the beneficiary name, date of birth, HICN, and sex. These 
beneficiary identifiable data are made available to an ACO that has met 
the conditions previously discussed in detail for purposes of carrying 
out population-based activities related to improving health or reducing 
growth in health care costs, process development (such as care 
coordination processes), case management, and care coordination for the 
beneficiary population assigned to the ACO. Under Sec.  425.708(d) 
these data points are not subject to the requirement that an ACO give 
beneficiaries an opportunity to decline claims data sharing.
    Feedback we have received since the November 2011 final rule was 
issued and during implementation of the Shared Savings Program, 
confirms there is a strong desire among ACOs and their ACO participants 
and ACO providers/suppliers to have as much information about their 
patients as is possible, in as timely a manner as possible, to better 
coordinate care and target care strategies toward individual 
beneficiaries. Moreover, ACOs are actively using the reports provided 
under Sec.  425.702 to conduct their health care operations work with 
the expectation that it will result in higher quality and more 
efficient care for their assigned beneficiary populations. However, 
ACOs and their ACO participants and ACO providers/suppliers also report 
that the four data elements currently made available on the assignment 
reports under Sec.  425.702(c)--that is, beneficiary name, date of 
birth, HICN, and sex--severely limit their care redesign efforts. They 
assert that additional data elements are necessary in order to conduct 
health care operations work under the first or second paragraph of the 
definition of health care operations at 45 CFR 164.501. For example, an 
ACO reported that having data not only on the frequency of 
hospitalizations but also on which specific beneficiaries were 
hospitalized and in which specific hospitals would better enable it to 
identify the effectiveness and outcomes of its post-hospitalization 
care coordination processes. Some stakeholders have made suggestions 
for beneficiary identifiable data that should be included in the 
quarterly reports in addition to the current four data elements, such 
as risk profiles or information on whether the beneficiary had a 
hospital visit in the past year. Some stakeholders suggested that the 
report be expanded to include information not only for the 
beneficiaries that received a plurality of their primary care services 
from ACO professionals, but also for all FFS beneficiaries that 
received a primary care service from an ACO participant in the past 
year. These stakeholders argue that understanding the entire FFS 
patient population served by the ACO and its ACO participants would 
improve their ability to redesign care, and reduce the uncertainty 
associated with a list of preliminarily prospectively assigned 
beneficiaries that fluctuates from quarter to quarter, based on the 
population's use of primary care services.
b. Proposed Revisions
    We considered what additional beneficiary identifiable data might 
be the minimum necessary to support the ACOs' health care operations 
work. Based on our discussions with ACOs and ACO participants and ACO 
providers/suppliers, we believe that making additional information 
available to ACOs about the FFS beneficiaries they serve, including for 
example, on whether a beneficiary visited an emergency room or was 
hospitalized, would help support such efforts. Thus, we propose to 
expand the information made available to ACOs under Sec.  425.702(c) to 
include certain additional beneficiary identifiable data subject to the 
existing requirements of Sec.  425.702(c)(2), which incorporates the 
requirements under HIPAA governing the disclosure of PHI. Specifically, 
in addition to the four data elements (name, date of birth, HICN, and 
sex) which are currently made available for preliminarily prospectively 
assigned beneficiaries, we propose to expand the beneficiary 
identifiable information that is made available under Sec.  
425.702(c)(1) to include these data elements (name, date of birth, 
HICN, and sex) for each beneficiary that has a primary care service 
visit with an ACO participant that bills for primary care services that 
are considered in the assignment process in the most recent 12-month 
period.
    Additionally, we propose to expand the beneficiary identifiable 
information made available for preliminarily prospectively assigned 
beneficiaries to include additional data points. The information would 
be derived from the same claims used to determine the preliminary 
prospective assigned beneficiary list. Specifically, we propose that we 
would make available the minimum data set necessary for purposes of the 
ACO's population-based activities related to improving health or 
reducing health care costs, required process development (under Sec.  
425.112), care management, and care coordination for its preliminarily 
prospectively assigned beneficiary population, at the following times: 
(1) At the beginning of the agreement period; (2) at the beginning of 
each performance year and quarterly thereafter; and (3) in conjunction 
with the annual reconciliation. We would articulate the data elements 
associated with the minimum data set in operational guidance, and 
update as needed to reflect changes in the minimum data necessary for 
ACOs to perform these activities. The information would fall under the 
following categories:

[[Page 72786]]

     Demographic data such as enrollment status.
     Health status information such as risk profile, and 
chronic condition subgroup.
     Utilization rates of Medicare services such as the use of 
evaluation and management, hospital, emergency, and post-acute 
services, including dates and place of service.
     Expenditure information related to utilization of 
services.
    We believe that under this approach the data made available in the 
aggregate data reports under Sec.  425.702(c) would generally 
constitute the minimum data necessary for covered entity ACOs or for 
ACOs serving as the business associate of their covered entity ACO 
participants and ACO providers/suppliers, to evaluate providers' and 
suppliers' performance, conduct quality assessment and improvement 
activities, and conduct population-based activities relating to 
improved health.
    Finally, we note that these proposals for expansion of the data 
reports provided under Sec.  425.702(c) to include each FFS beneficiary 
that has a primary care visit with an ACO participant that submits 
claims for primary care services that are considered in the assignment 
process, would apply only to ACOs participating in Tracks 1 and 2, 
where beneficiaries are assigned in a preliminarily prospective manner 
with retrospective reconciliation. This is because ACOs in Tracks 1 and 
2 have an incentive to redesign care processes for all FFS 
beneficiaries that receive care from their ACO participants, due to the 
nature of the preliminarily prospective assignment methodology with 
retrospective reconciliation. Under our proposed Track 3, which is 
discussed in detail in section II.F.3.a. of this proposed rule, we 
believe that the minimum data necessary for ACOs to perform health care 
operations as defined under the first and second paragraphs of the 
definition of health care operations at 45 CFR 164.501, would not 
extend beyond data needed for health operations related to the 
prospective list of assigned beneficiaries. We believe a prospective 
assignment approach incentivizes targeting of the specific FFS 
beneficiaries on the list for care improvement, rather than redesigning 
care processes for all FFS beneficiaries seen by the ACO participants. 
As such, the minimum data necessary required for Track 3 ACOs to 
perform health care operations work would be limited to the data for 
beneficiaries that are prospectively assigned for a performance year. 
Thus, for Track 3, we propose to limit the beneficiary identifiable 
data included in the reports made available under Sec.  425.702(c) to 
only those beneficiaries that appear on the ACO's prospective list of 
beneficiaries at the beginning of a performance year. Specifically, 
Track 3 ACOs would have access to beneficiary identifiable data 
elements associated with the list of categories under Sec.  425.702(c) 
for beneficiaries prospectively assigned to the ACO but would not be 
able to request any information related to other Medicare FFS 
beneficiaries who receive primary care services that are considered in 
the assignment process from ACO participants. We believe this 
limitation is reasonable because, under Track 3, the prospectively 
assigned beneficiary list would encompass all beneficiaries for whom 
the ACO would be held accountable in a given performance year, in 
contrast to ACOs in Tracks 1 and 2 that would be held accountable for 
any FFS beneficiaries that choose to receive a plurality of their 
primary care services from ACO professionals billing through the TINs 
of ACO participants.
    We seek comment on our proposal to expand the data set made 
available to ACOs under Sec.  425.702(c). We seek comment on the 
categories of information that we have proposed to include and on any 
other beneficiary identifiable information that should be offered in 
the aggregate reports provided under Sec.  425.702(c) in order to allow 
ACOs as covered entities or as the business associate of their covered 
entity ACO participants and ACO providers/suppliers to conduct health 
care operations work under paragraphs one or two of the definition of 
health care operations at 45 CFR 164.501. We also specifically seek 
comment on our proposal to expand the list of beneficiaries for which 
data are made available under Sec.  425.702(c) to ACOs participating in 
Track 1 and Track 2 to include all beneficiaries that had a primary 
care service visit with an ACO participant that submits claims for 
primary care services that are considered in the assignment process.
3. Claims Data Sharing and Beneficiary Opt-Out
a. Overview
    Because Medicare FFS beneficiaries have the freedom to choose their 
health care providers and suppliers, and are not required to receive 
services from providers and suppliers participating in the ACO, the 
patients of ACO participants and ACO providers/suppliers often receive 
care from other providers and suppliers that are not affiliated with 
the ACO. As a result, ACOs and their ACO participants and ACO 
providers/suppliers may not be aware of all of the services an assigned 
beneficiary is receiving. Furthermore, under Tracks 1 and 2, we perform 
a retrospective reconciliation at the end of each performance year to 
determine an ACO's assigned beneficiary population based on 
beneficiaries' use of primary care services using the assignment 
algorithm described at Sec.  425.402 of the regulations. Therefore, 
under Tracks 1 and 2, it is possible that an ACO's preliminary 
prospective assigned beneficiary list would not be complete and would 
not include all the beneficiaries that would ultimately be assigned to 
the ACO at the end of the performance year--that is, all of the 
beneficiaries for which the ACO ultimately would be held accountable. 
As we discussed in the April 2011 proposed rule (76 FR 19558) and in 
the November 2011 final rule (76 FR 67844), we were concerned about 
ACOs' ability to do their work in the absence of information about 
services delivered outside of the ACO. As we stated at that time, we 
believed that it would be important to give ACOs appropriate access to 
a beneficiary's identifiable claims data when the beneficiary has 
received a primary care service billed through the TIN of an ACO 
participant, and is thus a candidate for assignment at the time of 
retrospective reconciliation for the performance year. We believed that 
sharing beneficiary identifiable claims data would enable ACOs to 
better coordinate and target care strategies towards the individual 
beneficiaries seen by ACO participants and ACO providers/suppliers.
    We ultimately concluded that the bases for disclosure under the 
HIPAA Privacy Rule were broad enough to cover CMS's disclosure of 
Medicare Parts A and B claims data to ACOs for health care operations 
work when certain conditions are met. Similarly, we concluded that the 
Part D regulations governing the release of Part D data on prescription 
drug use would permit the release of Part D prescription drug event 
data to ACOs for purposes of supporting care coordination, quality 
improvement, and performance measurement activities. Thus, we concluded 
that we are permitted to disclose the minimum Medicare Parts A, B, and 
D data necessary to allow ACOs to conduct the health care operations 
activities that fall into the first or second paragraph of the 
definition of health care operations under the HIPAA Privacy Rule when 
such data is requested by the ACO as a covered entity or as the 
business

[[Page 72787]]

associate of its covered entity ACO participants and ACO providers/
suppliers. Accordingly, in the November 2011 final rule (76 FR 67851), 
we adopted a policy under which an ACO may request Part A and Part B 
claims data and Part D prescription drug event data for preliminarily 
prospectively assigned beneficiaries and other beneficiaries who 
receive primary care services from an ACO participant upon whom 
assignment is based. In accordance with the terms of the DUA that the 
ACO must enter into with CMS, data received from CMS under the data 
sharing provisions of the Shared Savings Program may only be used for 
the purposes of clinical treatment, care management and coordination, 
quality improvement activities, and provider incentive design and 
implementation. In providing the claims data subject to these 
limitations, we believed that we would ensure compliance with the 
requirements of the HIPAA Privacy Rule and the regulations governing 
the release of Part D data.
    While the disclosure of claims data in this manner is within the 
bounds of the applicable laws, we also noted concerns about 
beneficiaries' interests in controlling access to their individually 
identifiable health information. Thus, even though we believed that we 
had legal authority to make the contemplated disclosures without the 
consent of beneficiaries, in the November 2011 final rule (76 FR 67849) 
we implemented the additional requirement at Sec.  425.708 that ACOs 
offer beneficiaries an opportunity to decline to have their claims data 
shared with the ACO. As such, before requesting access to the 
beneficiary's data and as part of its broader activities to notify 
patients that their health care provider or supplier is participating 
in an ACO, the ACO is required to inform beneficiaries that the ACO may 
request access to their claims data, and give beneficiaries an 
opportunity to decline such claims data sharing.
    Under the current opt-out system, once the ACO formally requests 
beneficiary identifiable claims data through the application process, 
enters into a DUA with CMS, and begins its first performance year, the 
ACO must supply beneficiaries with a written notification explaining 
their opportunity to decline claims data sharing. Offering 
beneficiaries the opportunity to decline claims data sharing may take 
two forms under current Sec.  425.708. First, if the ACO has formally 
requested beneficiary identifiable claims data as part of the 
application process, the ACO must notify each FFS beneficiary of the 
opportunity to decline data sharing when the beneficiary has his or her 
first visit with an ACO participant upon whom assignment is based. 
During this visit, the beneficiary must be provided with written 
notification informing him or her of the ACO provider/supplier's 
participation in the ACO and that the ACO may request claims 
information from CMS in order to better coordinate the beneficiary's 
care and for other health operations activities. This written 
notification contains template language created by CMS with the 
assistance of the Medicare Ombudsman's office and with input from 
beneficiaries, and explains the beneficiary's option to decline claims 
data sharing. Once the beneficiary has expressed a preference at the 
point of care, the ACO may immediately inform CMS of the beneficiary's 
data sharing preference. If the beneficiary has not declined data 
sharing, CMS makes that beneficiary's data available to the ACO.
    We recognized, however, that beneficiaries may not seek primary 
care services until later in the performance year. Because of this, we 
offered an alternative option to ACOs who met requirements for 
receiving beneficiary identifiable claims data. Under the alternative 
option, ACOs may contact beneficiaries via a mailed notification that 
is sent to all preliminarily prospectively assigned beneficiaries to 
notify them of their health care provider's participation in an ACO 
under the Shared Savings Program, and the ACO's intent to request 
beneficiary identifiable claims data. The mailed notification contains 
template language that was developed in conjunction with the Medicare 
Ombudsman's office with input from beneficiaries. If the beneficiary 
wishes to decline claims data sharing, the beneficiary is instructed to 
sign the mailed notification and return it to the ACO or call 1-800-
MEDICARE directly. If the ACO chooses to contact beneficiaries via a 
mailed notification, rather than waiting to notify them at the point of 
care, the ACO must wait 30 days before submitting the beneficiary's 
preference and receiving access to the data for those beneficiaries 
that have chosen not to decline claims data sharing. The 30-day waiting 
period provides beneficiaries with an opportunity to mail back the 
notification or to call 1-800-MEDICARE before the ACO receives access 
to their claims data. In addition, in order to ensure transparency, 
beneficiary engagement and meaningful choice, the notification and 
opportunity to decline claims data sharing must be repeated at the 
beneficiary's first primary care visit with an ACO participant upon 
whom assignment is based (76 FR 67850 and 67851). Finally, in addition 
to the point of care and mailed notifications provided by ACOs, all 
Medicare FFS beneficiaries are notified through the Medicare & You 
Handbook about ACOs and the opportunity to decline claims data sharing 
by contacting CMS directly at 1-800-MEDICARE.
    Once the ACO has notified the beneficiaries according to program 
rules, and any applicable wait periods are over, the ACO submits the 
beneficiaries' preferences to CMS. Beneficiary preferences submitted by 
ACOs are combined with preferences received by CMS through 1-800-
MEDICARE. Based on these beneficiary preferences, we generate a claims 
file containing the beneficiary identifiable claims data of 
beneficiaries that have not declined data sharing. These claims files 
are then made available for ACO access on a monthly basis.
    Once a beneficiary has declined data sharing, the beneficiary may 
choose to reverse the decision by signing another form and sending it 
to the ACO (who in turn notifies CMS of the beneficiary's updated 
preference) or by calling 1-800-MEDICARE directly. We then include the 
beneficiary's claims data in the claims file provided to the ACO the 
following month.
    In the November 2011 final rule (76 FR 67849), we acknowledged that 
it is possible that a beneficiary may decline to have his or her claims 
data shared with an ACO but would choose to continue to receive care 
from ACO participants and ACO providers/suppliers. In such a case, the 
ACO would still be responsible for that beneficiary's care, and, as 
such, although the beneficiary's claims data would not be shared with 
the ACO, CMS would continue to use the beneficiary's claims data in its 
assessment of the ACO's quality and financial performance.
    In the November 2011 final rule (76 FR 67849 through 67850) we 
expressed our view that beneficiaries should be notified of their 
health care provider's participation in an ACO in order to have some 
control over who has access to their health information for purposes of 
the Shared Savings Program. Further, we indicated that the requirement 
that an ACO provider/supplier engage patients in a discussion about the 
inherent benefits, as well as the potential risks, of claims data 
sharing provided an opportunity for true patient-centered care and 
would create incentives for ACOs, ACO participants, and ACO providers/
suppliers to develop

[[Page 72788]]

positive relationships with each beneficiary under their care. 
Additionally, we stated that this policy would provide ACO participants 
and ACO providers/suppliers the opportunity to engage with 
beneficiaries by explaining the Shared Savings Program and its 
potential benefits for both the beneficiaries and the health care 
system as a whole.
    Since implementation of the Shared Savings Program, we have shared 
claims data on over 5 million beneficiaries with over 300 Shared 
Savings Program ACOs. We have received informal feedback from ACOs that 
are putting the opt-out requirement into practice, and from 
beneficiaries who have received notifications from an ACO that wanted 
to request access to their claims data. We have learned the following 
from this feedback:
     The option for ACOs to mail notifications and then conduct 
in-office follow-up adds to ACOs' financial costs and delays their 
ability to access claims data in a timely manner. ACOs must wait until 
January 1 of the first performance year to send out mailings. After 
waiting the requisite 30 days, the earliest the ACO may submit 
beneficiary preferences to CMS is in February. The first set of claims 
data is then available in mid-March. In addition, some ACOs struggle 
with obtaining current mailing information for preliminarily 
prospectively assigned beneficiaries, which can delay the mailing of 
notifications to later in the performance year. Thus, the earliest 
opportunity for ACOs to receive claims data is mid-February, and that 
is only the claims data for beneficiaries who visited primary care 
providers in early January and were given the opportunity to decline 
claims data sharing at the point of care.
     Stakeholders, including ACOs, ACO participants, and ACO 
providers/suppliers, continually confuse the notification regarding the 
ACO's intent to request access to claims data with the separate 
requirement that all FFS beneficiaries must be notified of ACO 
participants' and ACO providers/suppliers' participation in the 
program. Beneficiaries must be notified at the point of care of the ACO 
participants' and ACO providers/suppliers' participation in an ACO, 
regardless of whether the ACO has or intends to request access to 
claims data.
     ACOs have commented that beneficiaries are confused about 
why their providers do not already have access to information regarding 
other care they may receive, which potentially erodes rather than 
strengthens the patient-provider relationship. Beneficiaries often 
assume their providers have all the information they need to care for 
them. However, as noted previously, the ACO, its ACO participants, and 
ACO providers/suppliers would not have claims data for services 
rendered outside the ACO, and would not necessarily have knowledge 
about that care.
     Beneficiaries can choose to receive care from providers 
outside an ACO, so beneficiaries may receive notices regarding data 
sharing from more than one ACO. This is most likely to occur in markets 
with high ACO penetration where a beneficiary may receive primary care 
services from several different ACO professionals, each participating 
in different ACOs. Beneficiaries report confusion, concern, and 
annoyance over receiving multiple mailings from ACOs, and question why 
their health care providers do not already have the information they 
need to appropriately coordinate their care.
     Beneficiaries receiving the notifications giving them the 
opportunity to decline claims data sharing may mistakenly believe they 
are being asked to ``opt-out'' of ACO care and/or Medicare FFS, or that 
they have been placed in a managed care plan without their consent.
     Beneficiaries that receive the letters in the mail 
notifying them of their provider's participation in an ACO and offering 
them the opportunity to decline claims data sharing often mistakenly 
believe that these letters are fraudulent and do not know what to do. 
Many ACOs are entities that have been newly formed by providers and 
suppliers for purposes of participating in the Shared Savings Program. 
While the beneficiary may have a strong relationship with his or her 
primary care provider, the beneficiary may not recognize the name of 
the newly formed ACO and therefore may have concerns and question the 
legitimacy of the notification.
     Our data indicate that approximately 2 percent of 
beneficiaries have declined claims data sharing. This is consistent 
with other CMS initiatives that have included data sharing, such as the 
Medicare Health Support demonstration, the Multi-Payer Advanced Primary 
Care Practice demonstration, the Physician Group Practice 
demonstration, and the Physician Group Practice Transition 
demonstration.
    As discussed previously, beneficiaries currently have the 
opportunity to decline claims data sharing by responding to the letters 
that ACOs send to their preliminarily prospectively assigned 
beneficiaries, by informing an ACO provider/supplier during a face-to-
face primary care service visit, or by contacting 1-800-MEDICARE 
directly. We continue to be committed to offering beneficiaries some 
control over ACO access to their beneficiary identifiable information 
for purposes of the Shared Savings Program. However, in light of the 
feedback we have received, we were motivated to review our claims data 
sharing policies and processes to determine what refinements could be 
made to mitigate the concerns raised by stakeholders regarding the 
burden imposed on both beneficiaries and those entities participating 
in the Shared Savings Program. We considered several aspects of our 
claims data sharing policies, including the use of various formats to 
communicate with beneficiaries regarding claims data sharing under the 
program such as: Mailed notifications to the list of preliminarily 
prospectively assigned beneficiaries by the ACO; face-to-face 
discussions with healthcare providers during primary care visits; and 
CMS's use of 1-800-MEDICARE and the Medicare & You Handbook. As 
discussed in the April 2011 proposed rule (76 FR 19558) and the 
November 2011 final rule (76 FR 67846), we are convinced by 
stakeholders that Medicare claims data provide an important supplement 
to the data to which the ACO and its ACO participants and ACO 
providers/suppliers already have access. Current law allows CMS to 
share certain beneficiary identifiable claims data with ACOs when those 
data are necessary for purposes of certain health care operations. 
HIPAA does not require that beneficiaries be presented with an 
opportunity to decline claims data sharing before their PHI can be 
shared. Moreover, several other CMS initiatives, including the Medicare 
Health Support demonstration, the Multi-Payer Advanced Primary Care 
Practice demonstration, the Physician Group Practice demonstration, and 
the Physician Group Practice Transition demonstration, have 
successfully shared claims data with providers in the absence of an 
opportunity for beneficiaries to decline claims data sharing. 
Therefore, we considered how to retain meaningful beneficiary choice in 
claims data sharing while reducing the confusion and burden caused by 
our current claims data sharing policies. We believe meaningful 
beneficiary choice in claims data sharing is maintained when the 
purpose and rationale for such claims data sharing are transparent and 
communicated to beneficiaries, and there is a mechanism in place for 
beneficiaries to decline claims data

[[Page 72789]]

sharing. Thus, in revisiting our claims data sharing policies, we 
sought to maintain claims data sharing transparency and a mechanism for 
beneficiaries to decline claims data sharing.
b. Proposed Revisions
    Based on our experiences with data sharing under the Shared Savings 
Program to date, we are proposing to modify our processes and policy 
for claims data sharing while remaining committed to retaining 
meaningful beneficiary choice over claims data sharing with ACOs. 
First, we propose to provide beneficiaries with the opportunity to 
decline claims data sharing directly through 1-800-MEDICARE, rather 
than through the ACO. We note that 1-800-MEDICARE has the capability 
for beneficiaries to use accessible alternative or appropriate 
assistive technology, if needed. We would continue to maintain a list 
of beneficiaries that have declined data sharing and ensure that their 
claims information is not included in the claims files shared with 
ACOs. Second, we propose to provide advance notification to all FFS 
beneficiaries about the opportunity to decline claims data sharing with 
ACOs participating in the Shared Savings Program through CMS materials 
such as the Medicare & You Handbook. The Handbook would include 
information about the purpose of the program, describe the opportunity 
for ACOs to request beneficiary identifiable claims data for health 
care operations purposes, and provide instructions on how beneficiaries 
may decline claims data sharing by contacting CMS directly through 1-
800-MEDICARE. The Handbook would also contain instructions on how a 
beneficiary may reverse his or her preference to decline claims data 
sharing by contacting 1-800-MEDICARE. Third, to reduce burden for both 
beneficiaries and ACOs, we propose to remove the option for ACOs to 
mail notifications to beneficiaries and for beneficiaries to sign and 
return the forms to the ACO in order to decline claims data sharing. 
This process would be replaced by a simpler, direct process through 
notification at the point of care and through 1-800-MEDICARE as 
described previously.
    We also propose to continue to require that ACO participants notify 
beneficiaries in writing at the point of care that their providers and 
suppliers are participating in the Shared Savings Program as required 
under Sec.  425.312(a). We propose that ACO participants would continue 
to be required to post signs in their facilities using required 
template language. Rather than requiring ACO participants furnishing 
primary care services to provide a written form regarding claims data 
sharing to all beneficiaries who have a primary care service office 
visit, we propose to update the required notification template language 
for these signs to include information regarding claims data sharing. 
We would update the template language with the assistance of the 
Medicare Ombudsman's Office and beneficiary input to inform 
beneficiaries about both the Shared Savings Program and also that the 
ACO may request access to beneficiary identifiable claims data from CMS 
in order to perform health care operations as defined under the first 
and second paragraphs of the definition of health care operations at 45 
CFR 164.501. The signs would also provide beneficiaries with 
information about their opportunity to decline this data sharing and 
instructions to call 1-800-MEDICARE if they would prefer that we not 
share their claims data with an ACO and its ACO participants and ACO 
providers/suppliers. The signs would likewise include instructions for 
how beneficiaries may reverse their opt-outs through 1-800-MEDICARE, if 
they determine in the future they would prefer to have their claims 
data made available to ACOs and their ACO participants and ACO 
providers/suppliers. Because ACO participants are required to post 
these signs in their facilities at all times, this written notification 
through the signs would occur at each visit, including the first visit 
the beneficiary has with an ACO participant during a performance year.
    We also anticipate that some beneficiaries may continue to want to 
have the ability to take the information home or into their visit with 
their primary care provider for further discussion. Therefore, in 
addition to the signs, we propose to retain our policy that ACO 
participants that submit claims for primary care services used to 
determine the ACO's assigned beneficiary population be required to make 
a separate written notification form available to the beneficiary upon 
request.
    We propose to modify Sec.  425.312 and Sec.  425.708 for clarity 
and to reflect these revised notification policies.
    Finally, under Tracks 1 and 2, we propose to make beneficiary 
identifiable claims data available in accordance with applicable law on 
a monthly basis for beneficiaries that are either preliminarily 
prospectively assigned to the ACO or who have received a primary care 
service during the past 12-month period from an ACO participant upon 
whom assignment is based. Because Tracks 1 and 2 use a preliminary 
prospective assignment methodology with retrospective reconciliation, 
we believe that ACOs, ACO participants, and ACO providers/suppliers in 
Tracks 1 and 2 would benefit from access to beneficiary identifiable 
claims information for all FFS beneficiaries that may be assigned to 
the ACO at the end of the performance year. In contrast, under Track 3, 
we propose to make beneficiary identifiable claims data available only 
for beneficiaries that are prospectively assigned to an ACO, because 
the beneficiaries on the prospective assignment list are the only 
beneficiaries for whom the ACO would be held accountable at the end of 
the performance year. Consistent with the existing requirements at 
Sec.  425.704, in order to request beneficiary identifiable claims 
data, and regardless of track, an ACO must: (1) Certify that it is a 
covered entity or the business associate of a covered entity that has 
provided a primary care service to the beneficiary in the previous 12 
months (2) enter into a DUA with CMS prior to the receipt of these 
beneficiary identifiable data; (3) submit a formal request to receive 
beneficiary identifiable claims data for such beneficiaries at the time 
of application to the Shared Savings Program; and (4) certify that the 
request reflects the minimum data necessary for the ACO to conduct 
either its own health care operations work that falls within the first 
or second paragraph of the definition of health care operations at 45 
CFR 164.501 or health care operations work on behalf of its ACO 
participants and ACO providers/suppliers that are covered entities (as 
the business associate of these covered entities) that falls within the 
first or second paragraph of the definition of health care operations 
at 45 CFR 164.501.
    We believe these proposed modifications to our data sharing rules 
would significantly improve the claims data sharing process. First, we 
believe the modified process would reduce burden for beneficiaries who 
would no longer have to mail back forms. In addition, it would minimize 
beneficiary confusion in situations where an ACO may be newly formed 
and may not yet have established a relationship with the beneficiary. 
Instead, the beneficiary would be able decline claims data sharing, and 
reverse a decision to decline claims sharing, by contacting CMS 
directly using 1-800-MEDICARE. We believe beneficiaries would be more 
comfortable expressing their claims data

[[Page 72790]]

sharing preferences directly through CMS, an agency with which 
beneficiaries have an existing relationship. Moreover, we believe our 
proposals would streamline ACO operations and would allow ACOs to 
access beneficiary identifiable claims data earlier in the performance 
year than is possible under our current policies. Beneficiary 
identifiable claims data would still be available on a monthly basis, 
but the new process would be operationally more efficient and less 
expensive for ACOs. By removing the 30-day delay before ACOs may 
request beneficiary identifiable claims data for their preliminarily 
prospectively assigned beneficiaries under Tracks 1 and 2 and 
prospectively assigned beneficiaries under Track 3, and reducing 
operational complexities associated with providing these data, ACOs 
would have access to beneficiary identifiable claims data in a more 
timely fashion. This may allow ACOs to intervene in the care of 
beneficiaries earlier during the performance year. In addition, as 
discussed previously, while we initially believed that requiring ACOs 
to notify beneficiaries of the opportunity to decline claims data 
sharing would improve engagement between ACO providers/suppliers that 
furnish primary care services and their patients, we now realize that 
this policy unintentionally created burden and confusion for both ACOs 
and beneficiaries, as many beneficiaries assume that their health care 
providers already have the information needed to optimally coordinate 
their care, even though this is not always the case. We believe that 
the proposed revisions to our claims data sharing policy would reduce 
beneficiary confusion about the Shared Savings Program and the role an 
ACO plays in assisting the beneficiary's health care providers to 
improve their health and health care experience, while still retaining 
a beneficiary's meaningful opportunity to decline claims data sharing.
    We note that, since implementation of the program, a small 
percentage of FFS beneficiaries have requested that their identifiable 
claims data not be shared and have done so either by notifying the ACO 
or by contacting 1-800-MEDICARE to decline claims data sharing. None of 
our proposed revisions would have any effect on any existing 
beneficiary preferences. Previously recorded beneficiary preferences 
would continue to be honored, unless and until a beneficiary changes 
his or her preference by contacting 1-800-MEDICARE. Accordingly, our 
proposal not only preserves the beneficiary's ability to decline claims 
data sharing by directly contacting CMS, but also has no effect on 
existing beneficiary claims data sharing preferences, unless the 
beneficiary subsequently amends his or her preferences to allow claims 
data sharing.
    In summary, we propose to amend Sec.  425.704 to reflect our 
proposal to begin sharing beneficiary identifiable claims data with 
ACOs participating under Tracks 1 and 2 that request claims data on 
beneficiaries that are included on their preliminary prospective 
assigned beneficiary list or that have received a primary care service 
from an ACO participant upon whom assignment is based during the most 
recent 12-month period, at the start of the ACO's agreement period, 
provided all other requirements for claims data sharing under the 
Shared Savings Program and HIPAA regulations are met. We also propose 
to share beneficiary identifiable claims data with ACOs participating 
under Track 3 that request beneficiary identifiable claims data on 
beneficiaries that are included on their prospectively assigned 
beneficiary list. We also propose to revise Sec.  425.312(a) and Sec.  
425.708 to reflect our policy that ACO participants use CMS approved 
template language to notify beneficiaries regarding participation in an 
ACO and the opportunity to decline claims data sharing. In addition, we 
propose to modify Sec.  425.708 to reflect the streamlined process by 
which beneficiaries may decline claims data sharing. We also propose to 
add a new paragraph (c) to Sec.  425.708 to reflect our proposal to 
honor any beneficiary request to decline claims data sharing that is 
received under Sec.  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 Sec.  425.704 would include Parts A, B and D data, but 
would exclude any information related to the diagnosis and treatment of 
alcohol or substance abuse. As we discussed in the April 2011 proposed 
rule (76 FR 19557), 42 U.S.C. 290dd-2 and the implementing regulations 
at 42 CFR part 2 restrict the disclosure of patient records by 
federally conducted or assisted substance abuse programs. Such data may 
be disclosed only with the prior written consent of the patient, or as 
otherwise provided in the statute and regulations. We note that we may 
revisit this approach as technology in the area of consent management 
advances.
    We seek comment on these proposals. We also seek comment on other 
specific modifications that could be made to our existing policies on 
data sharing to improve the ability of ACOs to access beneficiary 
identifiable claims data, and to reduce burden and confusion for ACOs, 
ACO participants, ACO providers/suppliers, and beneficiaries.

E. Assignment of Medicare FFS Beneficiaries

1. Background
    Section 1899(c) of the Act requires the Secretary to ``determine an 
appropriate method to assign Medicare fee-for-service beneficiaries to 
an ACO based on their utilization of primary care services provided 
under this title by an ACO professional described in paragraph 
(h)(1)(A).'' Section 1899(h)(1)(A) of the Act constitutes one element 
of the definition of the term ``ACO professional.'' Specifically, this 
provision establishes that ``a physician (as defined in section 
1861(r)(1) of the Act)'' is an ``ACO professional'' for purposes of the 
Shared Savings Program. Section 1861(r)(1) of the Act in turn defines 
the term physician as ``. . . a doctor of medicine or osteopathy 
legally authorized to practice medicine and surgery by the State in 
which he performs such function or action . . .'' In addition, section 
1899(h)(1)(B) of the Act defines ``ACO professional'' to include 
practitioners described in section 1842(b)(18)(C)(i) of the Act, such 
as physician assistants (PAs) and nurse practitioners (NPs).
    As we explained in the November 2011 final rule (76 FR 67851) the 
term ``assignment'' refers only to an operational process by which 
Medicare determines whether a beneficiary has chosen to receive a 
sufficient level of the requisite primary care services from physicians 
associated with a specific ACO so that the ACO may be appropriately 
designated as exercising basic responsibility for that beneficiary's 
care. Consistent with section 1899(b)(2)(A) of the Act, an ACO is held 
accountable ``for the quality, cost, and overall care of the Medicare 
fee-for service beneficiaries assigned to it.'' The ACO may also 
qualify to receive a share of any savings that are realized in the care 
of these assigned beneficiaries due to appropriate efficiencies and 
quality improvements that the ACO may be able to achieve. The term 
``assignment'' for purposes of the Shared Savings Program in no way 
implies any limits, restrictions, or diminishment of the rights of 
Medicare FFS beneficiaries to exercise freedom of choice in the 
physicians and other health care

[[Page 72791]]

providers and suppliers from whom they receive their services.
    In developing the process for assigning Medicare beneficiaries to 
ACOs, we considered several other elements in addition to the 
definition of an ACO professional (76 FR 67851): (1) The operational 
definition of an ACO (see the discussion of the formal and operational 
definitions of an ACO in section II.B. of this proposed rule) so that 
ACOs can be efficiently identified, distinguished, and associated with 
the beneficiaries for whom they are providing services; (2) the 
definition of primary care services for purposes of determining the 
appropriate assignment of beneficiaries; (3) whether to assign 
beneficiaries to ACOs prospectively, at the beginning of a performance 
year on the basis of services rendered prior to the performance year, 
or retrospectively, on the basis of services actually rendered by the 
ACO during the performance year; and (4) the proportion of primary care 
services that is necessary for a beneficiary to receive from an ACO in 
order to be assigned to that ACO for purposes of this program.
    In the November 2011 final rule (76 FR 67851 through 67870), we 
finalized the methodology that we currently use to assign beneficiaries 
to ACOs for purposes of the Shared Savings Program. Beneficiaries are 
assigned to a participating ACO using the assignment methodology in 
Part 425, subpart E of our regulations. In addition, since the final 
rule was issued, we have provided additional guidance and more detailed 
specifications regarding the beneficiary assignment process in 
operational instructions which are available to the public on the CMS 
Web site. (http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/sharedsavingsprogram/Financial-and-Assignment-Specifications.html)
    In this section of this proposed rule, we summarize several key 
policies and methodological issues to provide background for several 
revisions to the assignment methodology that we are proposing based on 
our initial experiences with the program and questions from 
stakeholders.
2. Basic Criteria for a Beneficiary To Be Assigned to an ACO
    In order to develop operational procedures needed to implement the 
Shared Savings Program, and to respond to inquiries from ACOs and other 
stakeholders, we developed specific criteria to govern beneficiary 
eligibility for assignment to an ACO which we propose to codify in a 
new provision at Sec.  425.401. We believe that revising the 
regulations to include these eligibility criteria would help promote 
understanding of the assignment methodology. The proposed criteria in 
new Sec.  425.401 are consistent with the current assignment 
methodology under Sec.  425.400 and Sec.  425.402 as well as the 
discussion of the assignment methodology in the preamble to the 
November 2011 final rule and operational instructions that we have 
issued since the publication of the final rule (76 FR 67851).
    First, to determine whether a beneficiary is eligible to be 
assigned to an ACO, we must have information about the beneficiary's 
Medicare enrollment status. As required by section 1899(h)(3) of the 
Act, and consistent with the definition of Medicare FFS beneficiary in 
Sec.  425.20, only beneficiaries enrolled in traditional Medicare FFS 
under Parts A and B are eligible to be assigned to an ACO participating 
in the Shared Savings Program. Because of this statutory definition and 
because an important objective of this program is to help align 
incentives between Part A and Part B, beneficiaries who have coverage 
under only one of these parts are not eligible to be assigned to an 
ACO. Beneficiaries enrolled in a group health plan--including 
beneficiaries enrolled in Medicare Advantage (MA) plans under Part C, 
eligible organizations under section 1876 of the Act, and Programs of 
All Inclusive Care for the Elderly (PACE) under section 1894 of the 
Act--are also not eligible to be assigned. However, we note that 
Medicare Secondary Payer (MSP) status does not exclude a beneficiary 
from assignment to an ACO.
    The statute includes a provision that precludes duplication in 
participation in initiatives involving shared savings. Section 
1899(b)(4) of the Act states that providers of services or suppliers 
that participate in certain programs that involve shared savings are 
not eligible to participate in the Shared Savings Program. In the 
November 2011 final rule (76 FR 67830 through 67833), we finalized a 
proposal to implement this requirement and to adopt a process for 
ensuring that providers and suppliers participating in the Shared 
Savings Program do not concurrently participate in another Medicare 
program or demonstration involving shared savings at Sec.  425.114. 
Specifically, applications for participation in the Shared Savings 
Program are reviewed to assess for overlapping ACO participant TINs. 
ACO participants that are already participating in another Medicare 
program, model or demonstration involving shared savings are prohibited 
from participating in the Medicare Shared Savings Program. An ACO 
application that contains ACO participants that are already 
participating in another Medicare program or demonstration involving 
shared savings is rejected.
    The statutory prohibition against providers and suppliers 
participating in multiple programs and initiatives that involve shared 
savings limits but does not prevent the possibility for a beneficiary 
to be assigned to more than one shared savings initiative. However, we 
believe it is important that beneficiaries are not assigned to more 
than one initiative involving shared savings because we do not believe 
it is appropriate to make multiple shared savings payments for the same 
beneficiaries. Therefore, at Sec.  425.114(c), we provide that if the 
other program or demonstration involving shared savings does not assign 
beneficiaries based upon the TINs of the health care providers from 
whom they receive care, but uses an alternate beneficiary assignment 
methodology, we will work with the developers of the respective 
demonstrations and initiatives to devise an appropriate method to 
ensure no duplication in shared savings payments. For example, 
beneficiaries cannot be assigned to a Shared Savings Program ACO for a 
performance year if they are associated with another Medicare shared 
savings initiative at the start of the Shared Savings Program ACO's 
performance year.
    We have also implemented procedures to exclude beneficiaries whose 
residence is outside the United States, U.S. territories or possessions 
from assignment to an ACO. We make this determination based on the most 
recent available data in our beneficiary records regarding the 
beneficiary's residence at the end of the assignment window. We do not 
believe it is appropriate to expect ACOs to be responsible for 
coordinating the care provided to beneficiaries that reside outside the 
United States, as required under the Shared Savings Program, or to hold 
ACOs accountable for the care provided to beneficiaries that reside 
outside the United States because ACOs may have limited ability to 
interact with overseas providers and suppliers. In most situations, 
Medicare does not pay for health care or supplies furnished outside the 
United States. (Additional guidance about this policy is available at 
http://www.medicare.gov/Pubs/pdf/11037.pdf.) As a result, claims 
information regarding services received in other countries is not 
available to ACOs. United States (U.S.) residence includes the 50 
states, the District of Columbia, Puerto Rico, the U.S. Virgin

[[Page 72792]]

Islands, Guam, American Samoa, and the Northern Marianas. (See guidance 
at http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/sharedsavingsprogram/Downloads/Shared-Savings-Losses-Assignment-Spec-v2.pdf.) We believe it is appropriate to amend the regulations 
governing the assignment process to incorporate these limitations. 
Thus, we propose to add a new provision at Sec.  425.401(a) of the 
regulations to outline the criteria that a beneficiary must meet in 
order to be eligible to be assigned to an ACO. Specifically, a 
beneficiary would be eligible to be assigned to a participating ACO, 
for a performance year or benchmark year, if the beneficiary meets all 
of the following criteria during the assignment window (defined in 
section II.F. of this proposed rule as the 12-month period used for 
assignment):
     Has at least 1 month of Part A and Part B enrollment and 
does not have any months of Part A only or Part B only enrollment.
     Does not have any months of Medicare group (private) 
health plan enrollment.
     Is not assigned to any other Medicare shared savings 
initiative.
     Lives in the U.S. or U.S. territories and possessions as 
determined based on the most recent available data in our beneficiary 
records regarding the beneficiary's residence at the end of the 
assignment window.
    If a beneficiary meets all of the criteria in Sec.  425.401(a), 
then the beneficiary would be eligible to be assigned to an ACO in 
accordance with the two-step beneficiary assignment methodology in 
Sec.  425.402 and Sec.  425.404. We also propose to make a conforming 
change to Sec.  425.400 to reflect the addition of this new provision.
    We request comment on this proposal to amend the regulations to 
address specifically the criteria that would be used to determine 
whether a beneficiary is eligible to be assigned to an ACO.
3. Definition of Primary Care Services
a. Overview
    Section 1899(c) of the Act requires the Secretary to assign 
beneficiaries to an ACO ``based on their utilization of primary care 
services'' provided by a physician. However, the statute does not 
specify which kinds of services may be considered ``primary care 
services'' for this purpose, nor the amount of those services that 
would be an appropriate basis for making assignments. In this section 
of this proposed rule, we summarize how we currently identify the 
appropriate primary care services on which we base assignment. In 
addition, we propose several revisions to our current policies for 
defining primary care services for this purpose, consistent with our 
statement in the November 2011 final rule (76 FR 67853), that we 
intended to monitor this issue and would consider making changes to the 
definition of primary care services to add or delete codes, if there is 
sufficient evidence that revisions are warranted.
    We currently define ``primary care services'' for purposes of the 
Shared Savings Program in Sec.  425.20 as the set of services 
identified by the following HCPCS/CPT codes: 99201 through 99215, 99304 
through 99340, 99341 through 99350, the Welcome to Medicare visit 
(G0402), and the annual wellness visits (G0438 and G0439). In addition, 
as we will discuss later in this section, we have established a cross-
walk for these codes to certain revenue center codes used by FQHCs 
(prior to January 1, 2011) and RHCs so that their services can be 
included in the beneficiary assignment process.
    In the November 2011 final rule (76 FR 67853), we established the 
current list of codes that constitute primary care services for several 
reasons. First, we believed the listed codes represented a reasonable 
approximation of the kinds of services that are described by the 
statutory language which refers to assignment of ``Medicare fee-for-
service beneficiaries to an ACO based on their utilization of primary 
care services'' furnished by physicians. Because the statute requires 
that assignment be based upon the utilization of primary care services 
furnished by physicians, only primary care services can be considered 
in the assignment process. In addition, we selected this list to be 
largely consistent with the definition of ``primary care services'' in 
section 5501 of the Affordable Care Act. That section establishes the 
Primary Care Incentive Payment Program (PCIP) to expand access to 
primary care services, and thus its definition of ``primary care 
services'' provides a compelling precedent for adopting a similar list 
of codes for purposes of the beneficiary assignment process under the 
Shared Savings Program. We slightly expanded the list of codes found in 
section 5501 of the Affordable Care Act to include the Welcome to 
Medicare visit (HCPCS code G0402) and the annual wellness visits (HCPCS 
codes G0438 and G0439) as primary care services for purposes of the 
Shared Savings Program. These codes clearly represent primary care 
services frequently received by Medicare beneficiaries, and in the 
absence of the special G codes the services provided during these 
visits would be described by one or more of the regular office visit 
codes that are included in the list under section 5501 of the 
Affordable Care Act.
    Since the publication of the November 2011 final rule, we have 
received several suggestions from ACOs and others regarding specific 
codes that we would consider adding to the definition of primary care 
services so that they could be considered when assigning beneficiaries 
to ACOs. For example, commenters have noted that effective January 1, 
2013, Medicare pays for two CPT codes (99495 and 99496) that are used 
to report physician or qualifying non-physician practitioner 
transitional care management (TCM) services for a patient following a 
patient's discharge to a community setting from an inpatient hospital 
or SNF or from outpatient observation status in a hospital or partial 
hospitalization. These codes were established to pay a patient's 
physician or practitioner to coordinate the patient's care in the 30 
days following a hospital or skilled nursing facility (SNF) stay. We 
believe that providing separate payment for the work of community 
physicians and practitioners in treating a patient following discharge 
from a hospital or nursing facility would ensure better continuity of 
care for these patients and help reduce avoidable readmissions. We 
discussed this policy in the CY 2013 Physician Fee Schedule (PFS) final 
rule with comment period that appeared in the November 16, 2012 Federal 
Register (77 FR 68978 through 68994).
    Further, in the CY 2014 PFS final rule with comment period that 
appeared in the December 10, 2013 Federal Register (78 FR 74414 through 
74427), we indicated that for CY 2015, we planned to establish a 
separate payment for HCPCS code GXXX1 under the PFS for chronic care 
management (CCM) services furnished to patients with multiple (two or 
more) chronic conditions. Subsequently, in the CY 2015 PFS final rule 
with comment period that appeared in the November 13, 2014 Federal 
Register, we provided more details relating to the implementation of 
the new PFS policy, including coding, elements of service, and payment 
rates (79 FR 67715 through 67728). Chronic care management services 
generally include regular development and revision of a plan of care, 
communication with other treating health professionals, and medication 
management.
    Accordingly, as part of our broader multiyear strategy to 
appropriately recognize and value primary care and care management 
services, effective January 1, 2015, we will make a separate

[[Page 72793]]

payment for CCM services under the PFS. We believe that successful 
efforts to improve chronic care management for these patients could 
improve the quality of care while simultaneously decreasing costs, such 
as through reductions in hospitalizations, use of post-acute care 
services and emergency department visits.
    We have also received a few suggestions from hospitalists and 
others that certain evaluation and management codes used for services 
furnished in SNFs and other nursing facility settings (CPT codes 99304 
through 99318) should be excluded from the definition of primary care 
services. In some cases, hospitalists that perform evaluation and 
management services in SNFs requested this change so that their ACO 
participant TIN need not be exclusive to only one ACO based on the 
exclusivity policy established in the November 2011 final rule (76 FR 
67810 through 67811). The requirement under Sec.  425.306(b) that an 
ACO participant TIN be exclusive to a single ACO applies when the ACO 
participant TIN submits claims for primary care services that are 
considered in the assignment process. However, ACO participant TINs 
upon which beneficiary assignment is not dependent (that is, ACO 
participant TINs that do not submit claims for primary care services 
that are considered in the assignment process) are not required to be 
exclusive to a single ACO.
    These requests from hospitalists and others were based on drawing a 
distinction between evaluation and management services performed in 
SNFs and those that are performed in other nursing facilities. 
Specifically, these commenters believe that evaluation and management 
services furnished in SNFs are more likely to be acute in nature and 
should not be considered primary care services. In contrast, the 
evaluation and management services performed in other nursing 
facilities, where patients tend to stay for longer periods, are 
arguably more likely to include primary care services. We have also 
received comments, however, from others who support the inclusion of 
these services in the definition of primary care for the Shared Savings 
Program. They suggest that including the codes for evaluation and 
management services furnished in SNFs in the assignment process could 
help provide important incentives for ACOs to manage and coordinate the 
care of these vulnerable patients because ACOs would be held 
accountable for these patients if they receive the plurality of their 
primary care services from ACO professionals during a performance year.
    In the November 2011 final rule, we discussed comments both for and 
against including the codes for SNF visits in the definition of primary 
care services (76 FR 67852 through 67853). However, we ultimately 
concluded that it was appropriate to include these codes. We continue 
to believe that including the codes for SNF and other nursing facility 
visits in the list of codes that constitute primary care services for 
purposes of assignment to an ACO is appropriate for a number of 
reasons. As we stated in the November 2011 final rule (76 FR 67853), 
beneficiaries often stay for long periods of time in SNFs (Medicare 
covers up to 100 days of SNF services in each benefit period) and it is 
reasonable to conclude that these codes represent basic evaluation and 
management services that would ordinarily be provided in physician 
offices if the beneficiaries were not residing in nursing homes. If 
these services are performed by ACO professionals, we continue to 
believe that it is reasonable to hold the ACO accountable for the care 
of these beneficiaries. In addition, as we noted previously, the PCIP 
program established under section 5501 of the Affordable Care Act was 
established to expand access to ``primary care services''. Under this 
program, beginning January 1, 2011 and continuing through December 31, 
2015, we pay an incentive payment of 10 percent of Medicare program 
payments to qualifying primary care physicians and certain non-
physician practitioners who furnish specified primary care services. We 
believe it is compelling that these SNF codes are included in the 
definition of ``primary care services'' in section 5501 of the 
Affordable Care Act, which established this incentive program. We would 
also note that CPT codes 99304 through 99318 do not differentiate 
between evaluation and management services performed in SNFs and other 
nursing facilities. Thus, services furnished in SNFs and other nursing 
facilities are included in the definition of ``primary care services'' 
for purposes of section 5501. Finally, in the CY 2015 PFS final rule 
with comment period (79 FR 67910 through 67911), we added the Skilled 
Nursing Facility 30-Day All-Cause Readmission Measure (SNFRM) to the 
quality performance measure set used to evaluate the quality of the 
care furnished by ACOs. We believe the addition of this measure helps 
to fill a gap in the current Shared Savings Program measure set and 
provides a focus on an area where ACOs are targeting redesign. 
Therefore, we continue to believe that it is reasonable to conclude 
that services provided in SNFs with CPT codes 99304 through 99318 
represent basic evaluation and management services that would 
ordinarily be provided in physician offices if the beneficiaries were 
not residing in nursing homes and should continue to be included in the 
definition of primary care services used for purposes of beneficiary 
assignment to an ACO participating in the Shared Savings Program. 
Although we are not making a proposal at this time regarding CPT codes 
99304 through 99318, we welcome comment from stakeholders on the 
implications of retaining these codes in the definition of primary care 
services.
b. Proposed Revisions
    We believe that the TCM services represented by CPT codes 99495 and 
99496 represent primary care services that should be considered in the 
beneficiary assignment methodology under the Shared Savings Program. In 
order to receive payment for these codes, the physician or non-
physician practitioner is required to accept care of the beneficiary 
post-discharge from an inpatient hospital or SNF without a gap and must 
take responsibility for the beneficiary's overall care for a period of 
30 days following the discharge. Likewise, we believe that the CCM 
services represented by HCPCS code GXXX1 are primary care services that 
should also be considered in the beneficiary assignment methodology 
under the Shared Savings Program. The CCM service includes continuity 
of care with a designated practitioner or member of the care team with 
whom the patient is able to get successive routine appointments. The 
CCM service also includes access to care management services 24-hours-
a-day, 7-days-a-week, which means providing beneficiaries with a means 
to make timely contact with health care providers to address the 
patient's urgent chronic care needs regardless of the time-of-day or 
day of the week. Additional explanation of these and the other required 
elements for billing CCM services can be found in the CY 2015 PFS final 
rule with comment period (79 FR 67715 through 67728). Therefore, we 
propose to update the definition of primary care services at Sec.  
425.20 to include both TCM codes (CPT codes 99495 and 99496) and the 
CCM code (HCPCS code GXXX1) and to include these codes in our 
beneficiary assignment methodology under Sec.  425.402.
    Further, in order to promote flexibility for the Shared Savings

[[Page 72794]]

Program and to allow the definition of primary care services used in 
the Shared Savings Program to respond more quickly to HCPCS/CPT coding 
changes made in the annual PFS rulemaking process, we propose to make 
any future revisions to the definition of primary care service codes 
through the annual PFS rulemaking process. If we intend to add any 
proposed new HCPCS/CPT or revenue center codes to the definition of 
primary care services for purposes of the Shared Savings Program, we 
would include a discussion of the proposed addition in the preamble to 
the PFS proposed rule to allow an opportunity for comment before we 
announce our final decision in the PFS final rule. Such an approach 
would enable the Shared Savings Program to be more flexible and 
responsive to incorporate any changes to primary care oriented codes 
that are made through the PFS rulemaking process. We believe this 
process for making changes to the Shared Savings Program's definition 
of primary care services under Sec.  425.20 would help to ensure that 
the definition of primary care services used under the Shared Savings 
Program properly reflects the full range of primary care services that 
beneficiaries may receive under Medicare and that the assignment 
methodology accurately aligns beneficiaries with the entities that are 
responsible for managing their overall care. In addition, revising the 
definition of primary care services for purposes of the Shared Savings 
Program through the annual rulemaking for the PFS would enable us to 
efficiently update and revise primary care service codes used for 
purposes of beneficiary assignment under the Shared Savings Program to 
reflect any administrative HCPCS/CPT coding changes, such as changes to 
reflect successive coding changes. Accordingly, we also propose to 
amend the definition of primary care services at Sec.  425.20 to 
include additional codes designated by CMS as primary care services for 
purposes of the Shared Savings Program, including new HCPCS/CPT codes 
or revenue codes and any subsequently modified or replacement codes.
    We seek comments on these proposals. In addition, we seek comments 
as to whether there are any additional existing HCPCS/CPT codes that we 
should consider adding to the definition of primary care services in 
future rulemaking for purposes of assignment of beneficiaries to ACOs 
under the Shared Savings Program. It would be most helpful if such 
comments include a detailed discussion of the basis for such an 
addition.

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

a. Overview
    Primary care services can generally be defined based on the type of 
service provided, the type of provider specialty that provides the 
service, or both. In the November 2011 final rule establishing the 
Shared Savings Program (76 FR 67853 through 67856), we adopted a 
balanced assignment process that simultaneously maintains the 
requirement to focus on primary care services in beneficiary 
assignment, while recognizing the necessary and appropriate role of 
specialists in providing primary care services, such as in areas with 
primary care physician shortages.
    Under Sec.  425.402, after identifying all patients that had a 
primary care service with a physician who is an ACO professional (and 
who are thus eligible for assignment to the ACO under the statutory 
requirement to base assignment on ``utilization of primary care 
services'' furnished by physicians), we employ a step-wise approach as 
the basic assignment methodology. This step-wise assignment process 
takes into account two particular decisions that we described in the 
November 2011 final rule (76 FR 67853 through 67858): (1) Our decision 
to base assignment on the primary care services of specialist 
physicians in the second step of the assignment process; and (2) our 
decision also to take into account the plurality of all primary care 
services provided by ACO professionals, including both primary care and 
specialist physicians and certain non-physician practitioners, in 
determining which ACO is truly responsible for a beneficiary's primary 
care in the second step of the assignment process. Our current step-
wise assignment process thus occurs in the following two steps:
    Step 1: In this step, the beneficiary would be assigned to the ACO 
if the allowed charges for primary care services furnished to the 
beneficiary by primary care physicians who are ACO professionals are 
greater than the allowed charges for primary care services furnished by 
primary care physicians who are ACO professionals in any other ACOs, 
and greater than the allowed charges for primary care services billed 
to Medicare by any other solo practice/group containing primary care 
physicians, identified by a Medicare-enrolled TIN, that is unaffiliated 
with any ACO. In other words, first we add up the allowed charges for 
primary care services billed by primary care physicians through the 
TINs of ACO participants in the ACO. Next, we add up the allowed 
charges for primary care services furnished by primary care physicians 
that are billed through other Medicare-enrolled TINs (or through a 
collection of ACO participant TINs in the case of another ACO). If the 
allowed charges for the services furnished by ACO participants are 
greater than the allowed charges for services furnished by the 
participants in any other ACO or by any non-ACO participating Medicare-
enrolled TIN, then the beneficiary is assigned to the ACO in the first 
step of the assignment process.
    Step 2: This step applies only for beneficiaries who have not 
received any primary care services from a primary care physician. We 
assign a beneficiary to an ACO in this step if the beneficiary received 
at least one primary care service from a physician participating in the 
ACO, and more primary care services (measured by Medicare allowed 
charges) from ACO professionals (physician regardless of specialty, 
nurse practitioner, physician assistant or clinical nurse specialist) 
at the ACO than from ACO professionals in any other ACO or solo 
practice/group of practitioners identified by a Medicare-enrolled TIN 
or other unique identifier, as appropriate, that is unaffiliated with 
any ACO.
    Since publication of the November 2011 final rule (76 FR 67853 
through 67858), we have gained further experience with this assignment 
methodology. We have learned from its application for the first 220 
ACOs participating in the program that, on average, about 92 percent of 
the beneficiaries assigned to ACOs are assigned in step 1, with only 
about 8 percent of the beneficiaries being assigned in step 2.
    We have adopted a similar beneficiary assignment approach for some 
other programs, such as the PQRS Group Practice Reporting Option via 
the GPRO web interface (77 FR 69195 through 69196). We would note that 
in the CY 2015 PFS final rule with comment period that appeared in the 
November 13, 2014 Federal Register, we revised the Value Modifier (VM) 
beneficiary attribution methodology and the PQRS GPRO web interface 
beneficiary assignment methodology to make them slightly different from 
the Medicare Shared Savings Program assignment methodology, namely--(1) 
eliminating the primary care service pre-step that is statutorily 
required for the Shared Savings Program; and (2) including NPs, PAs, 
and CNSs in step 1 rather than in step 2 of the attribution process 
(see 79 FR 67790 and 79 FR 67962).

[[Page 72795]]

b. Proposed Revisions
    We continue to believe that the current step-wise assignment 
methodology generally provides a balance between maintaining a strong 
emphasis on primary care while ultimately allowing for assignment of 
beneficiaries on the basis of how they actually receive their primary 
care services. However, we have received several suggestions for 
possible improvements to the assignment methodology for consideration.
    Some stakeholders have suggested that primary care services by non-
physician practitioners (NPs, PAs, and CNSs) should be included in step 
1 of the assignment methodology rather than only in step 2 as they are 
under the current process. These stakeholders have indicated that non-
physician practitioners very often serve as a beneficiary's sole 
primary care provider, based on beneficiary preferences or other 
factors, especially in rural areas and other areas where there is a 
shortage of primary care physicians. We considered this recommendation 
for a number of reasons.
    As previously explained in the November 2011 final rule (76 FR 
67853 through 67858), in establishing the Shared Savings Program, we 
adopted certain key features of the Shared Savings Program (for 
example, the decision not to include physician specialties in step 1 of 
the assignment methodology and the definition of primary care physician 
under Sec.  425.20) to align with other Affordable Care Act provisions 
that place a strong emphasis on primary care. In particular, we 
referred to section 5501 of the Affordable Care Act which established 
the PCIP. For purposes of section 5501 of the Affordable Care Act, a 
``primary care practitioner'' is defined as a physician who has a 
primary specialty designation of family medicine, internal medicine, 
geriatric medicine, or pediatric medicine or as a ``nurse practitioner, 
clinical nurse specialist, or physician assistant.'' Therefore, we 
believe it would be appropriate to better align the assignment 
methodology under the Shared Savings Program with the primary care 
emphasis in other provisions of the Affordable Care Act by including 
these non-physician practitioners in step 1 of the assignment process. 
Further, we believe that including these non-physician practitioners in 
step 1 would be supported by the statute as long as we continue under 
Sec.  425.402 to first identify all patients that have received a 
primary care service from a physician who is an ACO professional and 
who are thus eligible for assignment to the ACO under the statutory 
requirement to base assignment on ``utilization of primary care 
services'' furnished by physicians. Finally, we believe that it would 
be appropriate to include primary services furnished by NPs, PAs, and 
CNSs in step 1 of the beneficiary assignment methodology (after 
satisfying the statutory criterion that assignment be based on primary 
care services by physicians). Under section 1899(b)(2)(D), the ACO is 
required to have sufficient primary care ACO professionals to care for 
the number of FFS beneficiaries assigned to the ACO. The statute 
includes NPs, PAs, and CNSs in its definition of ACO professional; thus 
recognizing the important role played by these non-physician 
practitioners in managing and coordinating the care of Medicare FFS 
beneficiaries.
    We believe including these practitioners in step one of the 
assignment process could also further strengthen our current assignment 
process, which we designed to simultaneously maintain a primary care 
centric approach to beneficiary assignment, by including services 
furnished by physicians from all of the primary care specialties in 
step 1, while also recognizing the necessary and appropriate role of 
specialists in providing primary care services by including services 
furnished by specialist physicians in step 2. Including services 
furnished by NPs, PAs, and CNSs in determining the plurality of primary 
care services in step 1 of the assignment process may help ensure that 
beneficiaries are assigned to the ACO (or non-ACO entity) that is 
actually providing the plurality of primary care for that beneficiary 
and thus, should be responsible for managing the patient's overall 
care. In this way, all primary care services furnished by ACO 
professionals, including the entire primary care physician and 
practitioner team (including NPs, PAs, and CNSs working in clinical 
teams in collaboration with or under the supervision of physicians), 
would be considered for purposes of determining where a beneficiary 
received the plurality of primary care services under step 1 of the 
assignment methodology. Accordingly, we are proposing to amend the 
assignment methodology to include primary care services furnished by 
NPs, PAs, and CNSs in step 1 of the assignment process.
    However, we would note that there could also be some concerns about 
adding NPs, PAs, and CNSs to step 1 of the assignment methodology. 
Unlike for physicians, the CMS self-reported specialty codes reported 
on claims for NPs, PAs, and CNSs are not further broken down by 
specific specialty areas and therefore do not allow practitioners to 
indicate whether they are typically functioning as primary care 
providers or as specialists. Therefore, we are concerned that by 
considering services furnished by NPs, PAs, and CNSs in step 1, we may 
ultimately assign some beneficiaries to an ACO inappropriately based on 
specialty care over true primary care. Thus, while we invite comments 
on our proposal to include primary care services furnished by NPs, PAs, 
and CNSs in step 1 of the assignment methodology, we also seek comment 
on the extent to which these non-physician practitioners provide non-
primary care services and whether there are ways to distinguish between 
primary care services and non-primary care services billed by these 
non-physician practitioners.
    Some other stakeholders have suggested that certain physician 
specialties are inappropriately included in the assignment process and 
therefore request that we exclude certain physician specialties from 
step 2 of the assignment process. These stakeholders are concerned that 
by being included in step 2 of the assignment process, the ACO 
participants that submit claims for services furnished by these 
specialists are inappropriately limited to participating in only one 
ACO because of the exclusivity requirement under Sec.  425.306(b) of 
the regulations. This requirement is discussed in the November 2011 
final rule (76 FR 67810 through 67811). Further, some stakeholders have 
indicated that they are confused by the current exclusivity requirement 
and inappropriately believe that an ACO participant can participate in 
more than one ACO as long as none of the beneficiaries for whom the ACO 
participant has submitted claims for primary care services have been 
assigned to the ACO.
    We would like to emphasize that under Sec.  425.306(b), the 
requirement that an ACO participant must be exclusive to a single ACO 
applies whenever primary care service claims submitted by the ACO 
participant are considered in the beneficiary assignment process. The 
application of the current exclusivity requirement to an ACO 
participant is not affected by whether or not a FFS beneficiary for 
whom an ACO participant has submitted claims for primary care services 
is ultimately assigned to the ACO. Rather, an ACO participant that 
submits claims to Medicare for primary care services must be exclusive 
to a single ACO because

[[Page 72796]]

the claims for primary care services submitted by the ACO participant 
are used to determine beneficiary assignment to the ACO. Additionally, 
the current exclusivity requirement is not affected by whether or not 
the primary care services for which the ACO participant submits claims 
are services furnished by primary care physicians, specialist 
physicians, or NPs, PAs, and CNSs. Furthermore, this exclusivity 
requirement applies only to the ACO participant and not to individual 
practitioners. Individual practitioners are free to participate in 
multiple ACOs, provided they are billing under a different Medicare-
enrolled TIN for each ACO in which they participate. (See 76 FR 67810 
through 67811). For example, there may be practitioners who work in 
multiple settings and bill Medicare for primary care services through 
several different TINs, depending on the setting. If each of these TINs 
represents an ACO participant in a different ACO, then the practitioner 
would be an ACO professional in more than one ACO.
    Some stakeholders have argued that certain specialties that bill 
for some of the evaluation and management services designated as 
primary care services under Sec.  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 Sec.  425.20 are actually more general purpose codes used for a 
wide variety of clinical practices that are not specific to primary 
care, such as CPT office visit codes. For example, cataract surgeons 
bill for some of the office visit codes included in the definition of 
``primary care'' but in actual practice these surgeons do not perform 
primary care when they report these codes. These commenters believe 
that the wide spread use of these codes is the reason that for purposes 
of PCIP, the CPT code-based definition of ``primary care services'' is 
paired with the definition of ``primary care practitioners'' under that 
statute. In other words, to identify true primary care services, the 
CPT codes for primary care services must be billed by practitioners 
that render primary care services.
    We agree that although some specialties such as surgeons and 
certain others bill Medicare for some of the Shared Savings Program 
``primary care'' codes, in actual practice the services such 
specialists perform when reporting these codes do not typically 
represent primary care services because the definitions of HCPCS/CPT 
codes for office visits and most other evaluation and management 
services are not based on whether primary care is provided as part of 
the service. Accordingly, we agree that to identify primary care 
services more accurately, the CPT codes for primary care services 
should be paired with the specialties of the practitioners that render 
those services and that it would be appropriate to exclude services 
provided by certain physician specialties from the beneficiary 
assignment process.
    Therefore, we are proposing to exclude services provided by certain 
CMS physician specialties from the beneficiary assignment process. The 
net effect of this proposal would be to exclude certain claims from 
determining the ACO's assigned population. The proposed lists of 
physician specialties that would be included in and excluded from the 
assignment process (provided in Tables 1 through 4 of this proposed 
rule) are based on recommendations by CMS medical officers 
knowledgeable about the services typically performed by physicians and 
non-physician practitioners. However, we note that given the many 
requests and comments from specialists and specialty societies asking 
to have their services included in the assignment methodology that we 
received during the original rulemaking to establish the Shared Savings 
Program, we attempted to limit the list of physician specialty types 
that would be excluded from the assignment process to those physician 
specialties that would very rarely, if ever, provide primary care to 
beneficiaries. As a general rule, for example, we expect that 
physicians with an internal medicine subspecialty such as nephrology, 
oncology, rheumatology, endocrinology, pulmonology, and cardiology 
would frequently be providing primary care to their patients. 
Especially for beneficiaries with certain chronic conditions (for 
example, certain heart conditions, cancer or diabetes) but who are 
otherwise healthy, we expect that these specialist physicians often 
take the role of primary care physicians in the overall treatment of 
the beneficiaries if there is no family practitioner or other primary 
care physician serving in that role. In contrast we expect that most 
surgeons, radiologists, and some other types of specialists would not 
typically provide a significant amount of primary care, if any, and 
therefore we propose to exclude their services from the assignment 
process.
    More specifically, the following 4 tables display the specific CMS 
physician specialty codes that we are proposing to include and exclude 
for beneficiary assignment purposes under the Shared Savings Program.
     Table 1 shows the CMS physician specialty codes that would 
continue to be included in step 1.
     Table 2 lists the physician specialties that we are 
proposing would continue to be included in step 2.
     Table 3 lists the physician specialties that we are 
proposing to exclude from the beneficiary assignment methodology under 
step 2. Under this proposal, services furnished by these physician 
specialties would also be excluded for purposes of determining if a 
beneficiary has received a primary care service from a physician who is 
an ACO professional, which under Sec.  425.402(a) is a precondition for 
assignment to an ACO.
     Table 4 shows the CMS specialty codes for NPs, PAs, and 
CNSs that under our proposal would be included in beneficiary 
assignment step 1.

    Table 1--CMS Physician Specialty Codes That Would Continue To Be
                      Included in Assignment Step 1
------------------------------------------------------------------------
               Code                            Specialty name
------------------------------------------------------------------------
01................................  General Practice.
08................................  Family Practice.
11................................  Internal Medicine.
38................................  Geriatric Medicine.
------------------------------------------------------------------------

    Table 2--CMS Physician Specialty Codes That Would Continue To Be
                      Included in Assignment Step 2
------------------------------------------------------------------------
               Code                            Specialty name
------------------------------------------------------------------------
03................................  Allergy/immunology.
06................................  Cardiology.
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.
------------------------------------------------------------------------

[[Page 72797]]

 Table 3--CMS Physician Specialty Codes That We Propose To Exclude From
                            Assignment Step 2
------------------------------------------------------------------------
               Code                            Specialty name
------------------------------------------------------------------------
02................................  General surgery.
04................................  Otolaryngology.
05................................  Anesthesiology.
07................................  Dermatology.
09................................  Interventional pain management.
12................................  Osteopathic manipulative therapy.
14................................  Neurosurgery.
18................................  Ophthalmology.
20................................  Orthopedic surgery.
21................................  Cardiac electrophysiology.
22................................  Pathology.
24................................  Plastic and reconstructive surgery.
26................................  Psychiatry.
27................................  Geriatric psychiatry.
28................................  Colorectal surgery.
30................................  Diagnostic radiology.
33................................  Thoracic surgery.
34................................  Urology.
36................................  Nuclear medicine.
40................................  Hand surgery.
72................................  Pain management.
76................................  Peripheral vascular disease.
77................................  Vascular surgery.
78................................  Cardiac surgery.
79................................  Addiction medicine.
81................................  Critical care (intensivists).
85................................  Maxillofacial surgery.
86................................  Neuro-psychiatry.
91................................  Surgical oncology.
92................................  Radiation oncology.
93................................  Emergency medicine.
94................................  Interventional radiology.
99................................  Unknown physician specialty.
C0................................  Sleep medicine.
------------------------------------------------------------------------

  Table 4--CMS Non-Physician Specialty Codes That Would Be Included in
                            Assignment Step 1
------------------------------------------------------------------------
               Code                            Specialty name
------------------------------------------------------------------------
50................................  Nurse practitioner.
89................................  Clinical nurse specialist.
97................................  Physician assistant.
------------------------------------------------------------------------

    The primary benefit of this proposal is that it could help ensure 
that beneficiaries are correctly assigned to the ACO or other entity 
that is actually providing primary care and managing the patient's 
overall care. Otherwise, for example, a beneficiary could inadvertently 
be assigned to an ACO based on services furnished by a surgeon who had 
not provided primary care but had provided a number of consultations 
for a specific clinical condition. Another important benefit of this 
proposal is that the ACO participants that submit claims solely for 
services performed by the categories of specialists that we are 
proposing to exclude from the assignment process would have greater 
flexibility to participate in more than one ACO if the ACO participant 
does not submit claims for any primary care services performed by other 
physicians or non-physician practitioners that are included in the 
assignment process. This could especially be the case for small 
physician practices which only submit claims for specialty services. 
Allowing such ACO participants that are composed solely of excluded 
specialists to participate in more than one ACO would support our goal 
of facilitating competition among ACOs by increasing the number of 
specialists that can participate in more than one ACO. This proposal 
would not be expected to have a significant impact on the overall 
number of beneficiaries assigned to each ACO because we believe most of 
the specialties that we propose to exclude from the assignment 
methodology provide a relatively modest number of services under the 
codes included in the definition of primary care services or are not 
typically the only physician that a beneficiary sees. For example, 
patients that are furnished consultations by a thoracic surgeon would 
typically also concurrently receive care from a primary care physician, 
cardiologist or other medical specialist.
    We propose to amend Sec.  425.402 to reflect these proposed changes 
to the assignment methodology. Specifically, we propose to revise Sec.  
425.402(a) to include NPs, PAs, and CNSs as ACO professionals that 
would be considered in step 1 of the assignment process. In addition, 
we propose to amend Sec.  425.402 by adding a new paragraph (b) to 
identify the physician specialty designations that would be considered 
in step 2 of the assignment process. We also propose to modify the 
exclusivity requirement at Sec.  425.306(b) to clarify how the 
exclusivity rules would be affected by this proposal to exclude certain 
specialists from step 2 of the assignment methodology. Specifically, we 
propose to revise Sec.  425.306(b) to indicate that each ACO 
participant that submits claims for primary care services used to 
determine the ACO's assigned population (that is, services rendered by 
the primary care physicians or ACO professionals listed in Tables 1, 2, 
and 4) must be exclusive to one Medicare Shared Savings Program ACO.
    In addition, we propose to make several conforming and technical 
changes to Sec.  425.402(a). First, we propose a modification to 
provide that for purposes of determining whether a beneficiary has 
received a primary care service from a physician who is an ACO 
professional, we would consider only services furnished by primary care 
physicians or physicians with a specialty listed in new paragraph (b). 
Second, we propose to make modifications to conform with changes in the 
definitions of ``assignment'', ``ACO professional'', and ``ACO 
provider/supplier'' in addition to our proposal to adopt a prospective 
assignment approach under proposed Track 3 in section II.F. of this 
proposed rule. We seek comment on these proposals.
    Finally, as part of our process of reviewing both recommendations 
discussed previously, we considered another alternative approach to 
assignment. We considered whether it might be preferable, after 
excluding the specialties listed in Table 3 from step 2 of the 
assignment process, to further simplify beneficiary assignment by 
establishing an assignment process that involves only a single step. 
More specifically, we considered whether we should replace the current 
two step assignment methodology with a new one step assignment process 
in which the plurality of primary care services provided by the 
physicians listed in Tables 1 and 2, and the non-physician 
practitioners in Table 4, would all be considered in a single step. 
Arguably, this approach could at least partially address the comments 
we have received about the current assignment methodology and also help 
further simplify the assignment process.
    However, while it has some attractive features, we also have some 
important concerns about this approach. For example, beneficiaries 
receiving concurrent care from both primary care physicians and 
specialists could inappropriately be assigned to an ACO or other entity 
that is not responsible for managing their overall care. To illustrate, 
under an assignment process with only one step, if a beneficiary has a 
long term, continuing relationship with a family practitioner who is an 
ACO professional but also requires specialty care for a chronic allergy 
condition from an allergist who is not participating in an ACO, then in 
any given performance year the beneficiary could be assigned to the ACO 
or not depending merely on the allowed charges for primary care 
services furnished by the family practitioner versus the allowed 
charges for services furnished by the allergist. Under our current two 
step assignment methodology, this beneficiary would be consistently and 
appropriately assigned to the ACO in which the beneficiary's family 
practitioner participates. We believe this result would be appropriate 
because, in this example, the family practitioner is responsible for 
managing the overall care of this patient whereas

[[Page 72798]]

the allergist is providing more specialized care. A similar problem 
would exist for some other beneficiaries, such as those who temporarily 
require specialty care for an acute condition during a performance 
year. Therefore, we are concerned that by establishing an assignment 
methodology based on a single step, we may reduce our focus on primary 
care and ultimately assign some beneficiaries to an ACO inappropriately 
based on specialty care over true primary care. A one-step assignment 
methodology could also introduce additional instability into the 
assignment process. Therefore, we are not proposing to combine the two 
steps used under the current assignment methodology.
    Although we are not proposing this change at this time, we seek 
comments as to whether it would be preferable, after excluding the 
physician specialties listed in Table 3 from the assignment process, to 
further simplify the assignment methodology by establishing an 
assignment process that involves only a single step. We will consider 
comments on this issue during the development of the final rule.
    We also welcome any comments about the possible impact these 
potential changes to the assignment methodology might have on other CMS 
programs that use an assignment methodology that is generally aligned 
with the Shared Savings Program, such as PQRS GPRO reporting via the 
GPRO web interface and VM. We note that as previously discussed, we 
revised the assignment methodology for PQRS GPRO reporting via the GPRO 
web interface and VM in the CY 2015 PFS final rule with comment period 
that appeared in the November 13, 2014 Federal Register (79 FR 67790 
and 79 FR 67962).
5. Assignment of Beneficiaries to ACOs That Include FQHCs, RHCs, CAHs, 
or ETA Hospitals
    In this section, we summarize the regulatory policies in Sec.  
425.404 for assignment of beneficiaries to ACOs that include FQHCs and 
RHCs as ACO participants and subsequent operational procedures and 
instructions that we have established in order to allow FQHCs and RHCs 
as well as CAHs billing under section 1834(g)(2) of the Act (referred 
to as Method II), and ETA hospitals to fully participate in the Shared 
Savings Program. These types of providers may submit claims for 
physician and other professional services when certain requirements are 
met, but they do not submit their claims through the standard Part B 
claims payment system. Accordingly, we have established operational 
processes so that we can consider claims for professional services 
submitted by these providers in the process for assigning beneficiaries 
to ACOs. However, each of these four provider types (that is, FQHCs, 
RHCs, CAHs, ETA hospitals) generally have differing circumstances with 
respect to their provider and medical service code reporting 
requirements, claims forms used, and the payment methodology that 
applies to professional services. Although there are important 
differences between the payment policy and claims processing for FQHCs 
and RHCs, they do share some key characteristics. Therefore, we will 
discuss FQHCs and RHCs jointly, and then address CAHs and ETA hospitals 
separately.
a. Assignment of Beneficiaries to ACOs That Include FQHCs and RHCs
(1) Overview
    FQHCs and RHCs are facilities that furnish services that are 
typically furnished in an outpatient clinic setting. They are currently 
paid an all-inclusive rate (AIR) per visit for qualified primary and 
preventive health services furnished to Medicare beneficiaries. On 
October 1, 2014, FQHCs began to transition to a new FQHC prospective 
payment system (PPS). FQHCs have been required to use HCPCS coding on 
all their claims since January 1, 2011, to inform the development of 
the PPS and for limited other purposes, and would be required to use 
HCPCS coding for payment purposes under the FQHC PPS. Under the current 
payment methodology, FQHCs and RHCs submit claims for each encounter 
with a beneficiary and receive an interim payment based on their AIR 
for qualifying visits. The claims contain revenue codes that 
distinguish general classes of services (for example, clinic visit, 
home visit or mental health service). Claims submitted by FQHCs and 
RHCs also identify the beneficiary to whom the service was provided, 
and include other information relevant to determining whether the AIR 
can be paid for the service. The claims contain very limited 
information regarding the individual practitioner, or the type of 
health professional (for example, physician, PA or NP) who provided the 
service.
    Based on detailed comments from some FQHC and RHC representatives, 
in the November 2011 final rule, we established a beneficiary 
assignment process that allows primary care services furnished in FQHCs 
and RHCs to be considered in the assignment process for any ACO that 
includes an FQHC or RHC as an ACO participant. This process is codified 
in the regulations at Sec.  425.404. (This assignment process also 
enables FQHCs and RHCs to form ACOs independently, without the 
participation of other types of eligible entities, provided they meet 
all other eligibility requirements (76 FR 67814)). Operationally we 
assign beneficiaries to ACOs that include FQHCs or RHCs in a manner 
generally consistent with how we assign beneficiaries to other ACOs 
based on primary care services performed by physicians as described 
previously. However, to address the requirement under section 1899(c) 
of the Act that beneficiaries be assigned to an ACO based on their use 
of primary care services furnished by physicians, we require ACOs that 
include FQHCs or RHCs to identify, through an attestation (see Sec.  
425.404(a)), the physicians that provide direct patient primary care 
services in their ACO participant FQHCs or RHCs. This additional step 
is not necessary in the case of other types of ACO participants that 
bill Medicare for primary care services because the claims clearly 
identify the practitioner furnishing the service. The attestation must 
be submitted to CMS as part of the application process for all ACOs 
that include FQHCs or RHCs as ACO participants and must include the 
NPIs and other identifying information for the physicians that directly 
provide primary care services in the ACO participant FQHCs or RHCs (see 
Sec.  425.204(c)(5)(iii)(A)). Subsequently, we use the combination of 
the FQHC or RHC ACO participant TIN (and other unique identifier such 
as CCN, where appropriate) and the NPIs of the FQHC or RHC physicians 
provided to us through the attestation process to identify those 
beneficiaries that received a primary care service from a physician in 
the FQHC or RHC and who are therefore eligible to be assigned to the 
ACO as provided under Sec.  425.402(a)(1). Then, we assign those 
beneficiaries to the ACO, using the step-wise assignment methodology 
under Sec.  425.402(a)(3) and (4), if they received the plurality of 
their primary care services, as determined based on allowed charges for 
the HCPCS codes and revenue center codes included in the definition of 
primary care services at Sec.  425.20, from ACO professionals.
    We are able to crosswalk the revenue center codes reported by RHCs 
(and FQHCs for services performed prior to January 1, 2011) to 
comparable ``primary care'' HCPCS codes based on their code 
definitions. For example, CPT codes 99201 through 99215 (office/

[[Page 72799]]

outpatient visits) are cross-walked to revenue center code 0521. 
Because the focus of FQHCs and RHCs is on primary care, we continue to 
believe these revenue center codes, when reported by FQHCs/RHCs, 
represent primary care services and not more specialized care. This 
crosswalk allows us to use the available revenue center codes as part 
of the beneficiary assignment process for RHC services (and for FQHC 
services furnished prior to January 1, 2011, when FQHCs were required 
to start submitting HCPCS codes) in place of the HCPCS codes which are 
used more generally. We established and have updated this crosswalk 
through contractor instructions. For claims submitted by FQHCs on or 
after January 1, 2011, we use the HCPCS codes which are included on the 
claims to identify the service provided.
    To summarize, the special procedures that we have established in 
the November 2011 final rule and through operational program 
instructions (see program specifications on our Web site at http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/sharedsavingsprogram/Downloads/Shared-Savings-Losses-Assignment-Spec-v2.pdf) for processing FQHC and RHC claims in order to allow these 
services to be considered in the beneficiary assignment process for the 
Shared Savings Program are as follows:
     FQHC and RHC services are billed on an institutional claim 
form and require special handling to incorporate them into the 
beneficiary assignment process. In general, ACO participants are 
identified through their TIN(s). However, the TINs for FQHCs and RHCs 
are not included in the CMS claims files. Therefore, we require that 
the CCNs also be reported for FQHCs and RHCs that are ACO participants. 
We use the CCN as the unique identifier for an individual FQHC or RHC. 
We require ACOs to include the CCN, the TIN, and the organizational NPI 
for FQHCs and RHCs that are participating in the ACO on their ACO 
participant lists. For example, the instructions for entities applying 
to the Shared Savings Program for 2015 were provided on our Web site at 
http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/sharedsavingsprogram/Downloads/HowTo-Participant-List-Template.pdf.
     For FQHCs/RHCs that are ACO participants, we treat a FQHC 
or RHC service reported on an institutional claim as a primary care 
service performed by a primary care physician if the claim includes a 
HCPCS or revenue center code that is included in the definition of a 
primary care service at Sec.  425.20 and the service was furnished by a 
physician that was identified as providing direct primary care services 
in the attestation submitted as part of the ACO's application. All such 
physicians are considered primary care physicians for purposes of the 
assignment methodology and no specialty code is required for these 
claims.
     A primary care physician is any physician NPI included in 
the attestation provided as part of the application submitted by an ACO 
that includes an FQHC or RHC as an ACO participant.
     For FQHCs/RHCs that are ACO participants, if the claim is 
for a primary care service furnished by someone other than a physician 
listed on the attestation, we treat the service as a primary care 
service furnished by a non-physician ACO professional. We established 
this operational policy in order to be able to include these FQHC/RHC 
primary care services in step 2 of the current beneficiary assignment 
methodology, as long as all other assignment requirements are met. We 
believe this is a reasonable assumption because FQHC/RHC covered 
services represented by the primary care HCPCS or revenue center codes 
would primarily represent services furnished by a non-physician ACO 
professional, if not by a primary care physician. We would note that 
covered services in RHCs or FQHCs include services furnished by certain 
other professionals who are not ACO professionals (that is, a certified 
nurse midwife, clinical psychologist, clinical social worker or, in 
very limited situations, a visiting nurse). However, such services are 
not reported under the HCPCS codes and revenue center codes that we 
have defined as being primary care services at Sec.  425.20 for 
purposes of the Shared Savings Program. (See RHC/FQHC general billing 
requirements in the Medicare Claims Processing Manual, Chapter 9--Rural 
Health Clinics/Federally Qualified Health Centers, section 100 at 
http://www.cms.gov/Regulations-and-Guidance/Guidance/Manuals/Downloads/clm104c09.pdf).
     For FQHCs/RHCs that are not ACO participants, we treat a 
FQHC or RHC service reported on an institutional claim as a primary 
care service performed by a primary care physician if the claim 
includes a HCPCS or revenue center code that meets the definition of a 
primary care service at Sec.  425.20. That is, for non-ACO participant 
FQHCs and RHCs, we assume a primary care physician performed all 
primary care services. As we explained previously in the November 2011 
final rule (76 FR 67860), FQHC/RHC claims contain limited information 
as to the type of practitioner providing a service because such 
information is not necessary to determine payment rates for services in 
FQHCs/RHCs. Further, the attestation requirement at Sec.  425.404(a) 
does not, of course, apply to FQHCs/RHCs that are not participating in 
an ACO. As a result, for non-ACO participant FQHCs/RHCs we are not able 
to determine whether a primary care service was furnished by a primary 
care physician, and thus should be considered in step 1, or was 
furnished by a specialist physician or NP/PA/CNS, and thus should be 
considered under step 2 of the assignment methodology. We chose to 
assume such primary care services were furnished by primary care 
physicians so that these services would be considered in step 1 of the 
assignment methodology. We established this operational procedure to 
help make sure we do not disrupt established relationships between 
beneficiaries and their care providers in non-ACO participant FQHCs and 
RHCs, by inappropriately assigning beneficiaries to ACOs that are not 
primarily responsible for coordinating their overall care.
    To illustrate, we offer the following example: Assume Medicare is 
billed for five primary care services (all with equal allowable 
charges) for a particular beneficiary during a given performance year. 
One of those primary care services was provided by a primary care 
physician who is an ACO provider/supplier not affiliated with an FQHC. 
Four of the services were provided by an FQHC that is not an ACO 
participant. In this case, if we had assumed that the FQHC services 
were performed by NPs/PAs/CNSs, then the beneficiary would have been 
assigned to the ACO under step 1 of the assignment methodology and not 
the FQHC. Instead, by assuming the non-ACO participant FQHC services 
were performed by primary care physicians, this beneficiary would be 
assigned to the FQHC under step 1 and not to the ACO. In this scenario 
we believe it would be more appropriate for the beneficiary to be 
assigned to the FQHC since the FQHC is the entity that is primarily 
responsible for overseeing the care for this beneficiary. Also, we do 
not believe it would be appropriate to hold the ACO accountable for the 
beneficiary in this example given that the ACO is not providing the 
plurality of primary care.
(2) Proposed Revisions
    As currently drafted, Sec.  425.404(b) conflates the question of 
whether a service billed by an FQHC or RHC is

[[Page 72800]]

provided by a physician with the question of whether the service is a 
primary care service. As a consequence, the provision arguably does not 
address situations where the FQHC/RHC claim is for a primary care 
service as defined under Sec.  425.20, but the NPI reported on the 
claim is not the NPI of a physician included in the attestation 
submitted under Sec.  425.404(a). As with other types of ACO 
participants, under the step-wise assignment methodology we believe it 
is appropriate to separately address the questions of whether the 
service is a primary care service, whether the service is a primary 
care service provided by an ACO professional who is a primary care 
physician, and whether the service is a primary care service provided 
by another ACO professional. Therefore, we propose to revise Sec.  
425.404(b) to better reflect the program rules and operational 
practices as previously outlined. In addition, we propose to revise 
Sec.  425.404(b) to reflect the proposal discussed earlier to revise 
Sec.  425.402(a)(1) to include services furnished by NPs, PAs, and CNSs 
as services that will be considered in step 1 of the assignment 
process. Under these proposals, we would assign beneficiaries to ACOs 
that include FQHCs and RHCs in the following manner.
    To address the requirement under section 1899(c) of the Act that 
beneficiaries be assigned to an ACO based on their use of primary care 
services furnished by physicians, we would continue to require ACOs 
that include FQHCs and RHCs to identify, through an attestation (see 
Sec.  425.404(a)), the physicians that provide direct patient primary 
care services in their ACO participant FQHCs or RHCs. Previously, we 
used this attestation information both for purposes of determining 
whether a beneficiary was ``assignable'' to an ACO and also for 
purposes of assigning beneficiaries to the ACO under step 1. However, 
we now propose to use this attestation information only for purposes of 
determining whether a beneficiary is assignable to an ACO. We refer to 
this determination under Sec.  425.402(a)(1) as being the assignment 
``pre-step''. If a beneficiary is identified as an ``assignable'' 
beneficiary in the assignment pre-step, then we would use claims for 
primary care services furnished by all ACO professionals submitted by 
the FQHC or RHC to determine whether the beneficiary received a 
plurality of his or her primary care services from the ACO under Step 
1. We propose to make revisions to Sec.  425.404(b) to reflect these 
policies. To illustrate the assignment methodology for an ACO that 
includes FQHCs/RHCs we offer the following example. Assume Medicare is 
billed for five primary care services (all with equal allowable 
charges) for a particular beneficiary during a given performance year. 
One of those primary care services was provided by a specialist 
physician who is an ACO professional not affiliated with the FQHC. Two 
of the services were provided in an FQHC that is an ACO participant in 
the same ACO. Under the presumption discussed previously, these 
services are assumed to have been provided by NPs, PAs, or CNSs in the 
FQHC. The remaining two services were provided by specialist physicians 
billing under a common TIN but unaffiliated with the ACO. In this case, 
the beneficiary would be assignable to the ACO because the beneficiary 
had at least one primary care service with a physician who is an ACO 
professional. The beneficiary would be assigned to the ACO in Step 1 
because two of the beneficiary's five primary care services during the 
performance year were provided by NPs, PAs, or CNSs who are ACO 
professionals in the ACO. These two services would be considered in 
step 1, consistent with the proposal to include NP, PA, and CNS primary 
care services in step 1 of the assignment methodology. In this 
hypothetical example, if we did not consider the FQHC claims for the 
services performed by NPs, PAs, or CNSs, the beneficiary would appear 
to have had only three valid claims to be used for assignment and would 
be assigned outside the ACO under Step 2 because there is only one 
claim for primary care services furnished by the specialist physician 
who is an ACO professional in the ACO but two of the claims were for 
services furnished by specialist physicians outside the ACO. However, 
by considering the FQHC claims, the beneficiary would have five claims 
for primary care services and would be assigned to the ACO under step 1 
because two of the services were rendered by NPs, PAs, or CNSs who are 
ACO professionals, in contrast to the two claims for primary care 
services furnished by specialist physicians outside the ACO.
    We have also encountered instances where an assignable beneficiary 
has received primary care services from FQHCs or RHCs that are not 
participants in an ACO. For non-ACO participant FQHCs and RHCs, we have 
previously assumed that all of their primary care services are 
performed by primary care physicians. We believe that this assumption, 
which we established in operational guidance as noted previously, has 
helped to assure that while beneficiaries are appropriately assigned to 
ACOs, we do not disrupt established relationships between beneficiaries 
and their care providers in FQHCs and RHCs that are not ACO 
participants. However, we note that this special assumption for non-ACO 
FQHCs/RHCs would no longer be necessary under the proposed revision to 
the assignment methodology at Sec.  425.402 to consider primary care 
services furnished by NPs, PAs, and CNSs in step 1 of the assignment 
methodology rather than step 2 because: (1) As indicated earlier we 
believe that when a physician provides a service in an FQHC or RHC, the 
physician is functioning as a primary care physician, regardless of his 
or her specialty designation in the CMS enrollment records, and (2) 
there is no need to differentiate between primary care services 
performed by physicians and primary care services furnished by NPs, 
PAs, and CNSs for non-ACO FQHCs/RHCs because the requirement under 
section 1899(c) of the Act that beneficiaries be assigned to an ACO 
based on their use of primary care services furnished by physicians 
does not apply to entities that are not participating in an ACO. 
Instead, for all FQHCs/RHCs regardless of whether or not they are ACO 
participants, we would we treat all such claims for primary care 
services that are furnished by someone other than a physician listed on 
the attestation submitted by the ACO under Sec.  425.404(a) as a 
service furnished by an NP, PA or CNS. Therefore, all primary care 
services furnished by non-ACO FQHCs/RHCs would be considered in step 1 
of the assignment methodology, and there would no longer be a need to 
assume such primary care services were provided by primary care 
physicians in order to achieve this result.
    We recognize the unique needs and challenges of rural communities 
and the importance of rural providers in assuring access to health 
care. FQHCs, RHCs and other rural providers play an important role in 
the nation's health care delivery system by serving as safety net 
providers of primary care and other health care services in rural and 
other underserved areas and for low-income 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

[[Page 72801]]

proposed revisions to Sec.  425.404(b) and our current procedures for 
using claims submitted by FQHCs and RHCs in the assignment methodology 
and suggestions on how we might further support participation of FQHCs 
and RHCs in the Shared Savings Program in a manner that is consistent 
with the statutory requirements.
b. Assignment of Beneficiaries to ACOs That Include CAHs
    We briefly addressed certain issues regarding ACOs that include 
CAHs in both the proposed rule (76 FR 19538 through 19539) and final 
rule (76 FR 67812 through 67814) establishing the Shared Savings 
Program. We indicated that we determined that current Medicare payment 
and billing policies could generally support the participation of CAHs 
in ACOs. However, we explained that the situation is somewhat 
complicated with regard to CAHs because section 1834(g) of the Act 
provides for two different payment methods for outpatient CAH services.
    CAHs billing under section 1834(g)(1) of the Act (referred to as 
method I) can participate in the Shared Savings Program by establishing 
partnerships or joint venture arrangements with ACO professionals, just 
like other hospitals. CAHs billing under section 1834(g)(2) of the Act 
(referred to as method II) may form independent ACOs if they meet the 
eligibility requirements specified in the regulations. Professional 
services billed by method II CAHs are reported using HCPCS/CPT codes 
and are paid using a methodology based on the PFS. As a result, it is 
possible to use claims submitted by method II CAHs in the assignment 
methodology under Sec.  425.402. However, method II CAH claims that 
include professional services require special processing because they 
are submitted as part of institutional claims. Therefore, we have 
developed operational procedures that allow these claims to be 
considered in the assignment process under Sec.  425.402. Although we 
are not making any proposals at this time regarding the use of services 
billed by method II CAHs in the assignment process, we note that our 
procedures for incorporating claims billed by method II CAHs into the 
assignment methodology are available on our Web site at http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/sharedsavingsprogram/Downloads/Shared-Savings-Losses-Assignment-Spec-v2.pdf (see section 3.3.) These technical specifications allow 
interested parties to understand how these claims are considered in the 
assignment methodology under Sec.  425.402 and to compare the manner in 
which claims submitted by method II CAHs are processed with the 
processing of claims submitted by other providers that also require 
special processing before they can be considered in the assignment 
process. We believe this additional information in the technical 
specifications allows for a better understanding of the differences in 
our procedures, and the reasons for these differences.
    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 Sec.  425.204(c)(5)(ii), we require that 
as part of their application, ACO applicants also include the CCNs for 
any CAHs that are included as ACO participants. In the assignment 
methodology under Sec.  425.402, we use the CCN as the unique 
identifier for an individual method II CAH.
c. Assignment of Beneficiaries to ACOs That Include ETA Hospitals
    After finalizing the beneficiary assignment rules established at 
Sec.  425.400 through Sec.  425.404 in the November 2011 final rule (76 
FR 67851 through 76 FR 67870), we received inquiries regarding whether 
primary care services performed by physicians at ETA hospitals would be 
included in the assignment of beneficiaries to ACOs. ETA hospitals are 
hospitals that, under section 1861(b)(7) of the Act and Sec.  415.160 
of our regulations, have voluntarily elected to receive payment on a 
reasonable cost basis for the direct medical and surgical services of 
their physicians in lieu of Medicare PFS payments that might otherwise 
be made for these services. As a result of this election, we do not 
receive separate claims for such physician services furnished in ETA 
hospitals. However, ETA hospitals do bill separately for their 
outpatient hospital facility services, and these bills include the 
information needed to assign beneficiaries to an ACO. Therefore, we 
have developed operational instructions and processes (available at 
Section 3.5 of the specification document available on our Web site at 
http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/sharedsavingsprogram/Downloads/Shared-Savings-Losses-Assignment-Spec-v2.pdf) that enable us to include primary care services performed by 
physicians at ETA hospitals in the assignment of beneficiaries to ACOs 
under Sec.  425.402.
     We include TINs and other identifiers (including the 
hospital CCN) for ETA hospitals in the assignment algorithm in both 
steps 1 and 2 of the assignment process using claims from the 
outpatient (institutional) file.
     It is necessary for us to use institutional claims 
submitted by ETA hospitals in the assignment process because ETA 
hospitals are paid for physician professional services on a reasonable 
cost basis through their cost reports and no other claim is submitted 
for such services. However, ETA hospitals bill us for their separate 
facility services when physicians and other practitioners provide 
services in the ETA hospital and the institutional claims submitted by 
ETA hospitals include the HCPCS code for the services provided. We use 
the HCPCS code included on this institutional claim to identify whether 
a primary care service was rendered to a beneficiary in the same way as 
for any other claim.
     To determine the rendering physician for ETA institutional 
claims, we use the NPI listed in the ``other provider'' NPI field.
     Then we use PECOS to obtain the CMS specialty for the NPI 
listed on the ETA institutional claim.
     These institutional claims do not include allowed charges, 
which are necessary to determine where a beneficiary received the 
plurality of primary care services as part of the assignment process. 
Accordingly, we use the amount that would otherwise be payable under 
the PFS for the applicable HCPCS code, in the applicable geographic 
area as a proxy for the allowed charges for the service.
    We believe it is appropriate to use ETA institutional claims for 
purposes of identifying primary care services furnished by physicians 
in ETA hospitals in order to allow these services to be included in the 
stepwise methodology for assigning beneficiaries to ACOs. We believe 
including these claims increases the accuracy of the assignment process 
by helping ensure that beneficiaries are assigned to the ACO or other 
entity that is actually managing the beneficiary's care. ETA hospitals 
are often located in underserved areas and serve as providers of 
primary care for the beneficiaries they serve. We believe it is 
appropriate that their patients benefit from the opportunity for ETA 
hospitals to fully participate in the Shared Savings Program. 
Therefore, we propose to revise Sec.  425.402 by adding a new paragraph 
(c) to provide that when considering services furnished by

[[Page 72802]]

physicians in ETA hospitals in the assignment methodology, we would use 
the amount payable under the PFS for the specified HCPCS code as a 
proxy for the amount of the allowed charges for the service. In 
addition, because we are able to consider claims submitted by ETA 
hospitals as part of the assignment process, we also propose to amend 
Sec.  425.102(a) to add ETA hospitals to the list of ACO participants 
that are eligible to form an ACO that may apply to participate in the 
Shared Savings Program.
    We invite comments on the use of institutional claims submitted by 
ETA hospitals for purposes of identifying primary care services 
furnished by physicians in order to allow these services to be 
considered in the assignment of beneficiaries to ACOs. We also invite 
comments on whether there are any other types of potential ACO 
participants that submit claims representing primary care services that 
CMS should also consider including in (or excluding from) its 
methodology for assigning beneficiaries to ACOs participating in the 
Shared Savings Program.
6. Effective Date for Finalization of Proposals Affecting Beneficiary 
Assignment
    As indicated in section II.A. of this proposed rule, the effective 
date for the final rule would be 60 days after the final rule is 
published. However, we propose that any final policies that affect 
beneficiary assignment would be applicable starting at the beginning of 
the next performance year. We believe that implementing any revisions 
to the assignment methodology at the beginning of a performance year is 
reasonable and appropriate because it would permit time for us to make 
the necessary programming changes and would not disrupt the assessment 
of ACOs for the current performance year. Moreover, we propose to 
adjust all benchmarks at the start of the first performance year in 
which the new assignment rules are applied so that the benchmark for 
the ACO reflects the use of the same assignment rules as would apply in 
the performance year. For example, any new beneficiary assignment 
policies that might be included in a final rule issued in early 2015 
would apply to beneficiary assignment starting at the beginning of the 
following performance year, which in this example would be January 1, 
2016. In this hypothetical example, we would also adjust performance 
benchmarks that apply for the 2016 and subsequent performance years, as 
applicable, to reflect changes in our assignment methodology.
    In addition, we would not retroactively apply any new beneficiary 
assignment policies to a previous performance year. For example, if the 
assignment methodology is applied beginning in 2016, we would not use 
it in mid-2016 to reconcile the 2015 performance year. In other words, 
the assignment methodology used at the start of a performance year 
would also be used to conduct the final reconciliation for that 
performance year.

F. Shared Savings and Losses

1. Background
    Section 1899(d) of the Act establishes the general requirements for 
payments to participating ACOs. Specifically, section 1899(d)(1)(A) of 
the Act provides that ACO participants will continue to receive payment 
``under the original Medicare fee-for-service program under parts A and 
B in the same manner as they would otherwise be made,'' and that an ACO 
is eligible to receive payment for shared Medicare savings provided 
that the ACO meets both the quality performance standards established 
by the Secretary, and demonstrates that it has achieved savings against 
a benchmark of expected average per capita Medicare FFS expenditures. 
Additionally, section 1899(i)(3) of the Act authorizes the Secretary to 
use other payment models in place of the one-sided model outlined in 
section 1899(d) of the Act as long as the Secretary determines these 
other payment models will improve the quality and efficiency of items 
and services furnished to Medicare beneficiaries without additional 
program expenditures.
    In our November 2011 final rule (76 FR 67904 through 67909) 
establishing the Shared Savings Program, we considered a number of 
options for using this authority. For example, commenters suggested we 
consider such options as blended FFS payments, prospective payments, 
episode/case rate payments, bundled payments, patient centered medical 
homes or surgical homes payment models, payments based on global 
budgets, full or partial capitation, and enhanced FFS payments for care 
management. However, in the November 2011 final rule (76 FR 67905), we 
opted not to use our authority under section 1899(i) of the Act to 
integrate these kinds of alternative payment models at that time, 
noting that many of the suggested payment models were untested. We 
expressed concern that immediately adopting untested and/or unproven 
models with which we had little experience on a national scale could 
lead to unintended consequences for the FFS beneficiaries we serve or 
for the health care system more broadly. We also noted that the 
Affordable Care Act had established a new Center for Medicare and 
Medicaid Innovation (Innovation Center) at CMS. The Innovation Center 
is charged with developing, testing, and evaluating innovative payment 
and service delivery models in accordance with the requirements of 
section 1115A of the Act. Many of the approaches suggested by 
stakeholders and commenters on the Shared Savings Program rule are the 
subject of ongoing testing and evaluation by the Innovation Center. In 
the November 2011 final rule (76 FR 67905), we noted that while we did 
not yet have enough experience with novel payment models to be 
comfortable integrating them into the Shared Savings Program at the 
time, we anticipated that what we learned from these models might be 
incorporated into the program in the future.
    In the November 2011 final rule establishing the Shared Savings 
Program (76 FR 67909), we created two tracks from which ACOs could 
choose to participate: A one-sided risk model (Track 1) that 
incorporates the statutory payment methodology under section 1899(d) of 
the Act and a two-sided model (Track 2) that is also based on the 
payment methodology under section 1899(d) of the Act, but incorporates 
performance-based risk using the authority under section 1899(i)(3) of 
the Act to use other payment models. Under the one-sided model, ACOs 
qualify to share in savings but are not responsible for losses. Under 
the two-sided model, ACOs qualify to share in savings with an increased 
sharing rate, but also must take on risk for sharing in losses.
    In the November 2011 final rule (76 FR 67904), we discussed our 
belief that offering these two tracks would create an on ramp for the 
program to attract both providers and suppliers that are new to value-
based purchasing as well as more experienced entities that are ready to 
share in losses. We expressed our belief that a one-sided model would 
have the potential to attract a large number of participants to the 
program and introduce value-based purchasing broadly to providers and 
suppliers, many of whom may never have participated in a value-based 
purchasing initiative before. Another reason we included the option for 
a one-sided track with no downside risk was our belief that this model 
would be accessible to and attract smaller group participation. Indeed, 
commenters persuaded us that ACOs new to the

[[Page 72803]]

accountable care model--particularly small, rural, safety net, and 
physician-only ACOs--would benefit from spending time under a one-sided 
model before being required to accept performance-based risk (76 FR 
67907).
    We also noted, however, that while a one-sided model could provide 
incentives for participants to improve quality, it might not be 
sufficient incentive for participants to improve the efficiency and 
cost of health care delivery (76 FR 67904). Therefore, we used our 
authority under section 1899(i)(3) of the Act to create a performance-
based risk option, Track 2, where ACOs would not only be eligible to 
share in savings, but also must share in losses. We believed a 
performance-based risk option would have the advantage of providing 
more experienced ACOs an opportunity to enter a sharing arrangement 
that provides greater reward for greater responsibility. Commenters 
supported our belief that models where ACOs bear a degree of financial 
risk hold the potential to induce more meaningful systematic change. 
This input from commenters underscored our own views regarding the 
importance of offering a pathway for ACOs to transition from the one-
sided model to risk-based arrangements. These comments persuaded us 
that having Track 1 as a shared savings only option, while offering 
Track 2 as a shared savings/losses model, would be the most appropriate 
means to achieve our objectives. Thus, we made final these two tracks 
which offered the two-sided model under Track 2 to ACOs willing and 
able to take on performance-based risk in exchange for a greater share 
of any savings, and also a shared savings only model under Track 1 for 
the duration of an ACO's first 3-year agreement period for entities 
needing more experience before taking on risk. In the final rule, we 
required that ACOs that participate in Track 1 during their first 
agreement period must transition to Track 2 for all subsequent 
agreement periods. We noted our belief that offering the two tracks, 
but requiring a transition to Track 2 in subsequent agreement periods, 
would increase interest in the Shared Savings Program by providing a 
gentler ``on ramp'' while maintaining the flexibility for more advanced 
ACOs to take on greater performance-based risk in return for a greater 
share of savings immediately upon entering the program (76 FR 67907). 
Therefore, as specified in the November 2011 final rule (76 FR 67909), 
ACOs may enter the program in one of two tracks:
    Track 1: Under Track 1, the ACO operates under the one-sided shared 
savings only model for its initial 3-year agreement period.
    Track 2: Under Track 2, the ACO operates under the two-sided shared 
savings/losses model for the 3-year agreement period.
    Although most of the program requirements that apply to ACOs in 
Track 1 and Track 2 are the same, the financial reconciliation 
methodology was designed so that ACOs that accept performance-based 
risk under Track 2 would have the opportunity to earn a greater share 
of savings. Thus, the same eligibility criteria, beneficiary assignment 
methodology, benchmark and update methodology, quality performance 
standards, data reporting requirements, data sharing provisions, 
monitoring for avoidance of at-risk beneficiaries, provider screening, 
and transparency requirements apply to ACOs under both models. However, 
the financial reconciliation methodology was modified for Track 2 in 
order to allow an opportunity for ACOs to earn a greater share of 
savings, in exchange for their willingness to accept performance-based 
risk. Specific differences between the two tracks include the minimum 
savings rate (MSR), the sharing rate based on quality performance, and 
the performance payment limit. Table 7 summarizes the differences 
between the existing one-sided and two-sided models.
    In this section, we discuss various proposals for modifications to 
the program tracks and the financial model based on our experience to 
date, and propose to offer organizations an additional two-sided model 
(Track 3) as a further option for participation.
2. Modifications to the Existing Payment Tracks
a. Overview
    Because we believe that payment models where ACOs bear a degree of 
financial risk have the potential to induce more meaningful systematic 
change in the behavior of providers and suppliers, it was our intent in 
the November 2011 final rule to establish the Shared Savings Program to 
encourage ACOs not only to enter the program, but also to progress to 
increased risk. Therefore, as discussed previously, we established a 
requirement that an ACO entering the program under Track 1 may only 
operate under the one-sided model for its first agreement period. For 
subsequent agreement periods, an ACO would not be permitted to operate 
under the one-sided model (Sec.  425.600(b)). If the ACO wishes to 
participate in the program for a second agreement period, it must do so 
under Track 2 (shared savings/losses). Additionally, an ACO 
experiencing a net loss during its initial agreement period may reapply 
to participate in the program, but the ACO must identify in its 
application the cause(s) for the net loss and specify what safeguards 
are in place to enable the ACO to potentially achieve savings in its 
next agreement period (Sec.  425.600(c)). In our view, this allowance 
for a full first agreement period under the one-sided model and 
required transition to performance-based risk in the subsequent 
agreement period struck a balance between our intent to encourage 
program participation by small, rural, or physician-only ACOs with the 
need to ensure that ACOs quickly transition to taking downside risk.
    We are encouraged by the popularity of the Shared Savings Program, 
particularly the popularity of the one-sided model. Over 98 percent of 
ACOs participating in the Shared Savings Program (over 330 ACOs) have 
chosen Track 1, with only 5 ACOs participating under Track 2 as a 
starting option. About half of the ACOs participating in the program 
are small, provider-based, or rural ACOs, each having less than 10,000 
assigned beneficiaries. We continue to believe that one 3-year 
agreement period under Track 1 is sufficient for many organizations to 
progress along the on-ramp to performance-based risk. We also continue 
to believe, as discussed in the November 2011 final rule (76 FR 67907), 
that payment models where ACOs bear a degree of financial risk have the 
potential to induce more meaningful systematic change in providers' and 
suppliers' behavior, so it remains our intent to continue to encourage 
forward movement up the ramp. However, based on our experience with the 
program, we recognize that many of the organizations that are currently 
participating in the program are risk averse and lack the 
infrastructure and readiness to manage increased performance-based 
risk. Given the short time period between finalization of the November 
2011 final rule and the first application cycles, is it our impression 
that many ACOs, particularly smaller ACOs, focused initially on 
developing their operational capacities rather than on the 
implementation of care redesign processes. Therefore, we have some 
concerns about the slope of the on-ramp to performance-based risk 
created by the two existing tracks and the policy that requires ACOs in 
Track 1 (shared

[[Page 72804]]

savings only) to transition to Track 2 (shared savings/losses) for 
their second agreement period. We are particularly concerned that the 
current transition from one- to two-sided risk may be too steep for 
some organizations, putting them into a situation where they must 
choose between taking on more risk than they can manage or dropping out 
of program participation altogether. For instance, we believe that some 
smaller and less experienced ACOs are likely to drop out of the program 
when faced with this choice, because the smaller an ACO's assigned 
beneficiary population, the greater the chances that shared losses 
could result from normal variation. Also, we are aware of the concern 
among some stakeholders that one agreement period under the one-sided 
model may be not be a sufficient amount of time for some ACOs to gain 
the level of experience with population management or program 
participation needed for them to be comfortable taking on performance-
based risk. For some organizations, having additional experience in the 
Shared Savings Program under Track 1 could help them be in a better 
position to take on performance-based risk over time. We are also 
concerned that the existing features of Track 2 may not be sufficiently 
attractive to ACOs contemplating entering a risk-based arrangement. 
Finally, some ACOs have reported that establishing the repayment 
mechanism required to participate under the two-sided model is 
difficult and ties up capital that otherwise could be used to implement 
the care processes necessary to succeed in the program. We continue to 
believe the requirement that ACOs entering the two-sided model 
demonstrate an adequate repayment mechanism is important for protecting 
the Medicare program. However, as discussed in more detail later in 
this section, we are proposing certain modifications to the repayment 
mechanism requirements applicable to ACOs under the program's two-sided 
model(s) (Track 2 and proposed Track 3). These proposed modifications 
are based on our experience with the repayment mechanism requirements 
and are intended to reduce the burden of these requirements on ACOs.
    Hence, we are revisiting our policies related to Tracks 1 and 2 in 
order to smooth the on ramp for organizations participating in the 
Shared Savings Program. First, we propose to remove the requirement at 
Sec.  425.600(b) for Track 1 ACOs to transition to Track 2 after their 
first agreement period. Second, we propose to modify the financial 
thresholds under Track 2 to reduce the level of risk that ACOs must be 
willing to accept. Taken together, we believe there are a number of 
advantages to smoothing the on ramp by implementing these proposed 
policies. We believe that removing the requirement that ACOs transition 
to a two-sided model in their second agreement period will provide 
organizations, especially newly formed, less experienced, and smaller 
organizations, more time to gain experience in the program before 
accepting performance-based risk. In particular, we believe the 
proposed changes would encourage continued participation in the program 
by potentially successful ACOs that would otherwise drop out because of 
the requirement to transition to the two-sided model in their second 
agreement period. We further believe the proposal to allow 
organizations to gain more experience under a one-sided model before 
moving forward to a two-sided model would encourage earlier adoption of 
the shared savings model by organizations concerned about being 
required to transition to performance-based risk before realizing 
savings under a one-sided model. We believe incorporating the 
opportunity for ACOs to remain in Track 1 beyond their first agreement 
period could have a beneficial effect with respect to the care that 
beneficiaries receive. Specifically, to the extent that more ACOs are 
able to remain in the program, a potentially broader group of 
beneficiaries will have access to better coordinated care through an 
ACO. In addition, allowing ACOs additional time to make the transition 
to performance-based risk would reduce the chances that a high-
performing ACO, which believes that it is not yet ready to assume 
greater financial risk, will either cease to participate in the program 
to avoid risk or find it necessary to engage in behaviors primarily 
intended to minimize that risk rather than improve patient care.
    Further, we believe that ACOs that accept financial responsibility 
for the care of beneficiaries have the greatest beneficial effects for 
the Medicare program and its beneficiaries. Therefore, we expect that 
ACOs participating in the Shared Savings Program move in the direction 
of accepting performance-based risk. Thus, while we believe it is 
appropriate to offer additional time for ACOs under a one-sided model, 
we also believe there should be incentives for participants to 
voluntarily take on additional financial risk. There should also be 
disincentives to discourage organizations from persisting in a shared 
savings only risk track indefinitely. Therefore, we believe that 
distinguishing the financial attractiveness of the one-sided model from 
the two-sided model by dropping the sharing rate in Track 1 for ACOs 
participating in Track 1 for a subsequent agreement period and 
modifying the risk inherent in Track 2 would signal to ACOs the 
importance of moving toward performance-based risk and encourage ACOs 
to voluntarily enter the two-sided model as soon as they are able. 
Finally, we believe that adopting restrictions to prevent organizations 
that have not achieved certain minimum performance requirements with 
respect to cost and quality of care, based on their experience to date, 
from obtaining additional agreement periods under Track 1 can serve as 
an appropriate program safeguard against entities remaining in the 
program that are not fully committed to improving the quality and 
efficiency of health care service delivery.
b. Proposals Related to Transition From the One-Sided to Two-Sided 
Model
    We considered several options to better balance both our intent to 
encourage continued participation by ACOs that entered the program 
under the one-sided model but that are not ready to accept performance-
based risk after 3 years of program participation with our concern that 
allowing a shared savings only option will discourage ACOs capable of 
taking risk from moving to a two-sided model. We considered the 
following options: (1) Revising the regulations to allow ACOs that 
enter the program under the one-sided model to continue participation 
in Track 1 for more than one agreement period; (2) extending the 
initial 3-year agreement period for an additional 2 years for ACOs that 
enter the program under Track 1, but that do not believe that they are 
ready to advance to a risk-based track; and (3) allowing ACOs to 
continue participation in Track 1 for more than one agreement period, 
but revising the one-sided model to decrease the financial 
attractiveness of the model, so as to encourage ACOs ready to accept 
performance-based risk to transition to a two-sided model.
    Among these options, we believe the third option offers a good 
balance of encouraging continued participation in addition to 
encouraging progression along the on-ramp to performance-based risk. 
Therefore, we propose to remove the requirement at Sec.  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

[[Page 72805]]

to continue participating in the Shared Savings Program. Instead, we 
propose to revise the regulation to permit ACOs that have completed a 
3-year agreement under Track 1 to enter into one additional 3-year 
agreement under Track 1. We believe that continued participation in the 
Shared Savings Program, generally, should be made available to ACOs 
that demonstrate they have been compliant with the program 
requirements, or are working through corrective action plans to CMS' 
satisfaction, with safeguards in place to ensure they will meet program 
requirements in the future. In section II.C.3. of this proposed rule, 
we proposed criteria for determining whether to allow ACOs that are 
currently participating in the program to renew their participation 
agreements for subsequent agreement periods. We seek to encourage the 
continued participation of ACOs that are successful and have the 
potential to move toward accepting greater responsibility for the care 
of their beneficiaries, but also encourage their progression along the 
risk continuum. Thus, we propose to make the option of participating in 
Track 1 for a second agreement period available to only those Track 1 
ACOs that--(1) meet the criteria established for ACOs seeking to renew 
their agreements (as proposed in section II.C.3 of this proposed rule, 
including demonstrating to CMS that they satisfied the quality 
performance requirements under Subpart F such that they were eligible 
to share in savings in at least one of the first two performance years 
of the previous agreement period) and (2) in at least one of the first 
two performance years of the previous agreement period, they did not 
generate losses in excess of the negative MSR. For example, assume a 
Track 1 ACO has 15,000 assigned beneficiaries with an MSR of 2.7 
percent. If we calculate that this ACO's expenditures exceeded the 
ACO's benchmark by 2.7 percent or more in both of the first two 
performance years, then CMS would not accept this ACO's request to 
renew its agreement under the one-sided model. If the ACO's financial 
performance results in expenditures in excess of the negative MSR in 
only one of the first two performance years, then we would accept this 
ACO's request to renew its participation agreement under the one-sided 
model, provided all other requirements for renewal were satisfied.
    We believe that requiring ACOs to meet these requirements in order 
to remain in Track 1 will prevent consistently poor performers from 
being able to seamlessly continue in program participation under the 
one-sided model while permitting some leeway for ACOs that are new to 
the program and may have had some difficulty in cost or quality 
performance in one of the two first performance years. We also believe 
that these additional eligibility criteria serve as an important 
safeguard to reduce the potential for ACOs to participate in the 
program for reasons other than a commitment to improving the value of 
health care services. We recognize that because our assessment would be 
based on only 2 years of data, we would not have a complete picture of 
the ACO's performance during the agreement period. That is, an ACO may 
financially perform very poorly, exceeding the negative MSR in its 
first and second performance years, but demonstrate a trend in a 
direction that could ultimately lead to better performance in the third 
year. Under our proposal this ACO would not be permitted to renew its 
agreement under Track 1 for a second agreement period. However, an 
argument could be made that this ACO simply needed the additional time 
under a one-sided model to gain experience and start improving. We 
therefore seek comment on whether we should also consider the direction 
the ACO's performance is trending when determining whether to permit 
renewal of an ACO's participation agreement under Track 1. We also seek 
comment on whether other options for such ACOs, short of refusing their 
participation in a second agreement period under Track 1, would better 
serve program goals. We note that such ACOs would not be precluded from 
renewing their participation agreement in order to participate under a 
two-sided risk track, consistent with Sec.  425.600(c). We also 
emphasize that in addition to meeting the specific criteria to be 
eligible to continue in Track 1, the ACO must also demonstrate that it 
meets the requirements to renew its agreement under proposed Sec.  
425.224, which would include the requirement that the ACO establish 
that it is in compliance with the eligibility and other requirements of 
the Shared Savings Program.
    In addition, as part of our proposal to allow ACOs to participate 
in a second agreement period under the one-sided model, we propose to 
reduce the sharing rate by 10 percentage points for ACOs in a second 
agreement period under Track 1 to make staying in the one-sided model 
less attractive than moving forward along the risk continuum. As a 
result, the maximum sharing rate for an ACO in a second agreement 
period under Track 1 would be 40 percent.
    Accordingly, in addition to our proposed change to Sec.  425.600(b) 
to allow ACOs to participate under Track 1 for a second agreement 
period, we propose to modify Sec.  425.604(d) to provide that the 
maximum sharing rate during a second agreement period under Track 1 
will be 40 percent. As a result, ACOs that continue to participate 
under the one-sided model and are eligible for shared savings will 
receive a smaller share of those savings compared to ACOs participating 
under the one-sided model in their first agreement period and ACOs 
participating under a two-sided model. We believe permitting one 
additional agreement period under Track 1, but at a reduced sharing 
rate, will encourage the continued participation of ACOs that are 
successful and have the potential to move toward accepting greater 
responsibility for the care of their beneficiaries, but also encourage 
their progression along the risk continuum. However, as discussed later 
in this section, we also recognize that limiting ACOs to only two 
agreement periods under Track 1 may encourage ACOs to progress along 
the on-ramp to risk earlier than they otherwise might if they were 
permitted to remain under the one-sided model for several agreement 
periods.
    We further note that this option to participate under the one-sided 
model agreement in a subsequent agreement period is only available to 
ACOs that have completed or are in the process of completing an 
agreement under the one-sided model. That is, we will not permit an ACO 
under a two-sided model to subsequently participate under a one-sided 
model.
    We seek comment on this proposal. In particular, we request input 
on whether a 40 percent sharing rate in a second agreement period under 
the one-sided model is sufficient to incentivize an ACO that may need 
more time to prepare to take on two-sided performance-based risk while 
also encouraging ACOs that are ready to take on performance-based risk 
to choose to continue participation in the Shared Savings Program under 
a two-sided model.
    We also considered other variations and options for allowing ACOs 
additional time in the one-sided model. For example, we considered 
allowing ACOs to continue under Track 1 for a second agreement period 
without any changes to the sharing rate (that is, retaining the 50 
percent sharing rate in the second agreement period); however, we do 
not believe this approach would provide sufficient incentive for ACOs 
to be moving in the direction of adopting

[[Page 72806]]

performance-based risk. We continue to believe that participating in a 
model with two-sided risk offers stronger incentives for ACOs to 
improve the quality of care and reduce costs. Currently, ACOs in their 
first agreement period under Track 1 may share in up to 50 percent of 
the savings generated for the Medicare program. We are concerned that 
if ACOs are able to continue to receive up to 50 percent of savings in 
a second agreement period there may be insufficient incentive for many 
ACOs that may be ready to take on two-sided risk to move to a track 
with two-sided risk after their first agreement period. As a result, 
under our proposal we would reduce the sharing rate for ACOs 
participating in Track 1 for a second agreement period in order to 
discourage prolonged participation under Track 1 and encourage 
progression along the on ramp to risk where an ACO may qualify for a 
higher sharing rate.
    We also considered permitting ACOs to participate in multiple 
agreement periods under Track 1 and reducing the maximum sharing rate 
by 10 percentage points for each subsequent agreement. Such a policy 
may encourage more ACOs to continue to participate in the program, but 
also may reduce the urgency for ACOs to progress quickly along the on-
ramp to risk if they are permitted to remain under the one-sided model 
for several agreement periods.
    We also considered offering the opportunity to ACOs participating 
under Track 1 to extend their initial 3-year participation agreement 
under Track 1 by an additional 2 years. However, we note that under 
this option, we would not be able to rebase the benchmark, making it 
more likely that organizations would achieve savings without further 
improvements in care redesign; yet at the same time, it would be more 
difficult for ACOs with losses to turn around their performance. 
Moreover, we are concerned that limiting ACOs to only 2 additional 
years under Track 1 may not be sufficient for all ACOs to take the 
steps necessary to prepare to move to performance-based risk.
    We seek comment on our proposal to permit ACOs to participate under 
Track 1 for a second agreement period and to reduce the maximum sharing 
rate to 40 percent for ACOs participating under Track 1 for a second 
agreement period. We also specifically seek comments on the other 
options we considered, including extending an ACO's Track 1 agreement 
period for an additional 2-years rather than permitting two 3-year 
agreement periods under Track 1, permitting ACOs to participate in a 
second agreement period under Track 1 with no change to the sharing 
rate, and offering multiple agreement periods under Track 1 while 
reducing the sharing rate by 10 percentage points for each subsequent 
agreement.
    In the November 2011 final rule, we also addressed the possibility 
that an ACO may terminate or be terminated from participation in the 
Shared Savings Program, and the consequences for the ACO's choice of 
tracks in the event it reapplies to the program. We finalized a policy 
that would permit such ACOs to reapply to participate in the program 
again only after the date on which the term of their original 
participation agreement would have expired if the ACO had not been 
terminated (Sec.  425.222(a)). Under Sec.  425.222(b), to be eligible 
to participate in the Shared Savings Program after a previous 
termination, the ACO must demonstrate in its application that it has 
corrected the deficiencies that caused it to be terminated and that it 
has processes in place to ensure it will remain in compliance with the 
terms of the new participation agreement. We note that, all applicants 
undergo screening with regard to their program integrity history that 
may result in denial of the application (Sec.  425.304(b)). We also 
provided that an ACO under the one-sided model whose participation 
agreement was previously terminated may reenter the program only under 
the two-sided model, unless it was terminated less than half-way 
through its agreement period under the one-sided model, in which case 
the ACO would be allowed to reenter the one-sided model (Sec.  
425.222(c)). An ACO under Track 2 whose agreement was terminated may 
only re-apply to participate in Track 2 (Sec.  425.222(c)).
    In light of our proposed revisions to Sec.  425.600 to permit an 
ACO to participate under Track 1 for a second agreement period, we are 
proposing to make conforming changes to Sec.  425.222(c) to permit 
previously terminated Track 1 ACOs to reapply under the one-sided 
model. We propose that, consistent with our existing policy under Sec.  
425.222(c), an ACO whose agreement was terminated less than half way 
through the term of its participation agreement under Track 1 would be 
permitted to reapply to the one-sided model as if it were applying for 
its first agreement period. If the ACO is accepted to reenter the 
program, the maximum sharing rate would be 50 percent. However, in the 
case of an ACO that was terminated more than half way through its 
initial agreement under the one-sided model, we propose to revise Sec.  
425.222(c) to permit this ACO to reapply for participation under the 
one-sided model, but to provide that the ACO would be treated as if it 
were applying for a second agreement period under Track 1. Thus, if the 
ACO is approved to participate in the program again, the reduced 
sharing rate of 40 percent would apply. An ACO whose prior agreement 
under Track 2 was terminated would still be precluded from applying to 
participate under Track 1.
    We seek comment on this proposal.
c. Proposals for Modifications to the Track 2 Financial Model
    To complement the proposals to smooth the on ramp to risk, we are 
also proposing to modify the financial model under Track 2 for ACOs 
choosing this two-sided option to further encourage ACOs to accept 
increased performance-based risk. Specifically, we are proposing to 
modify the threshold that Track 2 ACOs must meet or exceed in order to 
share in savings (minimum savings rate (MSR)) or losses (minimum loss 
rate (MLR)). We believe this modification would improve the track's 
attractiveness for ACOs, particularly for ACOs that may be cautious 
about entering a performance-based payment arrangement such as some 
ACOs with smaller assigned beneficiary populations or those with less 
experience with managing the health of populations across sites of 
care.
    Track 2 was designed to allow more advanced ACOs the opportunity to 
take on greater performance-based risk in exchange for greater reward 
immediately, as early as their first agreement period. In the November 
2011 final rule (76 FR 67904 through 67905), we discussed concerns that 
had been raised about allowing ACOs to participate immediately in a 
risk-based arrangement. Specifically, ACOs might try to avoid at-risk 
beneficiaries in order to minimize the possibility of realizing losses 
against their benchmarks or might be unable to repay the Medicare 
program if they have losses. We explained our belief that the use of 
retrospective beneficiary assignment for financial reconciliation and 
the program's beneficiary notification requirements would be sufficient 
safeguards against the prospect that ACOs participating in the two-
sided model might try to avoid at-risk beneficiaries (76 FR 67904). 
Further, the requirement that ACOs participating in Track 2 establish 
an adequate repayment mechanism provides further assurance about their 
ability to repay shared losses to the Medicare program.
    Currently, ACOs participating in Track 2 are eligible to share in a 
greater

[[Page 72807]]

percentage of savings than ACOs participating in Track 1, but are also 
accountable for a share of losses compared to their benchmark. ACOs may 
elect to enter Track 2 in their first 3-year agreement period, or after 
completing one agreement period under Track 1. Under the Track 2 
financial model, an ACO must have savings that meet or exceed a 2 
percent threshold to be eligible to share in savings or additional 
expenditures that meet or exceed a 2 percent threshold to be held 
accountable for sharing in losses (Sec.  425.606(b)). As compared to 
the MSR used for Track 1, this fixed percentage generally offers a 
lower savings threshold for Track 2 ACOs to meet in order to share in 
savings, and was established in recognition of the Track 2 ACOs' 
willingness to assume the risk of incurring shared losses (76 FR 
67929). In contrast, although organizations participating under the 
Track 1 financial model must also meet or exceed a MSR in order to be 
eligible to share in savings (Sec.  425.604(b)), the MSR under the one-
sided model is established for each ACO using increasing nominal 
confidence intervals (CI) based on the size of the beneficiary 
population assigned to the ACO. Thus, an ACO with the minimum 5,000 
assigned beneficiaries would have a MSR based on a 90 percent CI; an 
ACO with 20,000 assigned beneficiaries would have a MSR based on a 95 
percent CI and an ACO with 50,000 assigned beneficiaries would have an 
MSR based on a 99 percent CI. In addition, the MSR under the one-sided 
model is not allowed to fall under 2 percent for larger ACOs. Table 5 
displays the MSR an ACO participating under Track 1 would have to 
achieve before savings could be shared based on its number of assigned 
beneficiaries.

                Table 5--Minimum Savings Rate for Track 1
------------------------------------------------------------------------
                                    MSR (low end of    MSR (high end of
                                       assigned            assigned
     Number of beneficiaries        beneficiaries)      beneficiaries)
                                       (percent)           (percent)
------------------------------------------------------------------------
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
------------------------------------------------------------------------

    As we described in the rulemaking establishing the Shared Savings 
Program (76 FR 67927), the MSR thresholds that apply under Track 1 were 
established on the basis of standard inferential statistics and provide 
confidence that, once the savings achieved by the ACO meet or exceed 
the MSR, the change in expenditures represents actual performance 
improvements by the ACO as opposed to normal variations.
    Our experience with the program suggests that some ACOs, 
particularly ACOs with small assigned populations or those with less 
experience, are hesitant to elect Track 2 given the risk of losses and 
their inexperience with population management. Therefore, we have 
explored ways to reduce financial risk for ACOs participating under 
Track 2. One way to reduce financial risk under Track 2 would be to 
modify the current MSR and MLR under this track. By increasing the MSR 
and MLR thresholds beyond the current 2 percent, financial risk would 
be reduced for Track 2 ACOs because they would have to incur higher 
losses in order to be held accountable for shared losses. However, an 
ACO would also have to achieve a greater level of savings under a 
higher MSR in order to share in savings. In exploring potential 
modifications to the MSR and MLR under Track 2, we also considered 
increasing them using a fixed percent. For example, we considered using 
an MSR and MLR threshold of 3 or 4 percent that would apply to all ACOs 
participating in Track 2.
    After considering these options, we concluded that using the same 
methodology currently used to establish the MSR under the one-sided 
model, which is based upon the size of the beneficiary population 
assigned to the ACO, to establish both the MSR and MLR under Track 2, 
would serve two purposes. Specifically, in comparison with the existing 
fixed 2 percent MSR and MLR that currently apply to ACOs in Track 2, it 
would further protect ACOs against the risk of losses likely due to 
normal variation while offering further protection to the Medicare 
program from paying for shared savings likely due to normal variation. 
The methodology that we used to establish the MSRs for Track 1 based 
upon the size of the assigned beneficiary population was intended to 
provide confidence that shared savings would not be earned by random 
chance alone (76 FR 67928). Similarly, basing the MLR under Track 2 on 
the size of an ACO's assigned beneficiary population would serve to 
statistically protect ACOs with smaller assigned populations from 
losses that result from normal variation, and we believe this change 
would make it more likely that such ACOs will be willing to take on 
performance-based risk under Track 2.
    Therefore, we are proposing to retain the existing features of 
Track 2 with the exception of revising Sec.  425.606(b) to allow the 
MSR and MLR to vary based on the ACO's number of assigned beneficiaries 
according to the methodology outlined for setting the MSR under the 
one-sided model in Sec.  425.604(b) as shown in Table 6. We believe 
that by building in greater downside protection, this proposal may help 
smooth the on-ramp to performance-based risk for ACOs, particularly 
ACOs with smaller assigned populations, making the transition to a two-
sided model more attractive.

[[Page 72808]]

Table 6--Proposed Minimum Savings Rate and Minimum Loss Rate for Track 2
------------------------------------------------------------------------
                                   MSR/MLR (low end    MSR/MLR (high end
                                      of assigned         of assigned
     Number of beneficiaries        beneficiaries)      beneficiaries)
                                       (percent)           (percent)
------------------------------------------------------------------------
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
------------------------------------------------------------------------

    With the proposed addition of Track 3 to the program, discussed 
later in this section, Track 2 can be viewed as a first step for some 
organizations to accepting performance-based risk. As such, providing 
an MLR that is more protective of ACOs may attract greater 
participation in performance-based risk under Track 2, particularly by 
ACOs with smaller assigned populations or those with less experience 
managing populations.
    We seek comments on this proposal as well as other options that 
could potentially make Track 2 more financially attractive to ACOs. We 
request that commenters indicate why they believe an alternative option 
would be more attractive to ACOs than the one proposed and the specific 
reason why the option would be beneficial. We also request that 
commenters consider whether additional safeguards should be implemented 
to appropriately protect the Medicare Trust Fund, if an alternative 
approach were to be adopted. We also seek comment on whether we should 
consider implementing the prospective assignment approach proposed for 
Track 3 under Track 2 and whether doing so would enhance or erode the 
incentives for organizations to take on risk.
3. Creating Options for ACOs That Participate in Risk-Based 
Arrangements
a. Overview
    As noted previously, we are pleased with the overall interest in 
the Shared Savings Program. However, we would also like to increase 
interest in the program by expanding the range of opportunities and 
models for organizations to improve the cost and quality of care 
delivered to Medicare FFS beneficiaries by assuming greater financial 
risk for their assigned beneficiaries.
    In January 2012, the Innovation Center began testing the Pioneer 
ACO Model. The Shared Savings Program and the Pioneer ACO Model 
incorporate the same fundamental structure with a group of healthcare 
providers and suppliers coming together to form an ACO that agrees to 
be accountable for the care provided to a population of Medicare FFS 
beneficiaries. The quality reporting requirements are the same for 
Shared Savings Program ACOs and Pioneer ACOs. However, the Pioneer ACO 
Model and Shared Savings Program differ on several key elements, 
including the methodologies used for benchmarking, payment 
reconciliation, and assignment. For instance, the Pioneer ACO Model 
offers ACOs a greater sharing rate (up to 70 percent based on quality 
performance in performance year 2 of the model) compared to the Shared 
Savings Program, which currently offers a maximum sharing rate of 60 
percent for ACOs choosing Track 2. Under the Pioneer ACO Model, 
beneficiaries are aligned to a Pioneer ACO prospectively at the start 
of each performance year and can only be removed from the list of 
aligned beneficiaries retrospectively based on certain exclusion 
criteria. In contrast, under the Shared Savings Program, beneficiaries 
are assigned to an ACO under Track 1 or Track 2 based upon a 
preliminary prospective assignment methodology with retrospective 
reconciliation after the end of the performance year that ultimately 
assigns a beneficiary to the ACO based on whether ACO professionals 
provided the plurality of primary care services to that beneficiary 
during the performance year. All Pioneer ACOs must agree to accept 
performance-based risk, and the financial risk increases over the 
course of their agreement period, whereas ACOs participating in the 
Shared Savings Program have an option to participate in a shared 
savings only model (Track 1) and for those ACOs that choose to accept 
performance-based risk (Track 2), the shared loss rate for which the 
ACO is at risk remains same throughout the agreement period. There are 
also a number of other differences between the two initiatives. Key 
features of the Pioneer ACO Model are explained in the Request for 
Application available online at http://innovation.cms.gov/Files/x/Pioneer-ACO-Model-Request-For-Applications-document.pdf, and an updated 
table on payment arrangements is available online at http://innovation.cms.gov/Files/x/Pioneer-ACO-Model-Alternative-Payment-Arrangements-document.pdf.
    In the November 2011 final rule (76 FR 67907), we expressed our 
intent to gain experience with alternative payment models through the 
Innovation Center before potentially adopting them more widely in the 
Shared Savings Program. Currently, testing of the Pioneer ACO Model is 
still underway, and we do not yet have a completed evaluation of that 
test. However, we have heard from stakeholders that there are certain 
aspects of the Pioneer ACO Model that may be appealing to some 
organizations and that we might consider incorporating into the Shared 
Savings Program. Therefore, in light of our experience with the Shared 
Savings Program, comments from stakeholders, and early responses to the 
Pioneer ACO Model, we have considered certain modifications to the 
financial models and arrangements available under the Shared Savings 
Program that might encourage organizations to take on increasing 
financial risk in order to motivate even greater improvements in care, 
and also minimize the barriers faced by some ACOs that limit their 
willingness to accept performance-based risk.
    In evaluating what features might encourage ACOs to take on 
increasing financial risk, we considered several

[[Page 72809]]

options, including modifying Track 1, modifying or eliminating Track 2, 
adding a Track 3 to supplement the existing ones, or a combination of 
these options. After reviewing these options, we are proposing to use 
our authority under section 1899(i)(3) of the Act to create an 
additional risk-based option for ACOs ready to take on increased 
performance-based risk.
    To exercise our authority under section 1899(i)(3) of the Act, we 
must demonstrate that this policy; (1) `` . . . does not result in 
spending more for such ACO for such beneficiaries than would otherwise 
be expended . . . if the model were not implemented . . . .'' and (2) 
``will improve the quality and efficiency of items and services 
furnished under this title.'' We applied this authority when proposing 
a two-sided risk-based model in our April 2011 proposed rule (76 FR 
19603), which was modified and made final in in our November 2011 final 
rule (76 FR 67909). As discussed in our final rule (76 FR 67904), we 
believed that Track 2 would provide an opportunity for organizations 
more experienced with care coordination and risk models that are ready 
to accept performance-based risk to enter a sharing arrangement that 
provides greater reward for greater responsibility. We believe that 
proposed Track 3 would offer an additional opportunity for ACOs to 
accept greater responsibility for beneficiary care in exchange for the 
possibility of greater reward. Moreover, we do not believe that adding 
a second two-sided risk model would result in an increase in spending 
beyond what would otherwise occur. To the contrary, as discussed later 
in our Regulatory Impact Analysis, our initial estimates suggest that 
the inclusion of Track 3 along with the other proposals made in this 
rule would improve savings for the Trust Funds resulting from this 
program. Further, we believe that adding Track 3 would improve the 
quality of care furnished to Medicare FFS beneficiaries because ACOs 
participating under Track 3 would have an even greater incentive to 
perform well on the quality measures in order to maximize the 
percentage of savings they may receive, while limiting their liability 
for any losses that might be incurred.
    Hence, we are proposing to develop a new risk-based Track 3 under 
Sec.  425.610, which would be based on the current payment methodology 
under Track 2, but would also incorporate some different elements that 
may make it more attractive for entities to accept increased 
performance-based risk.
    In general, unless otherwise stated, we are proposing to model 
Track 3 off the current provisions governing Track 2, which in turn are 
modeled on Track 1, to have the same general eligibility requirements, 
quality performance standards, data sharing requirements, monitoring 
rules, and transparency requirements. However, as we discuss later in 
this section, we are proposing certain discrete features for Track 3 
that will differentiate it from Track 2. Specifically, we propose to 
make modifications to the beneficiary assignment methodology, sharing 
rate, MSR and MLR, and performance payment and loss sharing limits. 
These proposals are discussed in detail in the following sections.
b. Proposals for Assignment of Beneficiaries Under Track 3
(1) Background
    Currently, beneficiaries are assigned to Shared Savings Program 
ACOs participating under Track 1 and Track 2 based on the assignment 
methodology that is described in detail in the November 2011 final rule 
and in section II.E. of this proposed rule. Beneficiary assignment is 
based on the certified ACO participant list and drives a variety of 
program operations described in more detail in section II.B. of this 
proposed rule. An assigned beneficiary population is determined for 
each of the benchmark years as well as each performance year and used 
to determine the average per capita costs of the ACO's assigned FFS 
population in each of those years. Additionally, when an ACO enters the 
program, and on a quarterly basis thereafter, we perform a preliminary 
prospective assignment, based on the most recent 12 months of available 
claims data, to provide the ACO with information about the FFS 
population it has served in the past and that is likely to be assigned 
to the ACO at the end of the performance year. After the end of each 
performance year, we perform a final retrospective reconciliation to 
generate the final list of beneficiaries that chose to receive the 
plurality of their primary care services from ACO professionals 
applying the assignment methodology established under Subpart E of the 
regulations. Under this methodology, in developing the final list of 
assigned beneficiaries for the performance year, beneficiaries are both 
added to and removed from the preliminary prospectively assigned 
beneficiary lists provided to ACOs. This final list of assigned 
beneficiaries becomes the basis for calculating the average per capita 
expenditures for the performance year, and is used for financial 
reconciliation.
    In this section, we discuss our proposals to apply a methodology to 
assign beneficiaries prospectively to Track 3 ACOs. However, since the 
program's operations currently center on retrospective assignment, we 
also considered a number of issues important to implementing 
prospective assignment for Track 3 ACOs. Specifically, we discuss our 
proposals for: (1) A prospective assignment methodology; (2) the timing 
for performing prospective assignment; (3) exclusion criteria to be 
applied to the prospective list at the end of the benchmark or 
performance year; and (4) addressing overlap and interactions between 
prospective assignment for Track 3 ACOs and the preliminary prospective 
assignment and retrospective reconciliation for Track 1 and Track 2 
ACOs.
(2) Proposal for prospective assignment under Track 3
    In the November 2011 final rule that established the Shared Savings 
Program, we adopted a preliminary prospective assignment model with 
retrospective reconciliation because we believed it would provide ACOs 
with adequate information to redesign their care processes while also 
encouraging ACOs to standardize these care processes for all Medicare 
FFS beneficiaries instead of focusing care management activities on a 
small subset of their FFS population. Further, we expressed our view 
that this approach would provide sufficient incentives for each ACO to 
provide quality care to its entire beneficiary population (76 FR 
67864).
    We continue to believe that the current Shared Savings Program 
assignment methodology offers strong incentives for health system 
redesign to impact the care for all FFS beneficiaries that receive care 
from ACO professionals. As a result, we believe the assignment 
methodology currently used for the Shared Savings Program limits the 
potential for gaming and reduces the motivation to target beneficiaries 
for avoidance. This methodology may also improve care for beneficiaries 
who are newly diagnosed with high cost health problems during a 
performance year. For example, a FFS beneficiary diagnosed with cancer 
during a performance year would benefit from interacting with ACO 
providers/suppliers that have incentives to be vigilant for 
beneficiaries who are likely to be assigned to their ACO 
retrospectively. Intervening early in the care of such patients may 
improve the quality and coordination of their care and reduce the cost 
of that care compared to what it might have been

[[Page 72810]]

without the early intervention by the ACO and its ACO providers/
suppliers.
    On the other hand, while many beneficiaries routinely see the same 
providers and suppliers from year to year, FFS beneficiaries that are 
assigned to an ACO have freedom to choose their healthcare providers 
and, unlike patients enrolled in many managed care plans, are not 
locked into seeing only ACO providers/suppliers. As a result, there is 
no absolute certainty that preliminarily prospectively assigned 
beneficiaries will continue to receive the plurality of their primary 
care services from ACO professionals during the performance year. Thus, 
there can potentially be differences between the preliminary assigned 
beneficiary list that the ACO receives at the start of the performance 
year, and every quarter thereafter, and the final assigned beneficiary 
list that is generated at the time of retrospective reconciliation, 
which is based on the actual utilization of primary care services by 
beneficiaries during the performance year. Given our experience with 
the Shared Savings Program and Physician Group Practice Demonstration 
before it, this is not an unexpected or unanticipated result of the 
methodology used to assign FFS beneficiaries who retain their freedom 
to choose providers under traditional FFS Medicare. That being said, 
the need to account for both the ebb and flow of assigned beneficiaries 
under the preliminary prospective assignment methodology with 
retrospective reconciliation used in the Shared Savings Program may 
discourage participation in risk-based arrangements by ACOs that seek 
greater certainty about the population on whom they will be assessed.
    As an alternative, beneficiaries could be prospectively assigned to 
an ACO prior to the start of the performance year. An example of 
prospective alignment can be found in the Pioneer ACO Model, where 
beneficiaries are aligned to Pioneer ACOs prior to the start of each 
performance year. Under the Pioneer ACO Model, the list of 
prospectively aligned beneficiaries is reconciled at the end of the 
year to exclude certain beneficiaries from the list, for example, 
beneficiaries who were not eligible for alignment during the 
performance year; however, no new beneficiaries are added to the list. 
This alternative assignment methodology arguably provides Pioneer ACOs 
with a more targeted set of FFS beneficiaries on whom to focus their 
care redesign efforts during the performance year. The beneficiary 
alignment methodology used under the Pioneer Model can be reviewed in 
more detail on the Innovation Center Web site: http://innovation.cms.gov/initiatives/Pioneer-ACO-Model/
    A prospective assignment methodology may offer ACOs a more narrowly 
defined target population and greater certainty about where to focus 
their care redesign processes. This improved certainty may be an 
important factor in an ACO's willingness to take on greater 
performance-based risk because the ACO may be better positioned to make 
decisions regarding where to make investments in infrastructure to 
deliver enhanced services. Given the higher levels of performance-based 
risk associated with the Pioneer ACO Model, the Innovation Center 
elected to use a prospective assignment methodology specifically to 
provide participating ACOs with greater certainty regarding their 
assigned beneficiary populations in order to allow them to better 
target their care coordination efforts to those patients.
    Potential disadvantages of a prospective assignment methodology, 
such as the one used under the Pioneer ACO Model, are that it may 
encourage ACOs to narrowly focus on a subset of FFS beneficiaries in 
the care of their ACO providers/suppliers while not doing as much to 
incentivize organizations to broadly redesign care processes to improve 
the care for all FFS beneficiaries under the care of providers and 
suppliers participating in the ACO. These incentives arise because ACOs 
know in advance the subset of their patients for which their 
performance will be measured.
    However, despite these concerns, we acknowledge that a prospective 
assignment methodology may offer greater certainty and a more narrowly 
defined target population for some ACOs, and these may be important 
factors in an ACO's willingness to take on greater performance-based 
risk where the ACO must make decisions regarding where to make 
investments in infrastructure to deliver enhanced services. We further 
believe that ACOs will have strong incentives to provide their 
prospectively assigned beneficiaries high-quality, low-cost care in 
order to discourage them from seeking care outside of the ACO and that 
beneficiaries that are prospectively assigned to an ACO will continue 
to be protected from concerns related to inappropriate limitations on 
care under traditional FFS Medicare because of their ability to choose 
their providers. Under the Shared Savings Program, there is no lock in 
for beneficiaries, therefore, we believe a prospective assignment 
methodology under the Shared Savings Program presents limited risks to 
FFS beneficiaries. Thus, having considered the relative advantages and 
disadvantages of prospective and retrospective assignment methodologies 
for FFS beneficiaries, we are proposing to implement a prospective 
assignment methodology for Track 3 ACOs. This prospective assignment 
methodology would use the same stepwise assignment methodology under 
Sec.  425.402 to assign beneficiaries to ACOs in Track 3 as is 
currently used to assign beneficiaries to ACOs participating under 
Track 1 and Track 2. The major difference would be that beneficiaries 
would be assigned to Track 3 ACOs prospectively, at the start of the 
performance year, and there would be no retrospective reconciliation 
resulting in the addition of new beneficiaries at the end of the 
performance year. The only adjustments that would be made at the end of 
the performance year would be to exclude beneficiaries that appeared on 
the prospective assignment list provided to the ACO at the start of the 
performance year that no longer meet eligibility criteria. For the 
reasons discussed in the November 2011 final rule (76 FR 67851), we 
believe that this proposed prospective assignment methodology meets the 
requirement under section 1899(c) of the Act that assignment be based 
on the ``utilization of primary care services'' provided by physicians 
that are ACO professionals. We propose to codify this methodology in 
the regulations at Sec.  425.400(a)(3).
    In summary, while we have concerns that prospective assignment may 
inadvertently increase incentives for gaming and avoidance of at-risk 
beneficiaries, we have taken steps to minimize these incentives by 
retaining other Shared Savings Program policies and procedures such as 
risk-adjusting expenditures and monitoring ACOs to ensure they are not 
engaging in gaming or avoidance of at-risk beneficiaries. Moreover, our 
proposal to exclude only those beneficiaries that no longer meet the 
eligibility criteria for assignment to an ACO should reduce the 
probability that attempts by the ACO to ``cherry pick'' or avoid at-
risk beneficiaries during the performance year would succeed. 
Therefore, we believe the concerns associated with a prospective 
assignment methodology are balanced by the potential that establishing 
a new Track 3 has to encourage ACOs to accept greater responsibility 
and financial risk for the care provided to their patients in return 
for the possibility of achieving greater rewards. We seek comment on 
these proposals. In particular, we seek comment on ways to

[[Page 72811]]

mitigate concerns regarding gaming and avoidance of at-risk 
beneficiaries under a prospective assignment methodology, whether 
implementing a prospective approach to assignment will dilute the 
program goals of delivery system redesign, and whether there are 
additional programmatic considerations that should be taken into 
account as a result of our proposal to apply a prospective assignment 
methodology in Track 3.
    Because of the differences between the Shared Savings Program and 
the Pioneer ACO Model, we emphasize that the proposed prospective 
assignment methodology under Track 3 is not identical to the 
methodology used under the Pioneer ACO Model, but is tailored to the 
Shared Savings Program. Specifically, we propose to assign 
beneficiaries to an ACO participating under Track 3 using the 
assignment algorithm that is specified in Subpart E of the Shared 
Savings Program regulations, and described in more detail in section 
II.E. of this proposed rule.
c. Proposed Exclusion Criteria for Prospectively Assigned Beneficiaries
    Next we considered how to reconcile the prospective beneficiary 
assignment list at the conclusion of the performance year. We recognize 
that changes in circumstances may cause prospectively assigned 
beneficiaries to no longer be eligible for assignment to an ACO at the 
end of a performance year. For instance, during the course of a 
benchmark or performance year a beneficiary may fall under one of the 
assignment exclusion criteria specified in proposed Sec.  425.401(b). 
The proposed exclusion criteria, found at Sec.  425.401(b), mirror the 
proposed eligibility criteria under Sec.  425.401(a) with the exception 
of assignment to another Medicare initiative involving shared savings. 
This is because we believe it is appropriate to exclude only those 
prospectively assigned beneficiaries that are no longer eligible to be 
assigned to an ACO. We do not believe, however, that it will be 
necessary to exclude beneficiaries that are assigned to another shared 
savings initiative because we intend to adopt procedures to ensure that 
a beneficiary who is prospectively assigned to an ACO participating 
under Track 3 would not be assigned to another Medicare initiative 
involving shared savings. Therefore, we propose to perform a limited 
reconciliation where beneficiaries would only be removed from the 
prospective assignment list at the end of the year if they were not 
eligible for assignment at that time under the criteria in proposed 
Sec.  425.401(b). For example, if a prospectively assigned beneficiary 
chose to enroll in Medicare Advantage (MA) at the beginning of the 
performance year, that beneficiary would be removed from the 
beneficiary assignment list at the end of the year and the 
beneficiary's expenditures would not be used in determining the ACO's 
financial performance for that year. We note that under this proposal, 
beneficiaries would be removed from the prospective list, but would not 
be added as they are in the retrospective reconciliation used under 
Tracks 1 and 2. Additionally, unlike the preliminary prospective 
assignment methodology with retrospective reconciliation used in Tracks 
1 and 2, we note that under this proposal, similar to the methodology 
used under the Pioneer ACO Model, beneficiaries would not be removed 
from the prospective beneficiary assignment list because the 
beneficiary chose to receive primary care services during the 
performance year from practitioners other than those participating in 
the ACO. In other words, the ACO will be held accountable for all 
beneficiaries that appear on the prospective assignment list, with the 
narrow exception of those beneficiaries who are not eligible for 
assignment at the time of reconciliation based on the limited set of 
proposed exclusion criteria under proposed Sec.  425.401(b). We believe 
that this methodology will help to mitigate concerns that ACOs may 
attempt to avoid caring for high risk beneficiaries that appear on 
their prospective beneficiary assignment list because the ACO will 
continue to be held accountable for the quality and cost of the care 
furnished to these beneficiaries even if the ACO providers/suppliers 
are not directly involved in their care. However, we note that this may 
mean that ACOs will be held accountable for beneficiaries with whom 
their ACO providers/suppliers have had little contact during the year, 
and therefore may have limited opportunity to affect their care. We 
seek comment on our proposal to assign FFS beneficiaries prospectively 
to ACOs and to apply limited exclusion criteria to reconcile the 
beneficiary assignment list at the end of the performance year.
d. Proposed Timing of Prospective Assignment
    We believe it is important to provide Track 3 ACOs with their lists 
of prospectively assigned beneficiaries close to the start of each 
performance year so that these ACOs may begin to target their care 
coordination processes and to support ACO operations. Ideally, the 
prospective list of assigned beneficiaries would be generated based on 
the 12 months immediately preceding the performance year. However, we 
need a certain amount of time to generate and validate assignment lists 
and provide the information to the ACOs. Therefore, we must find a 
balance between allowing time to produce and deliver prospective 
assignment lists to Track 3 ACOs as near as possible to the start of 
each performance year with our desire to base prospective assignment on 
the most recent available data. For Tracks 1 and 2, we assign 
beneficiaries based on a 12 month period. We similarly propose to use a 
12-month assignment period for Track 3. Under Tracks 1 and 2, we use 
the most recent available 12 months of data to determine the list of 
preliminarily prospectively assigned beneficiaries and data from the 12 
months of the performance year to determine final assignment at the 
time of reconciliation. Ideally, under Track 3, we would determine 
prospective assignment for an ACO's performance year based on complete 
data for the most recent prior calendar year, for example, the third 
benchmark year or the previous performance year. For instance, in 
prospectively assigning beneficiaries to a Track 3 ACO for the 
performance year that begins in January 1, 2016, we would ideally have 
complete claims data for 2015. However, if we were to wait to obtain 
complete claims data for the prior calendar year, we would not be able 
to produce and deliver lists of prospectively assigned beneficiaries to 
Track 3 ACOs before the start of the performance year. In performing 
beneficiary assignment, we determine whether ACO professionals 
participating in an ACO have provided the plurality of a beneficiary's 
primary care services as compared to ACO professionals in all other 
ACOs and individual practitioners or groups of practitioners identified 
by TINs that are not participating in an ACO. We treat ACOs as a 
collection of TINs for the purpose of determining whether the ACO 
provided the plurality of the beneficiary's primary care services. 
Further, we accept new ACOs into the Shared Savings Program annually, 
with a participation agreement start date of January 1 of the following 
year. To most accurately and fairly prospectively assign beneficiaries, 
it is important to perform assignment by taking into consideration 
existing ACOs as well as new entrants to the program. Therefore, to 
assure that we can accurately prospectively assign beneficiaries to

[[Page 72812]]

ACOs under Track 3, our timeline for producing the prospective 
assignment lists for Track 3 ACOs must factor in the time frames 
associated with the program's application cycle (which typically 
concludes in late November/early December of each calendar year).
    We considered several options for establishing the 12-month period 
for prospective assignment under Track 3. One option would be to use 
the most recent 12-month period prior to the relevant performance year 
for which data are available. That is, we would use a 12-month 
assignment window that is offset from the calendar year. For instance, 
to establish the assignment list for the performance year beginning 
January 1, 2016, we could use an assignment window from October 1, 2014 
through September 30, 2015. We also considered the option of using 
complete claims data for the calendar year prior to the performance 
year (this would synchronize with the timing of the financial 
calculations for setting the ACO's benchmark, as discussed in more 
detail in II.F.3.f. of this section); however, under these parameters 
Track 3 ACOs would receive their prospective assignment lists well into 
the first quarter of each performance year. We believe Track 3 ACOs 
would find such a delay in their receipt of their prospective 
assignment list burdensome for carrying out the ACO's health care 
operations, including care coordination processes and data analysis. We 
believe the first option best balances the availability of claims data 
with our belief that it is important to produce and deliver these 
prospective beneficiary assignment lists near the start of each 
performance year. Therefore, we are proposing to base prospective 
assignment on a 12-month assignment window (off-set from the calendar 
year) prior to the start of the performance year. We further propose to 
define an ``assignment window'' at Sec.  425.20 as the 12-month period 
used to assign beneficiaries to an ACO. The assignment window for 
Tracks 1 and 2 would be based on a calendar year while the assignment 
window for Track 3 would be based on the most recent 12 months for 
which data are available, and which would be off-set from the calendar 
year. We propose to make conforming changes to the regulations to refer 
to the assignment window where appropriate.
e. Proposals for Addressing Interactions Between Prospective and 
Retrospective Assignment Models
    Because there are markets in which there are multiple ACOs, we 
anticipate that there will be interactions between prospective 
assignment for Track 3 ACOs and preliminary prospective assignment with 
retrospective reconciliation for Track 1 and Track 2 ACOs. Under the 
Shared Savings Program, a beneficiary may only be assigned to a single 
ACO for purposes of determining the ACO's financial and quality 
performance during a performance year. Accordingly, a beneficiary that 
is prospectively assigned to a Track 3 ACO would remain assigned to the 
Track 3 ACO for the performance year even if the beneficiary chose to 
receive a plurality of his or her care outside the ACO. Furthermore, we 
propose that the beneficiary would remain assigned to the Track 3 ACO 
even if we determine as part of the retrospective reconciliation for 
Track 1 and Track 2 ACOs that the beneficiary actually received the 
plurality of his or her care from ACO professionals in another ACO. 
Similarly, a beneficiary prospectively assigned to a Track 3 ACO would 
remain assigned to that ACO even if we subsequently determine the 
beneficiary actually received the plurality of his or her primary care 
from ACO professionals participating in another Track 3 ACO. In other 
words, we propose that once a beneficiary is prospectively assigned to 
a Track 3 ACO, the beneficiary will not be eligible for assignment to a 
different ACO, even if the beneficiary chose to receive a plurality of 
his or her primary care services from ACO professionals in that ACO 
during the relevant performance year. As an aside, we note that it is 
unlikely that such a beneficiary would be assigned prospectively to 
that same Track 3 ACO for the next performance year.
f. Proposals for Determining Benchmark and Performance Year 
Expenditures Under Track 3
    As specified in the November 2011 final rule, we establish the 
historical benchmark for ACOs in Tracks 1 and 2 by determining the per 
capita Parts A and B fee-for-service expenditures for beneficiaries 
that would have been assigned to the ACO in any of the 3 most recent 
years prior to the start of the agreement period using the ACO 
participant TINs identified at the start of the agreement period (Sec.  
425.602(a)). For each benchmark year that corresponds to a calendar 
year, this includes calculating the payment amounts included in Parts A 
and B fee-for-service claims using claims received within 3 months 
following the end of the calendar year (referred to as a ``3 month 
claims run out'') with a completion factor, excluding IME and DSH 
payments and considering individually beneficiary-identifiable payments 
made under a demonstration, pilot or time limited program (Sec.  
425.602(a)(1)). Similarly in determining shared savings and losses for 
Tracks 1 and 2 (under Sec.  425.604 and Sec.  425.606), we use a 3-
month claims run out with a completion factor to calculate an ACO's per 
capita expenditures for each performance year. Calculations of the 
ACO's performance year expenditures include the payment amounts of Part 
A and B fee-for-service claims. These calculations similarly exclude 
IME and DSH payments, and take into consideration individually 
beneficiary identifiable payments made under a demonstration, pilot or 
time limited program. We believe this approach is well accepted and 
therefore propose to use the same general methodology for determining 
benchmark and performance year expenditures under Track 3. We also 
propose to add a new regulation at Sec.  425.610 to address the 
calculation of shared savings and losses under Track 3.
    In establishing the historical benchmark for Track 3 ACOs, we 
propose to determine the beneficiaries that would have been 
prospectively assigned to the ACO during each of the 3 most recent 
years prior to the start of the agreement period; basing benchmark year 
assignment on a 12-month assignment window offset from the calendar 
year prior to the start of each benchmark year. However, we propose 
that we would still determine the Parts A and B fee-for-service 
expenditures for each calendar year, whether it is a benchmark year or 
a performance year, using a 3-month claims run out with a completion 
factor for these prospectively assigned beneficiaries. We would exclude 
IME and DSH payments and account for individually beneficiary-
identifiable payments made under a demonstration, pilot or time limited 
program during the calendar year that corresponds to the benchmark or 
performance year. For example, for an ACO entering Track 3 beginning 
January 1, 2016, we would determine the benchmark based on CYs 2013, 
2014, and 2015. We would determine a prospective list of beneficiaries 
using the assignment window for each year (based on an off-set 12 month 
period such as October 1, 2011 through September 30, 2012 for BY1) as 
discussed previously. However, the claims used to determine the per 
capita expenditures for BY1 would be based on claims submitted during 
the calendar year from January 1, 2013 through December 31, 2013. The 
same pattern would be used to determine the

[[Page 72813]]

assignment and per capita expenditures for BY2 and BY3. We would apply 
the same pattern going forward to calculate per capita expenditures for 
the performance years.
    We believe this methodology is advantageous for several reasons. 
First, this methodology would remove actuarial bias between the 
benchmarking and performance years for assignment and financial 
calculations, since the same method would be used to determine the 
assignment and financial calculations for each benchmark and 
performance year. Second, basing the financial calculations on the 
calendar year is necessary to align with actuarial analyses with 
respect to risk score calculations and data inputs based on national 
FFS expenditures used in program financial calculations that depend on 
the calendar year (for example, national FFS trend factors for the 
historical benchmark, national FFS growth factors used in creating the 
updated benchmark, and truncation points).
    We note that the timing of the generation of historical benchmark 
reports for Track 3 ACOs would also be consistent with the current 
schedule for generating these reports for ACOs in Tracks 1 and 2. That 
is, for an ACO that begins Track 3 in 2016, the prospective beneficiary 
assignment list would be available immediately at the beginning of the 
performance year and the historical benchmark report would be available 
following the 3 month claims run out, sometime after the first quarter 
of 2016.
g. Proposals for Risk Adjusting the Updated Benchmark for Track 3 ACOs
    Another aspect of the financial models used under the Shared 
Savings Program that we considered when developing Track 3 is our 
methodology for risk adjusting an ACO's updated benchmark expenditures 
to account for changes in severity and case mix for beneficiaries 
assigned in the current performance year. Currently, under Track 1 and 
Track 2, the risk adjustment methodology differentiates between newly 
and continuously assigned beneficiaries, as defined under Sec.  425.20. 
A newly assigned beneficiary is a beneficiary assigned in the current 
performance year who was neither assigned to nor received a primary 
care service from any of the ACO participants during the most recent 
prior calendar year. A continuously assigned beneficiary is a 
beneficiary assigned to the ACO in the current performance year who was 
either assigned to or received a primary care service from any of the 
ACO participants during the most recent prior calendar year. As 
specified under Sec.  425.604(a), and Sec.  425.606(a), we use updated 
CMS-HCC prospective risk scores to account for changes in severity and 
case mix for newly-assigned beneficiaries. We use demographic factors 
to adjust for these changes in severity and case mix for continuously 
assigned beneficiaries. However, if the CMS-HCC prospective risk scores 
for the continuously assigned population show a decline, we use the 
lower risk score to adjust for changes in severity and case mix for 
this population. As we explained in the November 2011 final rule (76 FR 
67918), we believe that this approach to risk adjustment strikes a fair 
balance between accounting for changes in the health status of an ACO's 
population while not encouraging changes in coding practices for care 
provided to beneficiaries who remain continuously assigned to the ACO 
or avoidance of high risk beneficiaries. We believe that the existing 
risk adjustment methodology has been effective in achieving this 
balance under Tracks 1 and 2, which use a retrospective assignment 
methodology for purposes of financial reconciliation, and that it would 
be appropriate to apply a similar approach to risk adjusting the 
updated benchmark for Track 3 ACOs, even though we are proposing a 
prospective beneficiary assignment methodology. We believe that this 
risk adjustment methodology is relevant to updating ACO benchmarks 
under both a retrospective assignment model and a prospective 
assignment model. We believe that as in the existing Tracks, it is 
important to ensure that ACOs participating under the proposed Track 3 
are not encouraged to modify their coding practices in order to 
increase the likelihood of earning shared savings; rather, shared 
savings should result from actual reductions in Medicare expenditures 
for assigned beneficiaries.
    Therefore, we carefully considered the risk adjustment methodology 
in the context of our proposal to use a prospective assignment 
methodology under Track 3. We determined that while the same general 
risk adjustment methodology could be used, there are certain minor 
modifications that must be made to accommodate the prospective 
assignment approach. Specifically, we determined that the existing 
definitions of newly and continuously assigned beneficiaries must be 
adjusted for Track 3 ACOs.
    Both definitions refer to determining whether the beneficiary was 
assigned to the ACO or received primary care services from an ACO 
participant in the ``prior calendar year''. However, our proposal for 
Track 3 assignment does not correspond to the 12 months in a calendar 
year. Instead, as proposed in the section, we would use an off-set 12-
month period prior to the relevant performance or benchmark year to 
prospectively assign beneficiaries. If we continue to use a calendar 
year as the basis for determining continuously and newly assigned 
beneficiaries, very few beneficiaries would be designated as newly 
assigned for each performance year and we would expect that the 
majority of assigned beneficiaries would be designated as continuously 
assigned. As a consequence, the major risk adjustment applied under 
Track 3 would be based on demographic factors only. We do not believe 
this policy would strike the same balance achieved when applied under a 
model with retrospective assignment (Track 1 and Track 2).
    Therefore, we propose refining our definitions of newly and 
continuously assigned beneficiaries at Sec.  425.20 to also be 
consistent with our proposed prospective assignment approach for Track 
3. Specifically, we propose to replace the reference to ``most recent 
prior calendar year'' with a reference to ``the assignment window for 
the most recent prior benchmark or performance year.'' Thus, for Track 
3 the reference period for determining whether a beneficiary is newly 
or continuously assigned will be most recent prior prospective 
assignment window (the off-set 12 months) before the assignment window 
for the current performance year and the reference period for 
determining whether a Track 1 or 2 beneficiary is newly or continuously 
assigned will continue to be the most recent prior assignment window 
(the most recent calendar year). Our proposed risk adjustment 
methodology for Track 3 is reflected in the proposed new regulation at 
Sec.  425.610(a).
h. Proposals for Final Sharing/Loss Rate and Performance Payment/Loss 
Recoupment Limit under Track 3
    Currently, an ACO that meets all the requirements for receiving 
shared savings payments under the one-sided (Track 1) model can qualify 
to receive a shared savings payment of up to 50 percent of all savings 
under its updated benchmark, not to exceed 10 percent of its updated 
benchmark, as determined on the basis of its quality performance. 
Likewise, a Track 2 ACO can potentially receive a shared savings 
payment of up to 60 percent of all savings under its updated benchmark, 
not to exceed 15 percent of its updated benchmark. The higher sharing 
rate and performance

[[Page 72814]]

payment limit under Track 2 were established as incentives for ACOs to 
accept greater financial risk for their assigned beneficiaries in 
exchange for potentially higher financial rewards. Additionally, a 
Track 2 ACO is accountable for between 40 to 60 percent of all losses 
under its updated benchmark, depending on the ACO's quality 
performance. The amount of shared losses for which an ACO is liable, 
however, may not exceed 5 percent of its updated benchmark in the first 
performance year, 7.5 percent in the second performance year, and 10 
percent in the third performance year and any subsequent performance 
year (Sec.  425.606(g)). In the November 2011 final rule (76 FR 67937), 
we stated that we believe these progressively higher caps on losses 
``achieve an appropriate balance between providing ACOs with security 
about the limit of their accountability for losses while encouraging 
ACOs to take increasing responsibility for their costs and protecting 
the Medicare Trust Funds.'' We note that under one of the payment 
arrangements available under the Pioneer ACO Model, a Pioneer ACO can 
qualify to receive up to 75 percent of shared savings, not to exceed 15 
percent of its benchmark. Under this payment arrangement, Pioneer ACOs 
may also be responsible for shared losses of up to 15 percent of their 
benchmark.
    Currently, only five of the ACOs participating in the Medicare 
Shared Savings Program are participating under Track 2. Given this 
level of ACO participation under this model, we considered options for 
improving the attractiveness of the final sharing rate and performance 
payment limit in a risk model. For example, we considered whether the 
current sharing rate under Track 2 is insufficient to encourage ACO 
participation under a risk-based model and whether increasing the 
sharing rate would better attract organizations to take on performance-
based risk. We also observed that the higher sharing rates available 
under the Pioneer ACO model have appeared to be helpful in encouraging 
ACO participation. Further, we believe it is important to draw a 
distinction between the sharing rates available under Track 2 and the 
proposed Track 3. As discussed later in this section, we are proposing 
that ACOs participating in Track 3 would be subject to a fixed 2 
percent MLR (compared to the proposed revisions that would allow the 
MSR and MLR under Track 2 to vary between 2.0 percent and 3.9 percent). 
Thus, we believe it is important to reward Track 3 ACOs with a greater 
level of savings for taking on this greater level of risk. Accordingly, 
we are proposing to set the sharing rate under Track 3 at 75 percent. 
Likewise, we considered whether the current 15 percent performance 
payment limit for Track 2 ACOs may discourage participation under a 
risk-based model. In our November 2011 final rule (76 FR 67935 through 
67936), we noted a range of commenters had urged us either to eliminate 
the limits on shared savings or to apply higher payment limits for both 
models, with limits as high as 25 percent. We explained that retaining 
the performance payment limits is necessary to comply with the statute 
and important for ensuring against providing an overly large incentive 
that may encourage ACOs to generate savings through inappropriate 
limits on necessary care. As was the case when we issued that rule, we 
continue to believe that retaining a performance payment limit is 
necessary. However, we believe that a modest increase in the 
performance payment limit for ACOs willing to take on the greater level 
of risk under Track 3 may balance our concerns while increasing the 
attractiveness of the model. Accordingly, for Track 3 ACOs, we are 
proposing a performance payment limit not to exceed 20 percent of the 
ACO's updated benchmark. We note that the shared loss rate would 
similarly increase to a maximum of 75 percent to retain symmetry within 
the model which is comparable to the approach we used to establish the 
shared loss rate for Track 2 ACOs.
    To establish even stronger incentives for encouraging ACOs to 
assume greater responsibility for the quality and cost of the care 
furnished to their assigned beneficiaries, we are also considering 
variations on the previous proposals. Currently, under the two-sided 
model, an ACO's quality score is taken into account when calculating 
the ACO's final sharing rate. Under Track 2, an ACO with poor quality 
performance may be responsible for repaying Medicare up to 60 percent 
of losses while an ACO with very high quality performance may be 
responsible for repaying Medicare only 40 percent of the losses 
incurred (see Sec.  425.606(f)). If we retain symmetry between the 
shared savings and shared losses methodologies under Track 3, an ACO 
with very low quality performance could be responsible for repaying 
Medicare up to 75 percent of losses while a Track 3 ACO with very high 
quality performance would only be responsible for 25 percent of losses.
    However, it may not be desirable under Track 3 to allow such a 
broad range for shared losses, which could be viewed as increasing the 
potential reward without similarly increasing risk. Therefore, we 
considered other options for increasing potential shared savings while 
also increasing risk, or holding risk constant compared to Track 2. 
Under one option we considered, Track 3 ACOs would be responsible for 
the maximum percentage of losses, that is, 75 percent, but quality 
performance would only protect them to the same extent it protects 
Track 2 ACOs, such that ACOs with very high quality scores would limit 
their percentage of losses to 40 percent. Alternatively, we could 
retain the minimum and maximum shared loss rates found under Track 2 
(that is, the range of 40 percent to 60 percent, depending on quality 
performance) but the maximum shared savings rate would be increased to 
75 percent in order to encourage participation in a model with 
increased risk.
    After considering these options, in Sec.  425.610(d) and (f) we are 
proposing to increase the sharing rate for Track 3 ACOs so that they 
may qualify for up to 75 percent of all savings under their updated 
benchmark in conjunction with accepting risk for up to 75 percent of 
all losses, depending on the quality performance of the organization 
for the reasons articulated previously. We are also proposing under new 
Sec.  425.610(e)(2) to increase the performance payment limit to 20 
percent of an ACO's updated benchmark. Additionally, rather than 
gradually increasing the cap on shared losses for Track 3 ACOs (as is 
done under Track 2), in Sec.  425.610(g), we are proposing that the 
amount of shared losses for which an ACO may be liable may not exceed 
15 percent of its updated benchmark in each year of the ACO's 3-year 
agreement period. We believe that capping losses at 15 percent would 
provide adequate protection to the Medicare Trust Funds while limiting 
risk to ACOs, thereby encouraging them to progress along the risk 
continuum. We also propose that ACOs with high quality performance 
would not be permitted to reduce the percentage of shared losses for 
which they would be responsible for each year of the agreement period 
below 40 percent. We believe it is important for Track 3 ACOs to be 
held responsible for at least the same amount of downside risk as Track 
2 ACOs. We seek comment on whether this percentage is high enough to 
protect the Trust Funds or whether it should be increased, for example, 
to 50 percent or 60 percent. We also seek comment on whether our

[[Page 72815]]

proposal to establish a range of 40 percent to 75 percent for shared 
losses should, in turn, impact the amount of shared savings available 
to Track 3 ACOs. For example, should we permit Track 3 ACOs to earn a 
parallel range of 40 percent to 75 percent of shared savings. In other 
words, once the ACO has met criteria for sharing in savings, the 
minimum guaranteed amount of shared savings would be 40 percent with a 
maximum of 75 percent.
    We seek comments on these proposals and the proposed new regulation 
at Sec.  425.610. In particular, we request comment on the appropriate 
minimum percentage of shared losses under Track 3. We also seek comment 
on the appropriate percentage for the performance payment limit and 
loss recoupment limit and whether there are reasons to set these at 15 
percent and 10 percent respectively, rather than our proposal of 20 
percent and 15 percent respectively.
    Finally, we are also proposing to make certain technical, 
conforming changes to Sec.  425.606, which governs the calculation of 
shared savings and losses under Track 2, to reflect our proposal to 
incorporate a second two-sided risk model into the Shared Savings 
Program. We seek comments on these proposed changes and on any other 
technical changes to our regulations that may be necessary in order to 
reflect the proposal to add a new Track 3.
i. Proposals for Minimum Savings Rate and Minimum Loss Rate in Track 3
    In this proposed rule, we are proposing to replace the current 
fixed 2 percent minimum savings rate (MSR) and minimum loss rate (MLR) 
under Track 2 with a MSR and MLR that will vary based on the number of 
beneficiaries assigned to the ACO, mirroring the methodology currently 
used to determine the MSR under Track 1. We proposed this change as a 
way to reduce financial risk and thereby increase the attractiveness of 
Track 2 to prospective ACOs and ACOs continuing in the program for a 
second or subsequent agreement period. Specifically, we believe it is 
important to offer a risk-based option attractive to smaller ACOs that 
may be hesitant to take on performance-based risk. Under the proposed 
modifications to Track 2, smaller ACOs would have an MLR greater than 2 
percent, which would provide additional protection to these ACOs 
against incurring losses as a result of normal variations in 
expenditures. Moreover, while reducing financial risk for Track 2 ACOs, 
the proposal would also offer greater protection to the Medicare 
program by raising the savings threshold that must be achieved before 
an ACO would be eligible to share in savings for all but the largest 
ACOs.
    As discussed previously in this section, we are proposing to 
establish a new Track 3 as an additional option for participation in 
the Shared Savings Program with stronger incentives to encourage ACOs 
to accept greater responsibility and risk for their beneficiaries. 
Hence, for Track 3 ACOs, we are proposing to apply the same fixed 2 
percent MSR and MLR that currently apply to Track 2 ACOs. As we 
discussed in the November 2011 final rule (76 FR 67929), establishing 
the Shared Savings Program, the use of an MSR and MLR remains important 
under a two-sided risk model to guard against normal variations in 
costs, so that ACOs share savings or losses with the program only under 
those circumstances in which we can be confident that those savings and 
losses are the result of the ACOs' actions rather than normal 
variation. As we noted in that final rule, it is more appropriate to 
employ a fixed MSR under a two-sided model than under the one-sided 
model. First, given the potential for shared loss, the greater 
predictability of a fixed MSR is more likely to attract organizations 
to participate under the model. Second, there is greater protection for 
the Medicare Trust Fund from normal variation under a two-sided model 
because ACOs accept the risk of repaying the Medicare program for 
shared losses. Therefore, in the November 2011 final rule (76 FR 
67929), we adopted a fixed 2 percent MSR and MLR for ACOs participating 
under Track 2. We selected 2 percent because this is the lowest MSR 
under the one-side model and was also the MSR that was used in the PGP 
demonstration. As discussed previously in this section, we are now 
proposing to modify the MSR and MLR under Track 2 to vary based upon 
the size of the ACO. We believe this change would improve the 
attractiveness of Track 2 by offering ACOs that may be less experienced 
with performance-based risk greater protection against shared losses. 
However, because Track 3 is intended for ACOs that are willing to 
accept a greater degree of risk in exchange for the opportunity to 
share in a greater percentage of shared savings, we believe it is 
appropriate to use a fixed 2 percent MSR and MLR under this track. We 
believe that setting the MSR and MLR at this level would offer greater 
predictability, which may attract more ACOs to participate in Track 3. 
In addition, as we discussed in the November 2011 final rule (76 FR 
67929), the requirement that ACOs repay shared losses offers additional 
protection to the Medicare Trust Funds, which allows for the 
application of a lower, fixed MSR. Accordingly, we propose to apply the 
same fixed 2 percent MSR and MLR that currently apply to Track 2 ACOs 
to ACOs that elect to participate in Track 3. This proposal is 
reflected in paragraph (b) of the proposed new regulation at Sec.  
425.610. We seek comments on this proposal.
    Although we are proposing to apply a fixed MSR and MLR of 2 percent 
under Track 3, we also considered other options for establishing the 
MSR and MLR for Track 3 ACOs, including an option that would remove the 
MSR and MLR entirely. Under this option, ACOs would be subject to 
normal variation around their benchmark so that they would be held 
responsible for all losses when performance year expenditures were 
above the benchmark in addition to sharing in any savings if 
performance year expenditures fell below the benchmark. Another option 
could be to set both the MSR and MLR to 1 percent instead of 2 percent. 
This would serve to increase both risk of sharing losses and savings, 
but not as much as doing away with the MSR and MLR entirely. We 
specifically seek comment on whether it would be desirable to remove 
the MSR and MLR entirely under Track 3 as well as alternative levels at 
which to set the MSR and MLR for ACOs participating under Track 3. We 
will consider comments that are received regarding these alternatives 
in determining the final MSR and MLR that would apply under Track 3.
4. Seeking Comment on Ways To Encourage ACO Participation in 
Performance-Based Risk Arrangements
    We are encouraged by stakeholder interest in the Shared Savings 
Program. Since implementation of the Shared Savings Program in 2012, 
there are now more than 330 organizations participating. Based on the 
initial experience we have gained with the Shared Savings Program, 
however, we believe ACOs are very reluctant to accept two-sided 
performance-based risk arrangements in which ACOs would share in both 
Medicare savings and losses because only a small number of ACOs have 
agreed to participate in the Shared Savings Program under Track 2, 
which provides for two-sided performance-based risk. Ninety-eight 
percent of the ACOs participating in the Shared Savings Program have 
elected to participate under Track 1 (shared savings only). We believe 
that under a two-sided performance-based risk model, ACOs have much 
stronger

[[Page 72816]]

incentives to achieve high quality and to avoid unnecessary costs, 
which is why we are proposing Track 3 as a possibly more attractive 
alternative to Track 2. The incentive for ACOs to achieve high quality 
and avoid unnecessary costs under a two-sided performance-based risk 
model is supported by the impact analyses performed by the CMS actuary 
provided in section V. of this proposed rule. Accordingly, in order for 
the Shared Savings Program to be effective and sustainable over the 
long term, we believe we may need to further strengthen our efforts to 
transition the Shared Savings Program to a two-sided performance-based 
risk program in which ACOs would share in both Medicare savings and 
losses.
    We received a wide range of suggestions from ACOs, the Brookings 
Institution, MedPAC, and other stakeholders of ways to improve the 
Shared Savings Program and to address ACO concerns that they believe 
are essential to the longer term success of the program. The Brookings 
Institution has identified a number of critical issues that warrant 
further discussion and consideration for ensuring the continued success 
of ACOs in the Medicare Program. See ``Issue Brief: How to Improve the 
Medicare Accountable Care Organization (ACO) Program'' at: http://
www.brookings.edu/~/media/research/files/papers/2014/06/
16%20medicare%20aco%20challenges%20and%20alternatives/
2%20mcclellan%20et%20al%20%20medicare%20aco%20program%2062014.pdf.
    In a June 16, 2014 letter to CMS (http://www.medpac.gov/documents/06162014_ACO_issue_letter_2014_COMMENT.pdf), MedPAC raises several 
issues for consideration in connection with CMS ACO models in the short 
and long term. MedPAC indicates that ACOs represent an opportunity to 
transform the delivery system, but MedPAC believes that realizing that 
opportunity would require providers to change their practices and take 
a risk on this new payment system, and that we would need to be 
flexible and responsive as the program evolves. MedPAC's 
recommendations are based on discussions with representatives from many 
ACOs, structured interviews and case studies with Pioneer ACOs, 
analysis of early data on ACO performance, and reviewing progress with 
CMS staff. MedPAC reports that many ACO providers/suppliers who they 
have spoken with have patients in both MA plans and FFS Medicare. Under 
MA, providers can furnish services and use techniques that are not 
available under FFS Medicare or, by extension, under the current rules 
governing the Shared Savings Program. For example, pursuant to section 
1861(i) of the Act, FFS Medicare requires a 3-day inpatient hospital 
stay before a SNF services will be covered under Medicare Part A, but 
MA plans can offer a waiver of the 3 day prior inpatient 
hospitalization requirement as a supplemental benefit. ACOs have 
indicated that they like the flexibility that capitated payments would 
give them to redesign care and benefits to meet the needs of their 
patient populations.
    Under the current Medicare FFS system, providers have a financial 
incentive to increase their volume of services. As a result, many 
current Medicare regulations are designed to prevent overuse of 
services and the resulting increase in Medicare spending in this 
context. In brief, MedPAC believes that moving to two-sided 
performance-based risk under the Shared Savings Program would provide 
strong incentives for organizations to control costs, which should, in 
turn, open up the opportunity for regulatory relief across a broad 
range of issues. Removing certain regulatory requirements may provide 
ACOs with additional flexibility to innovate further, which could in 
turn lead to even greater cost savings. These views are supported by 
analyses performed by CMS actuaries that suggest two-sided performance-
based risk provides stronger incentives for ACOs to achieve savings. 
Thus, ACOs and MedPAC have encouraged us to consider relaxing certain 
specific FFS Medicare payment and other rules under two-sided 
performance-based risk models in the Shared Savings Program.
    In the sections that follow, we solicit comment on several options 
that are currently under consideration for inclusion in the Shared 
Savings Program. We first consider options that would implicate the 
waiver authority under section 1899(f) of the Act and then consider 
other options that could be implemented independent of waiver 
authority. Although we are not specifically proposing these options at 
this time, we will consider the comments that are received regarding 
these options during the development of the final rule, and may 
consider adopting one or more of these options in the final rule.
a. Payment Requirements and Other Program Requirements That May Need To 
Be Waived in Order To Carry Out the Shared Savings Program
    As noted previously, few organizations have chosen to participate 
in the Shared Savings Program under two-sided performance-based risk. 
In addition to the elements designed to enhance participation in a two-
sided performance-based risk track under the proposed new Track 3, we 
believe it may be necessary and appropriate to provide for additional 
program flexibilities to increase ACOs' willingness to participate in 
the Shared Savings Program under two-sided performance-based risk 
arrangements to increase quality and decrease cost growth. These 
possible additional flexibilities could include use of our waiver 
authority to waive certain Medicare Program rules under section 1899(f) 
of the Act, which provides authority for the Secretary to waive ``such 
requirements of . . . title XVIII of this Act as may be necessary to 
carry out the provisions of this section.'' This provision affords 
broad authority for the Secretary to waive statutory program 
requirements as necessary to carry out the provisions of section 1899 
of the Act. In order to waive FFS payment or other program rules, the 
waiver must be determined to be necessary for CMS to carry out the 
provisions of section 1899 of the Act, which govern the Shared Savings 
Program. (The authority at section 1899(f) of the Act has been used by 
the Office of Inspector General and CMS to issue an interim final rule 
with comment period setting forth waivers of certain fraud and abuse 
authorities (76 FR 67992), which was published concurrently with the 
November 2011 final rule establishing the Shared Savings Program. This 
rulemaking does not address fraud and abuse waivers, and we are not 
soliciting comment on such waivers.)
    As noted previously, we are encouraged by the robust participation 
of organizations under the one-sided model of the Shared Savings 
Program. However, we continue to believe that the long term 
effectiveness and sustainability of the program depend on encouraging 
ACOs to progress along the performance-based risk continuum. Given the 
very limited ACO interest thus far in two-sided performance-based risk, 
and the comments and suggestions by stakeholders, we now believe that 
the authority under section 1899(f) of the Act to waive certain payment 
or other program requirements may be necessary to carry out the 
provisions of the Shared Savings Program and to permit effective 
implementation of two-sided performance-based risk tracks under the 
program. As discussed previously, on the April 2011 proposed rule, both 
we and many commenters believe that models where ACOs bear a degree of 
financial risk hold the potential to

[[Page 72817]]

induce more meaningful systematic change than one-sided models. We 
believe that ACOs that bear financial risk would have a heightened 
incentive to restrain wasteful spending by their ACO participants and 
ACO providers/suppliers. This, in turn, may reduce the likelihood of 
over-utilization. In these circumstances, waiver of certain payment and 
other programmatic rules for ACOs with two-sided risk may be 
appropriate to give providers more flexibility under FFS Medicare to 
provide appropriate care for beneficiaries.
    We would point out that while we are considering these waiver 
issues under the Shared Savings Program, we are also actively moving 
forward with testing certain payment rule and other waivers as part of 
models tested by the Innovation Center under section 1115A of the Act, 
including the Pioneer ACO Model. For example, as explained below, we 
already have a few months of data from our initial test of the waiver 
of the SNF 3-day rule under the Pioneer ACO Model, and we are in the 
process of testing beneficiary attestation under the Pioneer ACO Model. 
In addition, under the demonstration authority in section 402 of Public 
Law 90-248, as amended (42 U.S.C. 1395b-1), we granted Massachusetts 
General Hospital (MGH) the ability to admit certain patients enrolled 
in its Care Management for High Cost Beneficiaries Demonstration 
directly into a SNF without a 3-day prior inpatient hospitalization, 
and we intend to release a report evaluating this waiver later this 
year. Based on our experience with the waiver of the SNF 3-day rule in 
the MA program, and an initial, limited assessment of the MGH waiver 
performed by CMS actuaries, we expect that the waiver of the SNF 3-day 
rule under the Pioneer ACO Model will result in savings for the 
Medicare Trust Funds.
    We are learning from these tests and would seek to refine our 
policies as we move forward. Through such testing we frequently 
identify issues that neither we nor stakeholders had previously 
identified. Developing and implementing such policies in a test 
environment provides an opportunity for us to better understand the 
effects on providers, beneficiaries, and Medicare as well as to further 
fine tune the operations.
    We welcome comments on possible waivers under section 1899(f) of 
the Act of certain Medicare payment or other program requirements 
suggested by stakeholders that might be necessary to permit effective 
implementation of two-sided performance-based risk in the Shared 
Savings Program. As noted previously, we will consider the comments 
that are received during the development of the final rule, and in the 
final rule may consider waiving certain requirements if we conclude 
that such a waiver is necessary in order to carry out the Shared 
Savings Program. We are especially interested in comments explaining 
how such waivers may be necessary to encourage ACOs to accept 
performance-based risk arrangements under the Shared Savings Program, 
and how such waivers could provide ACOs with additional ways to 
increase quality of care and reduce unnecessary costs that are not 
permitted under FFS Medicare, but that could be appropriately used in 
the context of an ACO model that incorporates two-sided performance-
based risk. What program integrity and beneficiary protection risks 
could be introduced by waivers of the payment and program rules 
described later in this section of this proposed rule and how could we 
mitigate those risks? Would a waiver of these requirements impact 
notification to beneficiaries of participation in the Shared Savings 
Program as required under Sec.  425.312? What operational issues do 
ACOs and CMS need to consider and what processes would ACOs need to 
have in place to implement these alternative payment and other program 
policies? What implications would there be for ACO infrastructure 
including IT and other systems and processes? What provider education 
would be needed? What other issues should be considered when making use 
of waiver authority with respect to payment and program rules? Should 
any waivers apply to all two-sided performance-based risk tracks or 
should they be limited to a specific two-sided risk track? Should 
waivers be available only for those organizations willing to take on 
the greatest performance-based risk under the Shared Savings Program? 
For example, should waivers be limited to the use of organizations 
participating in Track 3 because participants in Track 3 would agree to 
be held accountable for up to 75 percent of shared losses compared to 
participants in Track 2 who would agree to be held accountable for up 
to 60 percent of shared losses? Should the waivers be made available to 
all organizations participating in the applicable risk tracks or only 
to those ACOs that have successfully participated in the Shared Savings 
Program or another ACO model previously?
    We also note that the ability to implement any waivers of payment 
or program rules may vary for ACOs participating under Track 2 and 
Track 3 because of the differences in how beneficiaries are assigned to 
ACOs under those Tracks. We are considering whether a waiver that 
applies only to beneficiaries assigned to the ACO would perhaps be more 
appropriately implemented under a model in which there is prospective 
assignment of beneficiaries, such as proposed Track 3. Under 
prospective assignment, beneficiaries would be assigned to the ACO for 
the entire performance year, and it would thus be clear as to which 
beneficiaries the waiver applied. Having clarity as to the beneficiary 
to which a waiver applies may be important for the ACO to comply with 
the conditions of the waiver and could also improve CMS' ability to 
monitor waivers for misuse. Another option would be to apply the 
waivers to any FFS beneficiary cared for by an eligible ACO. Then the 
waiver could be available to all ACOs participating in a two-sided risk 
track, regardless of whether the assignment is prospective or 
retrospective. Another option would be to apply such waivers to 
beneficiaries that appear on the quarterly lists of preliminarily 
prospectively assigned beneficiaries. Under this approach, the 
population for whom the waiver is available would likely change from 
quarter to quarter. We seek comment on whether any waivers of payment 
or program rules would be more viable under proposed Track 3, which 
includes prospective beneficiary assignment, versus Track 2 in which 
beneficiaries are assigned using a preliminary prospective assignment 
methodology with final retrospective reconciliation. Specifically, 
would a waiver require a fully prospective list of assigned 
beneficiaries for the performance year or would it be feasible to use a 
preliminary prospective list of beneficiaries that is likely to change 
at the end of the performance year? What are the other operational 
issues we should consider?
    Specific payment and program rules for which we believe waivers 
could be necessary under the Shared Savings Program to support ACO 
efforts to increase quality and decrease costs under two-sided 
performance-based risk arrangements and for which we invite comments 
are as follows:
(1) SNF 3-Day Rule
    The Medicare SNF benefit is for beneficiaries who require a short-
term intensive stay in a SNF, requiring skilled nursing and/or skilled 
rehabilitation care. Pursuant to section 1861(i) of the Act, 
beneficiaries must have a prior inpatient hospital stay of no

[[Page 72818]]

fewer than 3 consecutive days in order to be eligible for Medicare 
coverage of inpatient SNF care. We refer to this as the SNF 3-day rule. 
As discussed previously, we believe that the long term effectiveness 
and sustainability of the Shared Savings Program depend on encouraging 
ACOs to progress along the performance-based risk continuum. Given the 
very limited ACO interest thus far in two-sided performance-based risk, 
and the comments and suggestions by stakeholders, we now believe that 
the authority under section 1899(f) of the Act to waive certain payment 
or other program requirements may be necessary to carry out the 
provisions of the Shared Savings Program and to permit effective 
implementation of two-sided performance-based risk tracks under the 
program. Models where ACOs bear a degree of financial risk hold the 
potential to induce more meaningful systematic change. We believe that 
under a two-sided performance-based risk ACO model it could be 
medically appropriate and more efficient for some patients to receive 
skilled nursing care and or skilled rehabilitation services provided at 
SNFs without a prior inpatient hospitalization or with an inpatient 
hospital length of stay of less than 3 days. A waiver of this 
requirement could allow ACOs to realize cost savings and improve care 
coordination, such that they could be more willing to accept two-sided 
risk, which we believe is required to promote the long term 
effectiveness and sustainability of the Shared Savings Program.
    We note that the SNF 3-day rule has been waived or is not a 
requirement for Medicare SNF coverage under a few CMS models or 
programs. For instance, the Pioneer ACO Model has recently started 
testing whether a tailored waiver of the SNF 3-day rule will enable the 
Pioneer ACOs to improve quality of care for a subset of beneficiaries 
requiring skilled nursing and/or skilled rehabilitation care while also 
reducing expenditures. ACOs under the Pioneer Model are accountable for 
the total costs of care furnished to their assigned beneficiary 
population, and must accept performance-based risk in the event that 
costs exceed their benchmark. This type of performance-based risk 
arrangement has the potential to mitigate the incentive to overuse SNF 
benefits. MA plans already have the flexibility not to apply the SNF 3-
day rule, and we believe this flexibility is appropriate because of the 
financial incentives for MA plans, which operate under a capitated 
payment arrangement, to control total cost of patient care. As in the 
case of the MA program, the Pioneer ACO Model's use of shared risk 
arrangements is expected to deter unnecessary referral of patients to 
SNFs, as Pioneer ACOs are accountable for the total cost of care 
furnished to their assigned beneficiaries. While the financial 
incentive to control total cost of care in a shared savings model is 
not as great as in a capitated model, all Pioneer ACOs are at 
significant performance-based risk for exceeding their expenditure 
benchmarks and are clearly focused on reducing total cost of care.
    The waiver of the SNF 3-day rule under the Pioneer ACO Model went 
into effect on April 7, 2014, for Pioneer ACOs that demonstrate through 
an application process that they have the capacity and infrastructure 
to identify and manage clinically eligible beneficiaries prospectively 
assigned to Pioneer ACOs who may be admitted to a SNF without the 
required 3-day inpatient hospital stay. All other requirements for 
coverage of the Medicare SNF benefit remain unchanged under the Pioneer 
ACO Model. Only beneficiaries that require skilled nursing and/or 
skilled rehabilitation care are eligible for SNF coverage without a 
prior 3-day inpatient hospitalization under the Pioneer ACO Model 
waiver. All Pioneer ACOs are eligible to apply for a waiver of the SNF 
3-day rule for their prospectively assigned beneficiaries, but must 
demonstrate that they have the capacity to identify and manage patients 
who would be either directly admitted to a SNF or admitted to a SNF 
after an inpatient hospitalization of fewer than 3 days, by describing 
the staff and processes involved in the clinical management of these 
beneficiaries.
    Further, patients eligible for coverage of SNF admissions under the 
terms of the waiver include only FFS Medicare beneficiaries 
prospectively aligned to a Pioneer ACO who do not reside in nursing 
homes for long-term custodial care at the time of the decision to admit 
to a SNF. Patients must be medically stable, have certain and confirmed 
diagnoses and thus not require additional diagnostic testing, not 
require an inpatient evaluation or treatment, and have a skilled 
nursing or rehabilitation need that could not be provided as an 
outpatient. Eligible beneficiaries must be admitted to SNFs at the 
direction of admitting Pioneer providers/suppliers and not at the 
direction of SNFs or non-Pioneer providers/suppliers. Pioneer ACOs are 
required to submit to CMS for approval a SNF or group of SNFs with 
which they wish to partner for purposes of this waiver. The designated 
SNFs must have the appropriate staff capacity and necessary 
infrastructure to carry out the activities proposed in the Pioneer 
ACO's application. The SNF may be, but is not required to be, a Pioneer 
provider/supplier. The SNF must also have, at the time of application 
submission, a quality rating of 3 or more stars under the CMS 5-Star 
Quality Rating System as reported on the Nursing Home Compare Web site. 
Commenters suggest that a similar waiver of the SNF 3-day rule would be 
appropriate for certain ACOs under the Shared Savings Program. When 
Congress enacted the original Medicare legislation in 1965, it created 
SNF coverage as a less expensive alternative to what would otherwise be 
the final, convalescent portion of a beneficiary's inpatient hospital 
stay. Accordingly, the Medicare SNF benefit was narrowly focused on 
``post-hospital extended care'' to serve as a relatively brief and 
skilled ``extension'' of an acute care stay in a hospital. Thus, the 
requirement for a prior 3-day qualifying stay in an inpatient hospital 
was included to effectively target the limited population that the SNF 
benefit was designed to cover: Beneficiaries who require a short-term, 
intensive stay in a SNF, requiring skilled care.
    Because of changes in medical care over the half century since 
enactment of the original Medicare legislation, it may now be medically 
appropriate for some patients to receive skilled nursing care and or 
rehabilitation services provided by SNFs without a prior inpatient 
hospitalization, or with an inpatient hospital length of stay of less 
than 3 days. It may be medically appropriate for patients to go to SNFs 
earlier, due to changes in medical care, given that hospital lengths of 
stay are shorter than they were decades ago, and the types of patients 
that were staying 3 days in an inpatient hospital in 1965 are no longer 
staying 3 days in an inpatient hospital now. Because of this, over 
time, we have repeatedly expressed interest in testing alternatives to 
the SNF 3-day rule. We have found that financial incentives need to 
properly align so that the appropriate patients receive SNF care. That 
is, we believe care must be coordinated in a manner that allows for 
control of total patient cost and mitigates the incentive to 
overutilize the SNF benefit. If alternatives to the SNF 3-day rule were 
to be implemented, we believe that most treatment would continue to be 
appropriately furnished in a hospital, either on an inpatient or 
outpatient basis, rather than furnished at a SNF. Therefore, we do not 
believe

[[Page 72819]]

that application of such a waiver should result in overutilization of 
SNF care at the expense of appropriate acute hospital care. We would 
also note that under a model of accountability for total costs of care 
for assigned beneficiaries such as the Pioneer ACO Model or a two-sided 
risk track under the Shared Savings Program, the greatest savings would 
most likely be achieved by permitting the elimination, where 
appropriate, of the entire prior hospital stay (and therefore the 
hospital DRG payment) and improving quality of care for patients who 
can instead receive appropriate care through direct admission to a SNF. 
Permitting a shortened (less than 3 days) inpatient hospital stay prior 
to SNF admission would not necessarily produce significant savings to 
the Medicare Trust Funds, as Medicare would still pay the applicable 
MS-DRG amount to the hospital. Commenters, however, suggested that 
allowing ACOs to carefully identify beneficiaries with a prior hospital 
stay of less than 3 days, for whom SNF care would be clinically 
appropriate, could still produce cost savings for hospitals that 
improve their financial performance, and could contribute to ACOs' 
success and continued participation in the Shared Savings Program.
    We believe it could be necessary to waive the SNF 3-day rule for 
ACOs participating under a two-sided risk track in the Shared Savings 
Program because the financial incentives for such ACOs to control total 
patient costs for their prospectively assigned beneficiaries are 
arguably similar to certain incentives that currently exist for MA 
plans and Pioneer ACOs. If we were to conclude that a waiver of the 
requirement for a prior 3-day qualifying stay in an inpatient hospital 
under waiver authority in section 1899(f) of the Act is necessary for 
purposes of implementing two-sided performance-based risk models under 
the Shared Savings Program, we would likely initially limit this waiver 
to ACO participants and ACO providers/suppliers under proposed Track 3. 
Under Track 3 beneficiaries would be prospectively assigned to the ACO 
for the entire year and it would thus be clear as to which 
beneficiaries the waiver applied. In addition, under Track 3 as 
proposed, organizations would agree to be held accountable for up to 75 
percent of any losses compared to organizations participating under 
Track 2 who agree to be held accountable for up to 60 percent of any 
losses. Since a few organizations have been willing to participant 
under Track 2 without waivers, this may represent the limit of risk 
organizations are willing to take on without waiving the SNF 3-day 
rule. As mentioned previously, we believe a prospective assignment 
approach creates a potential pathway for improving the appropriate use 
of waivers by ACOs and a method for CMS to monitor its use, in addition 
to offering a higher sharing rate. For these reasons, we believe Track 
3 may make it a better candidate for these waivers than Track 2. 
However, we seek comment on whether such a waiver should apply to all 
performance-based risk tracks. Another option would be to allow the 
waiver to apply to any FFS beneficiary cared for by the ACO and then 
the waiver could be available to all ACOs participating in a two-sided 
risk track, regardless of whether assignment is prospective or 
retrospective. Another option would be to apply any waiver to 
beneficiaries that appear on the quarterly lists of preliminarily 
prospectively assigned beneficiaries. In this case, the beneficiaries 
to whom the waiver applies would likely change from quarter to quarter. 
We anticipate that we would offer the opportunity to apply for such a 
waiver to ACOs using a framework similar to the one currently being 
tested under the Pioneer ACO Model, with appropriate revisions as 
necessary to accommodate the differences in beneficiary assignment 
methodology, as needed.
    Under such a waiver, ACOs would be required to submit to CMS for 
approval of a SNF or group of SNFs with which they wish to partner. The 
designated SNFs must have the appropriate staff capacity and necessary 
infrastructure to carry out the activities described in the ACO's 
application for the waiver. The SNF would likely be required to be an 
ACO participant or ACO provider/supplier. We believe it would be 
appropriate to limit such a waiver to SNFs that are ACO participants or 
ACO providers/suppliers, because we believe these entities would have 
incentives that are most directly aligned with those of the ACO. ACOs 
also have stronger control and oversight over such entities because 
such entities are subject to Shared Savings Program requirements.
    Under such a waiver, we would anticipate establishing additional 
requirements to ensure program transparency and help reduce the 
possibility for abuse of the waiver. For example, we would anticipate 
requiring ACOs to indicate their intent to use the waiver as part of 
their applications or requests for renewal of their participation 
agreement, and remain in compliance with program rules. To further 
substantiate an ACO's intent to use the waiver, we anticipate requiring 
that the ACO submits as part of its application documentation showing 
that its governing body has made and duly authorized a bona fide 
determination that the ACO will use the waiver (if approved by CMS) and 
will comply with all requirements of the waiver. As part of its 
application for the waiver, we would require the ACO to submit a 
written plan describing how it would use the waiver to meet the 
clinical needs of its assigned beneficiaries. We would reserve the 
right to deny or revoke a waiver to an ACO if it is not in compliance 
with requirements under the Shared Savings Program, if it does not use 
the waiver as described in its application, or if it does not 
successfully meet the quality reporting standard. ACOs with approved 
waivers would be required to post their use of the waivers as part of 
public reporting (see Sec.  425.308) on the dedicated ACO Web page. Use 
of the waiver and its authorization by the governing body would be 
required to be documented and the documentation retained, consistent 
with Sec.  425.314. We would anticipate that any waiver would be 
effective on the start date of the ACO's participation agreement and 
would not extend beyond the end of the ACO's participation in the 
Shared Savings Program. However, if CMS terminates the participation 
agreement, then the waiver would end on the date of the termination 
notice. We also reserve the authority to withdraw the waiver in the 
event we determine that there has been an abuse of the waiver. The 
proposed payment waivers would not protect financial arrangements 
between ACOs, ACO participants, ACOs providers/suppliers, or other 
individuals or entities providing services to ACO patients from 
liability under the fraud and abuse laws or any other applicable laws.
    We note that we would retain the right to monitor and audit the use 
of such waivers. We would anticipate implementing heightened monitoring 
of entities that bill under payment waivers to help reduce the 
possibility for abuse of the waiver. We seek comment on what specific 
activities should be monitored to ensure that items and services are 
properly delivered to eligible patients, that patients are not being 
discharged prematurely to SNFs, and that patients are able to exercise 
freedom of choice and are not being steered inappropriately. We would 
also likely consider monitoring ACOs' marketing of services subject to 
payment waivers to prevent coercive or

[[Page 72820]]

misleading marketing and to assess the effect on the delivery of care.
    We invite comments on whether it is necessary to provide for a 
waiver of the SNF 3-day rule using our authority under Section 1899(f) 
of the Act for ACOs that choose to participate in the Shared Savings 
Program under two-sided performance-based risk financial arrangements. 
If so, what criteria would be appropriate to determine waiver 
eligibility under the Shared Savings Program? We note that any waiver 
under the Shared Savings Program for this purpose would have to be 
implemented consistently across all eligible ACOs. In other words, 
application of the waiver would be uniformly applied, and there would 
not be customization of the waiver or conditions for the waiver for 
particular eligible ACOs. With this in mind, would it be appropriate to 
apply the same criteria discussed earlier that are currently being used 
under the Pioneer ACO Model? If not, how would the criteria have to be 
modified? What assurances should ACOs have to make in order to be 
eligible to use the waiver? Are there current Shared Savings Program 
rules and requirements that would have to be modified to permit this 
waiver? Should we require that a beneficiary be admitted to a SNF that 
is an ACO participant or ACO provider/supplier in order for the waiver 
to apply? We invite comment on whether or not the SNF should be 
required to be an ACO provider/supplier. Would a waiver under certain 
conditions create any unexpected concerns about access to SNF services 
for the patients who need them most (that is, those beneficiaries 
admitted following a 3-day or longer hospital stay). Would a waiver of 
the SNF 3-day rule align with our policy of including primary care 
services furnished in SNFs in the beneficiary assignment process? Would 
the ACO quality measures such as the new Skilled Nursing Facility 30-
Day All-Cause Readmission Measure (79 FR 67910) and the other measures 
used in establishing the quality performance standards that ACOs must 
meet in order to be eligible for shared savings provide sufficient 
beneficiary protections from inappropriate care or withheld care? Are 
there other quality standards that should apply to ACOs or post-acute 
care facilities that use this waiver? What other monitoring activities 
should be considered to guard against unintended consequences of a 
waiver of the SNF 3-day rule? What other criteria, operational issues 
or other concerns should we consider? We invite comment on these 
issues.
(2) Billing and Payment for Telehealth Services
    Under section 1834(m) of the Act, Medicare pays for telehealth 
services furnished by a physician or practitioner under certain 
conditions even though the physician or practitioner is not in the same 
location as the beneficiary. The telehealth services must be furnished 
to a beneficiary located in one of the eight types of originating sites 
specified in section 1834(m)(4)(C)(ii) of the Act and the site must 
satisfy at least one of the requirements of section 1834(m)(4)(C)(i)(I) 
through (III) of the Act. Generally, for Medicare payment to be made 
for telehealth services under the Physician Fee Schedule several 
conditions must be met (Sec.  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.
    When all of these conditions are met, Medicare pays a facility fee 
to the originating site and provides separate payment to the distant 
site practitioner for the service.
    Section 1834(m)(4)(F)(i) of the Act defines Medicare telehealth 
services to include professional consultations, office visits, office 
psychiatry services, and any additional service specified by the 
Secretary, when furnished via a telecommunications system. For the list 
of Medicare telehealth services, see the CMS Web site at www.cms.gov/teleheath/. Under section 1834(m)(4)(F)(ii) of the Act, CMS has an 
annual process to consider additions to and deletions from the list of 
telehealth services. CMS does not include any services as telehealth 
services when Medicare does not otherwise make a separate payment for 
them.
    We also note that a number of CMS demonstrations include or have 
included testing of interventions that use electronic health records, 
remote monitoring, and mobile diagnostic technology as part of 
strategies to increase quality of care and decrease costs. For example, 
for the Medicare Health Support Programs (see https://www.cms.gov/Medicare/Medicare-General-Information/CCIP/index.html), participants 
utilized a variety of telephonic care management services and related 
interventions. These services included nurse-based health advice for 
the management and monitoring of symptoms, health education (via health 
information, videos, online information), health coaching to encourage 
self-care and self-management of chronic health conditions and 
medications, and health promotion and disease prevention coaching. 
Likewise, under the Independence at Home Demonstration, physician and 
nurse practitioner directed home-based primary care teams use 
electronic health records, remote monitoring, and mobile diagnostic 
technology to help reduce expenditures and improve health outcomes for 
Medicare beneficiaries with multiple chronic conditions (see CMS Web 
site at http://www.cms.gov/Medicare/Demonstration-Projects/DemoProjectsEvalRpts/Medicare-Demonstrations-Items/CMS1240082.html).
    As discussed previously in section II.B.8.a of this proposed rule, 
section 1899(b)(2)(G) of the Act requires a Shared Savings Program ACO 
to ``define processes to . . . coordinate care, such as through the use 
of telehealth, remote patient monitoring, and other such enabling 
technologies.'' Commenters suggest that technologies that enable health 
care providers to deliver care to patients in locations remote from 
providers are being increasingly used to complement face-to-face 
patient-provider encounters in both urban and rural areas. In these 
cases, the use of remote access technologies may improve the 
accessibility and timeliness of needed care, increase communication 
between providers and patients, enhance care coordination, and improve 
the efficiency of care. ACOs and other commenters have suggested that a 
waiver of certain Medicare telemedicine payment requirements would help 
encourage a broader range of ACOs to more fully utilize telehealth, 
remote patient monitoring, and other such enabling technologies.
    We note that certain professional services that are commonly 
furnished remotely using telecommunications technology are paid under 
the same conditions as in-person physicians' services, and thus do not 
require a waiver. Such services that do not require the patient to be 
present in person with the practitioner when they are furnished are 
covered and paid in the same way as services delivered without the use 
of telecommunications technology when the practitioner is in-person at 
the medical facility furnishing care to the patient. Such services 
typically involve circumstances where a practitioner is able to 
visualize some aspect of the patient's condition without

[[Page 72821]]

the patient being present and without the interposition of a third 
person's judgment. Visualization by the practitioner can be possible by 
means of x-rays, electrocardiogram or electroencephalogram tracings, 
tissue samples, etc. For example, the interpretation by a physician of 
an actual electrocardiogram or electroencephalogram tracing that has 
been transmitted via telephone (that is, electronically, rather than by 
means of a verbal description) is a covered physician's service. These 
remote services are not Medicare telehealth services as defined under 
section 1834(m)(4)(F)(i) of the Act. Rather, these remote services that 
utilize telecommunications technology are considered physicians' 
services in the same way as services that are furnished in person 
without the use of telecommunications technology, and they are paid 
under the same conditions as in-person physicians' services, with no 
requirements regarding permissible originating sites.
    A waiver of certain Medicare telehealth requirements could be 
supported by section 1899(b)(2)(G) of the Act in that it gives the use 
of enabling technologies, such as telehealth, as an example of a 
process to coordinate care, and the statute does not limit ACOs to 
being in rural or shortage areas where Medicare payment is available 
for telehealth services. As we indicated in section II.B.8.a. of this 
proposed rule, we welcome information from ACOs and other stakeholders 
about the use of such technologies to coordinate care for assigned 
beneficiaries. If we conclude that a waiver of certain telehealth 
requirements under section 1899(f) of the Act is necessary in order to 
carry out the Shared Savings Program, we would likely provide for a 
waiver of the originating site requirements of section 
1834(m)(4)(C)(i)(I) through (III) of the Act that limit telehealth 
payment to services furnished within specific types of geographic areas 
or in an entity participating in a Federal telemedicine demonstration 
project approved as of December 31, 2000, and would also likely provide 
for a waiver of the originating site requirements of section 
1834(m)(4)(C)(ii)(I) through (VIII) of the Act that specify the 
particular sites at which the eligible telehealth individual must be 
located at the time the service is furnished via a telecommunications 
system. Waiver of this requirement could allow ACOs to realize cost 
savings and improve care coordination, such that they would more 
willing to take on two-sided risk which we believe is required to 
promote the long term effectiveness and sustainability of the Shared 
Savings Program.
    If we were to implement a waiver then we believe it would be 
appropriate to limit the use of such waivers to beneficiaries that are 
assigned to the ACO during the applicable performance year. We believe 
this would be best accomplished by permitting ACOs to use these waivers 
when they have a prospectively assigned population. In other words, the 
waivers would be limited to ACOs participating in Track 3. 
Prospectively assigned beneficiaries under Track 3 would be assigned to 
the ACO for the entire year and it would thus be clear to ACOs and CMS 
as to the beneficiaries for which a waiver applied. As mentioned 
previously, we believe a prospective assignment approach creates a 
potential pathway for improving the appropriate use of waivers by ACOs 
and a method for CMS to monitor its use. In addition, under Track 3 
there would be greater opportunity for risk. For these reasons, we 
believe that Track 3 is potentially a better candidate for such a 
waiver than Track 2. However, we seek comment on whether these waivers 
should apply to all two-sided performance-based risk tracks. Another 
option would be for the waivers would apply to any FFS beneficiary 
cared for by an ACO and then the waiver could be available to ACOs 
participating in any two-sided risk track, regardless of whether the 
assignment is prospective or retrospective. Another option would be to 
apply such waivers to beneficiaries that appear on the quarterly lists 
of preliminarily prospectively assigned beneficiaries. Under this 
approach, the population for whom the waiver is available would likely 
change from quarter to quarter.
    Under a waiver of the telehealth requirements, we would anticipate 
establishing additional requirements to ensure program transparency and 
help reduce the possibility for abuse of the waiver. For example, we 
would anticipate requiring ACOs to indicate their intent to use the 
waiver in a form and manner specified by CMS, as part of either their 
applications or requests for renewal of their participation agreement, 
and to remain in compliance with program rules. To further substantiate 
an ACO's intent to use the waiver, we anticipate requiring that the ACO 
submit as part of its application documentation showing that its 
governing body has made and duly authorized a bona fide determination 
that the ACO will use the waiver (if approved by CMS) and will comply 
with all requirements of the waiver. As part of its application for the 
waiver, we would require the ACO to submit a written plan describing 
how it would use the waiver to meet the clinical needs of its assigned 
beneficiaries. We would reserve the right to deny or revoke a waiver to 
an ACO if it is not in compliance with requirements under the Shared 
Savings Program, if it does not use the waiver as described in its 
application, or if it does not successfully meet the quality reporting 
standard. ACOs with approved waivers would be required to post their 
use of the waivers as part of public reporting (see Sec.  425.308) on 
the dedicated ACO Web page. Use of the waiver and its authorization by 
the governing body would be required to be documented, and the 
documentation retained, consistent with Sec.  425.314. We would 
anticipate that any waiver would be effective on the start date of the 
ACO's participation agreement and would not extend beyond the end of 
the ACO's participation in the Shared Savings Program. However, if CMS 
terminates the participation agreement, then the waiver would end on 
the date of the termination notice. We also reserve the authority to 
withdraw the waiver in the event we determine that there has been an 
abuse of the waiver. The proposed payment waivers would not protect 
financial arrangements between ACOs, ACO participants, ACOs providers/
suppliers, or other individuals or entities providing services to ACO 
patients from liability under the fraud and abuse laws or any other 
applicable laws.
    We note that we would retain the right to monitor and audit the use 
of such waivers. We would anticipate implementing heightened monitoring 
of entities that bill under payment waivers to help reduce the 
possibility for abuse of the waiver. We seek comment on what specific 
activities should be monitored to ensure that items and services are 
properly delivered to eligible patients. We would also likely consider 
monitoring ACOs' marketing of services subject to payment waivers to 
prevent coercive or misleading marketing and to assess the effect on 
the delivery of care.
    In addition to welcoming comments related to the questions we 
raised in section II.B.8.a of this proposed rule, we also welcome 
specific comments on whether it is necessary to use our authority under 
Section 1899(f) of the Act to provide for a waiver for ACOs 
participating in the Shared Savings Program of any Medicare telehealth 
rules, especially for those ACOs that have elected to participate under 
a two-sided performance-based risk

[[Page 72822]]

arrangement. We seek comment on the telehealth rules that would require 
a waiver and the circumstances under which a waiver would be necessary. 
Specifically, what aspects of current Medicare telehealth payment and 
other rules would it be necessary to waive in order to effectively 
incorporate two-sided performance-based risk into the Shared Savings 
Program? What factors should CMS consider if it were to provide for 
such a waiver to allow ACOs additional flexibility to provide a broader 
range of telehealth services or services in a broader range of 
geographic areas? Also, how should telehealth be defined? While 
``telehealth'' is not consistently defined across payers, 
``telehealth'' typically refers to a broader set of services, including 
``store and forward'' services, which are not currently covered by 
Medicare outside of demonstration projects. Under what circumstances 
should payment for telehealth and related services be made? What types 
of services should be included--remote monitoring, remote visits and/or 
e-consults? What capabilities or additional criteria should ACOs meet 
in order to qualify for payments for telehealth services under such a 
waiver? In your comments, please consider quality and outcomes metrics, 
other requirements to ensure protection of beneficiaries and the 
Medicare Trust Funds, and any other design factors you think may be 
important.
(3) Homebound Requirement Under the Home Health Benefit
    In order for Medicare to pay for home health services, a 
beneficiary must be determined to be ``home-bound.'' Specifically, 
sections 1835(a) and 1814(a) of the Act require that a physician 
certify (and recertify) that in the case of home health services under 
the Medicare home health benefit, such services are or were required 
because the individual is or was ``confined to the home'' and needs or 
needed skilled nursing care on an intermittent basis, or physical or 
speech therapy or has or had a continuing need for occupational 
therapy. A beneficiary is considered to be confined to the home if the 
beneficiary has a condition, due to an illness or injury, that 
restricts his or her ability to leave home except with the assistance 
of another individual or the aid of a supportive device (such as 
crutches, a cane, a wheelchair, or a walker), or if the beneficiary has 
a condition such that leaving his or her home is medically 
contraindicated. While a beneficiary does not have to be bedridden to 
be considered confined to the home, the condition of the beneficiary 
must be such that there exists a normal inability to leave home and 
leaving home requires a considerable and taxing effort by the 
beneficiary. Absent this condition, it would be expected that the 
beneficiary could typically get the same services in an outpatient or 
other setting. Thus, the homebound requirement provides a way to help 
differentiate between patients that require medical care at home versus 
patients who could more appropriately receive care in a less costly 
outpatient setting. Additional information regarding the homebound 
requirement is available in the Medicare Benefit Manual (Pub 100-02); 
Chapter 7, ``Home Health Services'', Section 30.1.1, ``Patient Confined 
to the Home''.
    Some ACOs and other commenters have suggested that a waiver of this 
requirement would be appropriate under the Shared Savings Program, 
especially for ACOs that have elected to participate under a two-sided 
performance-based risk arrangement. They suggest that home health care 
would be appropriate for additional beneficiaries and could result in 
lower overall costs of care in some instances. For example, commenters 
suggest, based on their experiences outside of the Medicare FFS 
program, that if a beneficiary is allowed to have home health care 
visits, even if the beneficiary is not considered home-bound, the 
beneficiary may avoid a hospital admission.
    If we conclude that a waiver of the homebound requirement under 
section 1899(f) of the Act is necessary in order to carry out the 
Shared Savings Program, we would expect to offer the opportunity to 
provide home health services to additional beneficiaries to ACOs 
participating under Track 3 using a process similar to the approach we 
discussed above for a waiver of the SNF 3-day rule for ACOs in Track 3. 
Specifically, ACOs participating under Track 3 have a significant 
financial incentive to control total patient costs. In addition, under 
Track 3 beneficiaries would be prospectively assigned to the ACO for 
the entire year, and it would thus be clear as to which beneficiaries 
the waiver applied. As mentioned previously, we believe a prospective 
assignment approach creates a potential pathway for improving the 
appropriate use of waivers by ACOs and a method for CMS to monitor its 
use. In addition, under Track 3 there would be greater opportunity for 
risk. For these reasons, we believe that Track 3 is potentially making 
a better candidate for such a waiver than Track 2. All ACOs 
participating under Track 3 would be eligible to apply for a waiver of 
the home-bound requirement for their prospectively assigned 
beneficiaries; however, we seek comment on whether these waivers should 
apply to all performance-based risk tracks. Another option would be 
that the waivers would apply to any FFS beneficiary cared for by the 
ACO and then the waiver could be available to all ACOs participating in 
a two-sided risk track, regardless of whether assignment is prospective 
or retrospective. Another option would be to apply any waiver to 
beneficiaries that appear on the quarterly lists of preliminarily 
prospectively assigned beneficiaries. In this case, the beneficiaries 
to whom the waiver applies would likely change from quarter to quarter. 
We believe we could authorize waiver of the homebound requirement under 
the home health benefit for those ACOs that demonstrate through the 
application process or in a request for renewal of their participation 
agreement that they have the capacity and infrastructure to identify 
and manage clinically beneficiaries who are not homebound, but are 
otherwise eligible for services under the home health benefit, and 
would benefit from receiving these services. As part of the application 
for the waiver, we would expect to require ACOs to describe the staff 
and processes that would be involved in the clinical management of 
beneficiaries receiving services pursuant to the waiver. All other 
requirements for the Medicare home health benefit would remain 
unchanged. Thus, under such a waiver, only beneficiaries that otherwise 
meet all program requirements to receive home health services would be 
eligible for coverage of home health services without being homebound.
    In addition, we would require that home health services provide 
pursuant to the waiver at the direction of an ACO provider/supplier 
that is not a home health agency, to help ensure that the waiver is 
used appropriately. The home health agency would also likely be 
required to be an ACO provider/supplier. We believe it would be 
appropriate to limit such a waiver to home health agencies that are ACO 
participants or ACO providers/suppliers, because we believe these 
entities would have incentives that are most directly aligned with 
those of the ACO. ACOs also have stronger control and oversight over 
such entities and such entities are subject to Shared Savings Program 
requirements. We invite comment on whether or not the home health 
agency should be required to be an ACO provider/supplier. In either 
case, an ACO would be required to submit to CMS for approval the home

[[Page 72823]]

health agency or group of home health agencies with which it wishes to 
partner in providing services pursuant to this waiver. The designated 
home health agency or agencies would be required to have the 
appropriate staff capacity and necessary infrastructure to carry out 
the processes described in the ACO's application for the waiver. In 
addition, a designated home health agency would be required to have, at 
the time of application submission, a quality rating of 3 or more stars 
under the CMS 5-Star Quality Rating System as reported on the Home 
Health Compare Web site. (For detailed information, see http://blog.cms.gov/2014/06/18/star-quality-ratings-coming-soon-to-compare-sites-on-medicare-gov/.)
    Under such a waiver, we would anticipate establishing additional 
requirements to ensure program transparency and help reduce the 
possibility for abuse of the waiver. For example, we would anticipate 
requiring ACOs to indicate their intent to use the waiver in a form and 
manner specified by CMS, as part of either their applications or 
requests for renewal of their participation agreement, and to remain in 
compliance with program rules. To further substantiate an ACO's intent 
to use the waiver, we anticipate requiring that the ACO submit as part 
of its application documentation showing that its governing body has 
made and duly authorized a bona fide determination that the ACO will 
use the waiver (if approved by CMS) and will comply with all 
requirements of the waiver. As part of its application for the waiver, 
we would require the ACO to submit a written plan describing how it 
would use the waiver to meet the clinical needs of its assigned 
beneficiaries. We would reserve the right to deny or revoke a waiver to 
an ACO if it is not in compliance with requirements under the Shared 
Savings Program or if it does not successfully meet the quality 
reporting standard. ACOs with approved waivers would be required to 
post their use of the waivers as part of public reporting (see Sec.  
425.308) on the dedicated ACO Web page. Use of the waiver and its 
authorization by the governing body would be required to be documented, 
and documentation retained, consistent with Sec.  425.314. We would 
anticipate that any waiver would be effective on the start date of the 
ACO's participation agreement and would not extend beyond the end of 
the ACO's participation in the Shared Savings Program. However, if CMS 
terminates the participation agreement, then the waiver would end on 
the date of the termination notice. We would also reserve the authority 
to withdraw the waiver in the event we determine that there has been an 
abuse of the waiver. The proposed payment waivers would not protect 
financial arrangements between ACOs, ACO participants, ACOs providers/
suppliers, or other individuals or entities providing services to ACO 
patients from liability under the fraud and abuse laws or any other 
applicable laws.
    We note that we would retain the right to monitor and audit the use 
of such waivers. We would anticipate implementing heightened monitoring 
of entities that bill under payment waivers to help reduce the 
possibility for abuse of the waiver. We seek comment on what specific 
activities should be monitored to ensure that items and services are 
properly delivered to eligible patients, and that patients are able to 
exercise freedom of choice and are not being steered inappropriately. 
We would also likely consider monitoring ACOs' marketing of services 
subject to payment waivers to prevent coercive or misleading marketing 
and to assess the effect on the delivery of care.
    We invite comments on whether it is necessary to waive the 
homebound requirement under the home health benefit using our authority 
under Section 1899(f) of the Act for ACOs that choose to participate in 
the Shared Savings Program under two-sided performance risk financial 
arrangements. We also welcome comments on the potential waiver 
requirements discussed previously. For example, what criteria would be 
appropriate to determine eligibility for such a waiver under the Shared 
Savings Program? Are there specific categories of providers or 
beneficiaries to whom the waiver should (or should not) apply? If 
implemented under a two-sided performance-based risk model, are there 
additional protections for the Medicare Trust Funds or for 
beneficiaries that should be considered? How would a waiver complement 
Medicare payment for physician home visits for medically complex 
patients? What considerations, if any, should we take into account when 
adapting current 60-day episode payment amounts that require patients 
to be homebound in applying them to services furnished to a non-
homebound population? What quality metrics should be incorporated into 
the quality measure framework for ACOs and our monitoring program to 
measure the quality of care for non-homebound home health recipients? 
When should the waiver be applied? Would there be specific 
circumstances when home health services should be available at any 
point without first being triggered by some health event? If so, what 
criteria would be necessary to differentiate these circumstances from 
non-covered custodial care? What other criteria or operational issues 
or other concerns should we also consider? We are also concerned that 
under a homebound waiver, beneficiaries may, in effect, be steered 
toward those agencies that can provide enhanced home health services to 
patients who are not homebound. Any such homebound waiver would not 
override Medicare patients' freedom of choice and that beneficiaries 
would remain free to select any eligible home health agency. We seek 
comments on ways to ensure that beneficiaries retain their freedom of 
choice in practice under a waiver.
    We would also note that the Independence at Home (IAH) 
Demonstration builds on existing Medicare benefits by providing 
chronically ill patients with a complete range of primary care services 
in the home setting. Medical practices led by physicians or nurse 
practitioners provide primary care home visits tailored to the needs of 
beneficiaries with multiple chronic conditions and functional 
limitations. See the CMS Web site at http://innovation.cms.gov/initiatives/independence-at-home/. How could the findings from 
Independence at Home demonstration apply to the population of 
beneficiaries assigned to ACOs or receiving care furnished by ACO 
providers/suppliers?
(4) Waivers for Referrals to Postacute Care Settings
    As a condition of participation (CoP) in Medicare, a hospital must 
have in effect a discharge planning process that applies to all 
patients, as required under Sec.  482.43. The Interpretative Guidelines 
for this requirement found in the State Operations Manual, Publication 
100-07, Appendix A--Survey Protocol, Regulations and Interpretive 
Guidelines for Hospitals, section A-0799, define hospital discharge 
planning as a process that involves determining the appropriate post-
hospital discharge destination for a patient; identifying what the 
patient requires for a smooth and safe transition from the hospital to 
his or her discharge destination; and beginning the process of meeting 
the patient's identified postdischarge needs. Alternative terminology, 
such as ``transition planning'' or ``community care transitions'' is 
preferred by some, since it moves away from a focus primarily on a 
patient's hospital stay to consideration of transitions among the 
multiple types of patient care settings

[[Page 72824]]

that may be involved at various points in the treatment of a given 
patient. This approach recognizes the shared responsibility of health 
care professionals and facilities as well as patients and their support 
persons throughout the continuum of care, and the need to foster better 
communication among the various groups. At the same time, the term 
``discharge planning'' is used both in section 1861(ee) of the Act as 
well as in Sec.  482.43.
    The discharge planning CoP specifically addresses the role of the 
patient, or the patient's representative, by requiring the hospital to 
develop a discharge planning evaluation at the patient's request and to 
discuss the evaluation and plan with the patient. This is consistent 
with the hospital patient's rights CoP regulations at Sec.  
482.13(b)(1) and (2), which provide that the patient has the right to 
participate in the development and implementation of his or her plan of 
care, and to make informed decisions regarding his or her care. 
Accordingly, hospitals must actively involve patients or their 
representatives throughout the discharge planning process. Further, the 
specific discharge planning evaluation requirement to assess a 
patient's capability for post-discharge self-care requires the 
hospital, as needed, to actively solicit information not only from the 
patient or the patient's representative, but also from family, friends, 
or other support persons. The hospital must include in the discharge 
plan, when applicable in terms of the types of post-discharge care 
needs identified, a list of home health agencies (HHAs) or SNFs that 
are available to the patient, that are participating in the Medicare 
program and that serve the geographic area (as defined by the HHA) in 
which the patient resides, or in the case of a SNF, in the geographic 
area requested by the patient. HHAs must request to be listed by the 
hospital as available (see Sec.  482.43(c)(6)) for further details). 
Further, under the CoP regulations at Sec.  482.43(c)(7), a hospital, 
as part of the discharge planning process, must inform the patient or 
the patient's family of their freedom to choose among participating 
Medicare providers of post-hospital care services and must, when 
possible, respect patient and family preferences when they are 
expressed. The hospital must not specify or otherwise limit the 
qualified providers that are available to the patient. The discharge 
plan must identify any HHA or SNF to which the patient is referred in 
which the hospital has a disclosable financial interest, as specified 
by the Secretary, and any HHA or SNF that has a disclosable financial 
interest in a hospital under Medicare (See Sec.  482.43(c)(8)).
    The State Operations Manual (SOM), Appendix A at Section A-0823, 
provides additional guidance for these requirements. During the 
discharge planning process the hospital must inform the patient of his 
or her freedom to choose among Medicare-participating post-hospital 
providers and must not direct the patient to specific provider(s) or 
otherwise limit which qualified providers the patient may choose among. 
Hospitals have the flexibility either to develop their own lists or to 
print a list of skilled nursing facilities and home health agencies in 
the applicable geographic areas from the CMS Web sites, Nursing Home 
Compare (www.medicare.gov/NHcompare) and Home Health Compare 
(www.medicare.gov/homehealthcompare). If hospitals develop their own 
lists, they are expected to update them at least annually (69 FR 
49226). Hospitals may also refer patients and their families to the 
Nursing Home Compare and Home Health Compare Web sites for additional 
information regarding Medicare-certified SNFs and HHAs, as well as 
Medicaid-participating nursing facilities. The data on the Nursing Home 
Compare Web site include an overall performance rating, nursing home 
characteristics, performance on quality measures, inspection results, 
and nursing staff information.
    Home Health Compare provides details about every Medicare-certified 
home health agency in the country. Included on the Web site are quality 
indicators such as managing daily activities, managing pain and 
treating symptoms, treating wounds and preventing pressure sores, 
preventing harm, and preventing unplanned hospital admissions. The 
hospital might also refer the patient and his or her representatives to 
individual State agency Web sites, the Long-Term Care Ombudsman 
Program, Protection and Advocacy Organizations, Citizen Advocacy 
Groups, Area Agencies on Aging, Centers for Independent Living, and 
Aging and Disability Resource Centers for additional information on 
long term care facilities and other types of providers of post-hospital 
care. Having access to the information found at these sources may 
assist beneficiaries and their families and other caregivers in the 
decision making process regarding post-hospital care options. When the 
patient or the patient's family has expressed a preference, the 
hospital must attempt to arrange post-hospital care with an HHA or SNF, 
as applicable, consistent with that preference. If the hospital is 
unable to make the preferred arrangement, (for example, if there is no 
bed available in the preferred SNF), it must document the reason the 
patient's preference could not be fulfilled and explain that reason to 
the patient.
    ACOs and MedPAC have indicated that as ACOs have started to analyze 
claims data on their beneficiaries, they are recognizing that certain 
providers may deliver higher-quality and lower-cost care than others. 
For example, some SNFs may deliver higher-quality care and thus 
appropriately lower rates of readmissions to hospitals. ACOs have 
indicated that they would like to have the ability to recommend high-
quality SNF and HHA providers with whom they have established 
relationships, rather than presenting all options equally. In 
particular, ACOs and their ACO providers/suppliers would like to have 
the ability to clearly state to beneficiaries which providers they 
believe are best and why. However, it is not clear to them that they 
have the authority to do so, especially for referrals to post-acute 
care. ACOs suggest that the ability to make more specific 
recommendations would enable them to build robust networks across the 
continuum of care, and thus help them to give beneficiaries as much 
continuity as possible as they move across sites of care. Therefore, 
ACOs have asked that we provide clear direction on how preferred 
providers can be presented to beneficiaries and what represents clear 
notification of the beneficiary's freedom to choose among participating 
Medicare providers.
    Based on these comments from ACOs and MedPAC, we have reviewed the 
relevant statutory provisions, regulations, and guidance. While we 
believe these materials make clear the requirements regarding how 
preferred providers can be represented to beneficiaries and what 
represents clear notification of beneficiary freedom of choice of 
providers, we believe we have identified one requirement that might be 
need to be waived. Specifically, we are considering whether it might be 
necessary to waive the requirement under section 1861(ee)(2)(H) of the 
Act that a hospital ``not specify or otherwise limit the qualified 
provider which may provide post-hospital home services'' and the 
portions of the hospital discharge planning CoP at Sec.  482.43 that 
implement this requirement, using our waiver authority under Section 
1899(f) of the Act for ACOs participating in two-sided risk tracks 
under the Shared Savings Program. If we were to implement such a 
waiver, we would anticipate making it a very narrow

[[Page 72825]]

waiver. In addition, we are considering whether such a waiver would be 
most appropriately implemented under Track 3 in which there is 
prospective assignment of beneficiaries. Under Track 3 beneficiaries 
would be prospectively assigned to the ACO for the entire year and it 
would thus be clear as to which beneficiaries the waiver applied. As 
mentioned previously, we believe a prospective assignment approach 
creates a potential pathway for improving the appropriate use of 
waivers by ACOs and a method for CMS to monitor its use. In addition, 
under Track 3 there would be greater opportunity for risk. For these 
reasons, we believe that Track 3 is potentially a better candidate for 
such a waiver than Track 2. Another option is that the waiver would 
apply to any FFS beneficiary cared for by the ACO and then the waiver 
could be available to all ACOs participating in a two-sided risk track, 
regardless of whether the assignment is prospective or retrospective. 
Another option would be to apply any waiver to beneficiaries that 
appear on the quarterly lists of preliminarily prospectively assigned 
beneficiaries. In this case, the beneficiaries to whom the waiver 
applies would likely change from quarter to quarter. We would also 
anticipate imposing additional documentation requirements upon those 
ACOs that seek to use the waiver. Specifically, because the Shared 
Savings Program is built on FFS Medicare, and because we continue to 
support and protect beneficiaries' right to choose their providers 
under FFS Medicare, we are not considering a complete waiver of the 
requirement that a hospital, as part of the discharge planning process, 
not specify or otherwise limit the qualified providers that are 
available to the patient. This requirement is reflected in the hospital 
CoPs at Sec.  482.43(c)(7). In other words, under the terms of any 
waiver, hospitals still would be required to inform the patient or the 
patient's family of their freedom to choose among participating 
Medicare providers of post-hospital care services and must, when 
possible, respect patient and family preferences when they are 
expressed. In addition, the hospital must also present a complete list 
and may not limit the qualified providers that are available to the 
patient. However, under a waiver of the prohibition on the 
specification of qualified providers, discharge planners in hospitals 
that are ACO participants or ACO providers/suppliers would have the 
flexibility to recommend high quality post-acute providers with whom 
they have relationships (either financial and/or clinical) for the 
purpose of improving continuity of care across sites of care. Such a 
waiver would not cover a situation in which a post-acute provider paid 
the ACO participant or ACO provider/supplier to be included as a 
recommended post-acute provider. We believe it would be appropriate to 
limit such a waiver to hospitals that are ACO participants or ACO 
providers/suppliers because we believe these entities would have 
incentives that are most directly aligned with those of the ACO. ACOs 
also have stronger control and oversight over such entities and such 
entities are subject to Shared Savings Program requirements. We 
anticipate that under a such waiver discharge planners would be 
required to document that the patient or the patient's family was 
informed of their freedom to choose a provider of post-hospital 
services and presented with a complete list of participating Medicare 
providers of post-hospital care services as well as information 
regarding the Medicare provider of post-hospital care services 
recommended by the discharge planner. We also anticipate that under 
such a waiver discharge planners would be required to document the data 
and the rationale they used as the basis for recommending any specific 
provider of post-hospital services. If implemented across all risk 
tracks, we anticipate it would apply to all FFS beneficiaries receiving 
services from hospitals participating in the ACO. We would additionally 
anticipate requiring the use of certain quality criteria for 
recommended providers (such as requiring that SNFs meet a minimum Star 
rating of 3 or more stars under the CMS 5-Star Quality Rating System as 
reported on the Home Health Compare Web site. For detailed information, 
see http://blog.cms.gov/2014/06/18/star-quality-ratings-coming-soon-to-compare-sites-on-medicare-gov/.) and documentation that the patient or 
the patient's family was informed of the recommended provider's quality 
of care, the clinical and/or financial relationship that the ACO has 
with the recommended provider, and any other reasons why the provider 
is being recommended. Furthermore, we would continue to require that 
the ACO respect the patient or the patient's family's preference 
regarding the choice of post-acute provider. Under such a waiver, we 
would anticipate establishing additional requirements to ensure program 
transparency and help reduce the possibility for abuse of the waiver. 
For example, we would anticipate requiring ACOs to indicate their 
intent to use the waiver in a form and manner specified by CMS, as part 
of either their applications or requests for renewal of their 
participation agreement, and to remain in compliance with program 
rules. To further substantiate an ACO's intent to use the waiver, we 
anticipate requiring that the ACO submit as part of its application 
documentation showing that its governing body has made and duly 
authorized a bona fide determination that the ACO will use the waiver 
(if approved by CMS) and will comply with all requirements of the 
waiver. As part of its application for the waiver, we would require the 
ACO to submit a written plan describing how it would use the waiver to 
meet the clinical needs of its assigned beneficiaries. We would reserve 
the right to deny or revoke a waiver to an ACO if it is not in 
compliance with other requirements under the Shared Savings Program, if 
it does not use the waiver as described in its application, or if it 
does not successfully meet the quality reporting standard. ACOs with 
approved waivers would be required to post their use of the waivers as 
part of public reporting (see Sec.  425.308) on the dedicated ACO Web 
page. Use of the waiver and its authorization by the governing body 
would be required to be documented, and the documentation retained, 
consistent with Sec.  425.314. We would anticipate that any waiver 
would be effective on the start date of the ACO's participation 
agreement and would not extend beyond the end of the ACO's 
participation in the Shared Savings Program. However, if CMS terminates 
the participation agreement, then the waiver would end on the date of 
the termination notice. We also reserve the authority to withdraw the 
waiver in the event we determine that there has been an abuse of the 
waiver. The proposed payment waivers would not protect financial 
arrangements between ACOs, ACO participants, ACOs providers/suppliers, 
or other individuals or entities providing services to ACO patients 
from liability under the fraud and abuse laws or any other applicable 
laws.
    We would retain the right to monitor and audit the use of such 
waivers. We would implement heightened monitoring of entities that bill 
under payment waivers to help reduce the possibility for abuse of the 
waiver. We seek comment on what specific activities should be monitored 
to ensure that items and services are properly delivered to eligible 
patients, and that patients are able to exercise freedom of choice and 
are not being steered inappropriately. We would also likely

[[Page 72826]]

consider monitoring ACOs' marketing of services subject to payment 
waivers to prevent coercive or misleading marketing and to assess the 
effect on the delivery of care.
    We seek comment on this potential approach to using our waiver 
authority to permit ACOs flexibility in specifying certain Medicare 
providers of post-hospital care services to patients and their 
families. We further seek comment on the criteria discussed above. Are 
there other cost and quality criteria that should be considered? 
Specifically to what hospitals and post-hospital providers should the 
waiver apply? For example, as discussed above, should the ability to 
recommend a post-hospital provider be available only to those hospitals 
that are ACO participants or ACO provider/suppliers, since these 
entities would have incentives that are most directly aligned with 
those of the ACO? Should a hospital be permitted to recommend any post-
hospital provider or only post-hospital providers that are ACO 
participants or ACO provider/suppliers? We anticipate that if a waiver 
is found to be necessary, we would establish a waiver that would apply 
to all hospitals that are ACO participants or ACO providers/suppliers 
and that these hospitals would have the ability to recommend any post-
hospital provider; however, we would be interested to receive comments 
on alternative approaches.
    Overall, we are supportive of hospitals recommending certain post-
hospital providers based on quality and a beneficiary's specific needs, 
as long as the beneficiaries understand their other options and retain 
their freedom of choice. In the event a waiver is found to be 
necessary, are there other parameters that should be established around 
how hospitals formulate their lists of post-acute providers and what 
information would be shared with beneficiaries? Under such a waiver 
would it be appropriate for hospitals to share only information on 
quality that is publically reported, such as on Home Health Compare, or 
would it be appropriate for hospitals to also share information that 
they have generated internally? We would be concerned if hospitals 
might steer beneficiaries to providers based on quality information 
that has not been properly vetted. Also, we would be concerned if 
hospitals recommended only their partnering providers, when there may 
be other providers of equal or better quality. Since the CoP 
requirements apply to all patients of a participating hospital 
regardless of their insurer or insured status, we are also seeking 
comment on whether it would be feasible to implement a system where the 
CoP requirement to not make recommendations is waived for the ACO 
participating hospitals only in the case of certain Medicare FFS 
beneficiaries. We are further seeking comments on whether it might be 
necessary for purposes of carrying out the Shared Savings Program and 
what benefits and risks might arise for non-Medicare inpatients if we 
were to waive this portion of the regulation for ACO participating 
hospitals with respect to all of their patients. We welcome comments on 
whether it would be appropriate to limit any such a waiver to ACOs 
participating under two-sided risk financial arrangements, or whether 
such a waiver should be available more broadly to all ACOs 
participating in the Shared Savings Program. Alternatively, should the 
waiver apply only to beneficiaries that are prospectively assigned to 
ACOs participating in Track 3? What operational considerations/concerns 
would implementation of such a waiver raise? What additional 
beneficiary protections and safeguards should be considered and put in 
place to prevent abuse of such a waiver?
(5) Waiver of Other Payment Rules
    We welcome suggestions on whether there are any additional Medicare 
FFS payment rules that it may be necessary to waive using our authority 
under section 1899(f) of the Act in order to effectively implement two-
sided risk financial arrangements under the Shared Savings Program by 
providing additional mechanisms for ACOs to increase quality and 
decrease costs. We would establish any such waivers through the 
rulemaking process. As a result, any suggestions submitted by 
commenters would be helpful to CMS in developing future proposals 
regarding the waiver of any Medicare FFS rules that might be necessary 
to carry out the provisions of the Shared Savings Program, and in 
particular to implement two-sided risk models under the program.
b. Other Options for Improving the Transition to Two-Sided Performance-
Based Risk Arrangements
(1) Beneficiary Attestation
    Under 1899(c) of the Act, beneficiaries are required to be assigned 
to an ACO participating in the Shared Savings Program based on the 
beneficiary's utilization of primary care services rendered by 
physicians. Thus, beneficiary choice, as indicated by their utilization 
of primary care service furnished by physicians, must determine 
beneficiary assignment to an ACO under the Shared Savings Program. 
Therefore, we developed a methodology for assigning beneficiaries based 
on whether the ACO provided the plurality of the beneficiary's primary 
care during a particular performance year. In the November 2011 final 
rule (76 FR 67851 through 67870), we outlined the major considerations 
in beneficiary assignment to an ACO.
    First, we emphasized that unlike managed care programs, Medicare 
FFS beneficiaries do not enroll in the Shared Savings Program, and they 
retain the right to seek treatment from any Medicare-enrolled provider 
of their choosing. Thus, the ``assignment'' methodology in no way 
implies a lock-in or enrollment process. To the contrary, the statutory 
term ``assignment'' in this context refers only to an operational 
process by which we determine whether a beneficiary has chosen to 
receive a sufficient level of the requisite primary care services from 
a specific ACO so that the ACO may be appropriately designated as being 
accountable for that beneficiary's care, and we can measure its quality 
and financial performance on patients for whom it is in the best 
position to direct and influence their care. No exclusions or 
restrictions based on health conditions or similar factors are applied 
in the assignment of Medicare FFS beneficiaries.
    Additionally, we noted that the statute requires that assignment be 
based on beneficiary utilization of primary care services furnished by 
physicians. We explored several options for assigning beneficiaries to 
an ACO based on whether the beneficiary received the plurality of 
primary care services from providers and suppliers participating in the 
ACO. The primary options we considered were whether to assign 
beneficiaries to an ACO prospectively, at the beginning of the 
performance year, or whether to assign beneficiaries to an ACO 
retrospectively, at the end of the performance year.
    Under the retrospective approach, the ACO would be held accountable 
for beneficiaries that chose to receive the plurality of their primary 
care services from practitioners in the ACO during the course of the 
performance year. These beneficiaries necessarily would be identified 
at the end of the performance year. The advantage of this approach is 
that the ACO is assessed based on beneficiaries with whom its providers 
and suppliers had visits with during the performance year and had the 
greatest opportunity to impact care. Another advantage is that this 
methodology encourages organizations to improve care for all Medicare 
FFS

[[Page 72827]]

patients seen by ACO professionals during a performance year. The 
disadvantage that some ACOs have articulated is that retrospective 
assignment can pose challenges when an organization has limited 
resources. Such organizations may prefer to target specific FFS 
beneficiaries for enhanced care improvement activities, and be 
confident that those specific beneficiaries will be the population used 
to determine the ACO's performance on cost and quality at the end of 
the year.
    Under a prospective assignment approach, a beneficiary's 
utilization of primary care services during a timeframe prior to the 
start of the performance year would be used to assign a list of 
beneficiaries to the ACO at the beginning of a particular performance 
year (as we have proposed under Track 3). The total cost and quality of 
the care furnished to beneficiaries on the prospective assignment list 
would be used at the end of the performance year to determine the ACO's 
performance. As some ACOs have articulated, an advantage to this 
approach is that the organization can target its resources and care 
coordination activities to the specific FFS beneficiaries that appear 
on the prospective assignment list, confident that these are the 
beneficiaries that will determine the ACO's quality and efficiency 
performance at the end of the year. However, in the November 2011 final 
rule, we discussed several disadvantages to this approach. First, we 
believed that such an approach would erode the incentive for ACOs to 
improve their care processes to benefit the broader Medicare FFS 
population served by the ACO and its ACO participants and ACO 
providers/suppliers. We stated that since the goal of the Shared 
Savings Program is to change the care experience for all FFS 
beneficiaries, ACO participants and ACO provider/suppliers should have 
incentives to treat all patients equally; using standardized evidence-
based care processes, to improve the quality and efficiency of the care 
they provide to all FFS beneficiaries (76 FR 67861). Second, we noted 
that since FFS beneficiaries retain the freedom to choose their 
providers, it was likely that some prospectively assigned beneficiaries 
would choose not to obtain the plurality of their primary care services 
from ACO professionals during the performance year; however, the ACO 
would still be held accountable for the total cost and quality of the 
care furnished to those beneficiaries.
    After considering stakeholder comments on these main approaches, we 
finalized a hybrid policy that provided for a preliminary prospective 
assignment methodology with final retrospective reconciliation (76 FR 
67867). We finalized this hybrid approach in an effort to realize the 
most positive aspects of both prospective and retrospective assignment 
and avoid, to the extent possible, the major disadvantages of each. 
Therefore, we finalized a policy in which we prospectively assign 
beneficiaries to ACOs in a preliminary manner at the beginning of a 
performance year based on most recent 12 months of data. We then update 
this information quarterly, based on a rolling 12 months of data. Final 
assignment is determined after the end of each performance year based 
on the 12 months of data from the performance year. This policy 
determines assignment to an ACO under the Shared Savings Program based 
on a statistical determination of a beneficiary's utilization of 
primary care services, rather than on a process of enrollment or 
``voluntary selection'' by beneficiaries. Beneficiaries are assigned to 
no more than one ACO, and the specific methodology (the ``step-wise'' 
approach) is described in Sec.  425.402. We finalized this policy 
because we believed that the methodology would balance beneficiary 
freedom to choose providers under FFS Medicare with the ACO's desire to 
have information about the FFS beneficiaries that were likely to be 
assigned at the end of the performance year. We also felt this approach 
would provide adequate incentives for each ACO to redesign care 
processes for and provide high quality care to its entire FFS 
beneficiary population instead of just focusing on a subset of 
patients. Finally, the ACO's performance would be assessed on the basis 
of the care furnished to those beneficiaries that chose to receive the 
plurality of primary care services from ACO professionals during the 
performance year, and for whom the ACO had the greatest opportunity to 
impact care.
    A retrospective claims-based assignment methodology necessarily 
creates more year-to-year variability or ``churn'' in the list of 
assigned beneficiaries compared to managed care programs where patients 
enroll in and are locked in at the beginning of the year. Based on our 
experience and the data generated from the Physician Group Practice 
Demonstration (which used a similar retrospective assignment 
methodology), approximately 75 percent of beneficiaries assigned at the 
end of one performance year remained assigned at the end of the next 
performance year. The other 25 percent of beneficiaries were no longer 
assigned to the PGP site because they either were no longer eligible to 
be assigned or chose not to receive the plurality of their primary care 
services from the PGP practitioners. This statistic was recently 
confirmed when evaluating ``churn'' in the Shared Savings Program 
context. On average, 76 percent (range = 58 percent to 88 percent) of 
beneficiaries assigned to a Shared Savings Program ACO at the end of 
one year are assigned to the same ACO at the end of the subsequent 
performance year. In other words, ACOs experience a ``churn rate'' of 
24 percent on average. However, when combined with the information 
provided on quarterly updates to the assigned beneficiary list, 
``churn'' from quarter to quarter decreases to an average of 10 
percent. In other words, on average, 91 percent of the beneficiaries 
assigned in one quarter appear on the next quarter's assignment list 
(range = 77 percent to 95 percent). These data indicate that ``churn'' 
varies from ACO to ACO, and that our hybrid assignment methodology 
performed according to expectations, that is, the quarterly assignment 
reports provide the ACO with relevant information during the 
performance year about its patient population for purposes of more 
effectively planning and coordinating care.
    As in the PGP demonstration, the 24 percent ``churn rate'' found in 
the Shared Savings Program reflects beneficiaries that either became 
ineligible to be assigned or chose not to receive the plurality of 
their primary care services from ACO professionals. Beneficiaries who 
were assigned in one performance year, but fall off the assignment list 
at the end of the subsequent performance year may do so for a variety 
of reasons including:
     Beneficiary did not seek primary care services from any 
Medicare-enrolled physicians during the subsequent performance year.
     Beneficiary chose to receive all primary care services or 
the plurality of his or her primary care services from providers 
outside the ACO during the subsequent performance year. Reasons for 
this could include:
    ++ The beneficiary received short term care (for example, referral 
care, SNF care) from ACO professionals during the earlier performance 
year but did not continue the relationships in the subsequent year.
    ++ Beneficiary moved his/her residence and now seeks care from 
practitioners unaffiliated with the ACO.
     Beneficiary chose to enroll in MA or is otherwise no 
longer a FFS Medicare beneficiary in the subsequent

[[Page 72828]]

performance year (that is, the beneficiary is no longer eligible for 
assignment).
     A new ACO entered the market in the subsequent performance 
year and its ACO professionals furnish the plurality of primary care 
services to the beneficiary compared to the established ACO.
    We estimate that on average, 76 percent of beneficiaries assigned 
to a Shared Savings Program ACO remain assigned from one year to the 
next. However, the retention rate varies from 58 percent to 88 percent 
across ACOs, and correspondingly, the turnover varies from 12 percent 
to 42 percent. On average, 7 percent of previously assigned 
beneficiaries are no longer eligible for assignment to an ACO and 17 
percent of previously assigned beneficiaries remain eligible to be 
assigned, but do not receive the plurality of their primary care 
services from ACO professionals the ACO during the subsequent 
performance year. Of the 17 percent of previously assigned 
beneficiaries who remain eligible for assignment--
     Six percent had at least one primary care physician visit 
with a physician who is an ACO professional, but the plurality of their 
primary care services were rendered outside the ACO;
     Three percent had no physician or non-physician primary 
care visits during the subsequent year;
     Seven percent had at least one physician or non-physician 
primary care visit, but none with ACO professionals;
     One percent had at least one non-physician primary care 
visit with an ACO professional, but had no primary care visits with 
physicians who are ACO professionals in the ACO; and
     Seven percent had at least one primary care visit with a 
physician in the ACO, but did not receive the plurality of their 
primary care services from ACO professionals.
    As suggested by these statistics, some percentage of beneficiaries 
may believe a certain primary care practitioner affiliated with an ACO 
has ultimate responsibility for coordinating their care, even when it 
is necessary for them to receive primary care services from other 
practitioners, including practitioners who are not participating in the 
same ACO with which the practitioner is affiliated. Such a beneficiary 
could become unassigned if his or her primary care service utilization 
shifted away from practitioners in the ACO in a year. For example, a 
beneficiary living in a small town may have had a primary care service 
visit during a performance year with a primary care provider who is an 
ACO professional with whom the beneficiary has a long-standing 
relationship and the beneficiary believes this ACO professional is 
responsible for coordinating his/her care. If this beneficiary chooses 
to go to a large health system in the next town for primary care 
services and receives primary care services from practitioners that are 
unaffiliated with the ACO during the performance year, at the end of 
the performance year it may be determined that ACO professionals did 
not render the plurality of the primary care services for that 
beneficiary and therefore the ACO would not be held accountable for the 
total quality and cost of the beneficiary's care for that performance 
year. However, commenters have suggested that beneficiaries should have 
the ability to designate which providers (and by extension, the ACOs 
with which they are affiliated) are responsible for overseeing their 
overall care, regardless of where the beneficiary received the 
plurality of his or her primary care services. These commenters argue 
that creating a methodology that takes into account what provider a 
beneficiary believes has ultimate responsibility for his or her care 
could reduce ``churn'' from year to year, and increase the chances that 
an ACO would see a return on the investments it makes in the care of 
specific beneficiaries. Commenters argue this is particularly important 
in two-sided models where ACOs face amplified levels of performance-
based risk.
    Patient advocacy groups and ACOs have expressed interest in and 
support for enhancing claims-based assignment of beneficiaries to ACOs 
by taking into account beneficiary attestation regarding the provider 
that they consider to be responsible for coordinating their overall 
care. Stakeholders believe that incorporating this information and 
giving beneficiaries the opportunity to voluntarily ``align'' with the 
ACO in which their primary healthcare provider participates will 
improve the patient-centeredness of the assignment methodology.
    To begin to address these concerns, the Pioneer ACO Model is 
currently conducting a test of beneficiary attestation for the 2015 
performance year. Specifically, the Innovation Center has designed a 
test in which participating ACOs mail cover letters to beneficiaries 
aligned to the Pioneer ACO in either the 2013 or 2014 performance 
years, explaining the process by which a beneficiary may indicate whom 
they consider to be their ``main doctor'', each with a form that asks 
the beneficiary to confirm their ``main doctor''. In the form the 
beneficiary is asked to confirm whether or not the listed provider or 
supplier is their ``main doctor.'' Beneficiaries who confirm a care 
relationship with the provider/supplier listed on the form (who is an 
ACO participating provider/supplier identified by the Pioneer ACO) and 
meet all other eligibility criteria for alignment (or example, they did 
not drop either Part A or B coverage or join a MA plan), would be 
aligned to the Pioneer ACO for the following performance year, 
regardless of whether or not the practitioners participating in the 
Pioneer ACO rendered the plurality of the beneficiary's primary care 
services during the performance year. The Innovation Center will 
conduct claims-based attribution using the methodology established for 
the Pioneer ACO Model, but will include in the Pioneer's aligned 
beneficiary population not only those beneficiaries aligned through 
claims, but also those beneficiaries who returned the form confirming 
that a Pioneer ACO provider/supplier is their main doctor. 
Beneficiaries who do not return the form or who return the form, but 
indicate the provider listed is not their main doctor, will not be 
included in the ACO's assigned beneficiary population unless they are 
assigned through the existing claims-based attribution methodology. 
This means that if the beneficiary does not return the form and the 
beneficiary is not assigned to the Pioneer ACO through the claims-based 
attribution methodology, then the beneficiary would not be assigned to 
the Pioneer ACO.
    Due to program integrity concerns and the additional administrative 
burden for ACOs participating in the Pioneer Model, discussions of 
beneficiary attestation or receipt of confirmation forms at the point 
of care were precluded under this first test of beneficiary 
attestation. Rather, in this initial test, the Innovation Center seeks 
only to evaluate the effectiveness of different types of mailed forms 
with respect to beneficiary willingness to attest that a particular 
practitioner has the primary responsibility for their care. Additional 
testing in the future is planned under the Pioneer ACO Model that will 
build upon lessons learned from this initial test and in which we would 
seek to enhance the meaningfulness of dialogue between beneficiaries 
and their providers regarding the nature of the care relationship.
    Although we are not making any specific proposals related to 
beneficiary attestation, we welcome comments on

[[Page 72829]]

whether it would be appropriate to offer a beneficiary attestation 
process to ACOs that choose to participate in the Shared Savings 
Program under two-sided risk financial arrangements. We intend to 
carefully consider any comments on this issue during the development of 
the final rule, and will make an assessment at that time as to whether 
any change to our assignment methodology to include beneficiary 
attestation would be appropriate. We are interested in receiving 
comments and suggestions on a wide variety of policy and operational 
issues related to beneficiary attestation. For example, which 
beneficiaries should be eligible to attest into an ACO? Should this 
option be available to all beneficiaries or only to currently or 
previously aligned beneficiaries? What implications would attestation 
or voluntary alignment have for the assignment of beneficiaries to an 
ACO under a prospective versus a preliminary prospective method? Which 
types of care relationships should be considered--those with primary 
care physicians, specialists or other types of providers? How should 
beneficiaries receive communications about claims-based and voluntary 
alignment and who would provide the information? What method or process 
should be used to obtain beneficiary confirmation and when would this 
occur? Under what circumstances and how could beneficiaries reverse 
their decisions? Although we believe the option suggested would protect 
beneficiary freedom to choose, we seek comment on whether there are 
additional ways to protect beneficiaries from coercion and ensure 
proper monitoring and safeguards under the Shared Savings Program. What 
implications would there be for ACO information or other administrative 
systems? What provider education would be needed? Should there be 
additional application or eligibility requirements for ACOs in tracks 
under which beneficiary attestation is offered? We would note that if 
we were to offer a beneficiary attestation process for ACOs that choose 
to participate in the Shared Savings Program under two-sided risk 
financial arrangements, such beneficiaries would be eligible to be 
included in the sample for GPRO quality reporting by ACOs participating 
in the Shared Savings Program (76 FR 67900), even if the beneficiary 
did not chose to receive care from the ACO professionals during the 
performance year, as might be the case under Track 3 under the proposed 
prospective assignment methodology. Also, we are concerned about 
creating additional administrative burdens for ACOs that might 
discourage them from accepting two-sided risk arrangements. Are there 
ways that beneficiary attestation could be operationally implemented to 
reduce administrative burdens on ACOs and CMS and limit beneficiary 
confusion? We anticipate that if we were to offer a beneficiary 
attestation process for ACOs that choose to participate in the Shared 
Savings Program under two-sided risk financial arrangements, then at 
least initially we would anticipate implementing this beneficiary 
attestation in a manner consistent with the current beneficiary 
attestation under the Pioneer ACO Model. We believe this would be an 
appropriate starting point for beneficiary attestation under the Shared 
Savings Program because it allows us to take advantage of the policies 
and processes that have already been developed for the Pioneer ACO 
Model. Additionally, we believe it is unlikely that such a policy would 
impact ``churn'' for Track 3 ACOs during a performance year, given our 
proposals for prospectively assigning beneficiaries. However, 
beneficiary attestation may have a minor impact on ``churn'' during a 
performance year related to the preliminary prospective with 
retrospective reconciliation approach such as the methodology employed 
under Track 2. This process may also have a minor impact in stabilizing 
the beneficiary assignment list from one performance year to the next 
for all ACOs.
    In addition, we seek comments on whether a beneficiary attestation 
process under the Shared Savings Program could bias performance year 
results compared to the ACO's benchmark. For example, we believe that 
such biases could occur because the beneficiaries used to establish 
performance benchmarks would not have had the same opportunity to 
designate their ``main doctor.'' Rather, for purposes of the benchmark 
years, all beneficiaries would be assigned using the established 
claims-based assignment methodology. Would it be appropriate for us to 
use our authority to adjust an ACO's benchmark to account for 
``beneficiary characteristics'' to address any such potential biases?
    In connection with any implementation of beneficiary attestation, 
we would revise our regulations as necessary, to protect beneficiaries 
from undue coercion or influence in connection with whether they choose 
to attest or not. Beneficiary attestation is not intended to be used as 
a mechanism for ACOs (or ACO participants, ACO providers/suppliers, ACO 
professionals, or others) to target potentially lucrative beneficiaries 
or avoid those less likely to produce savings. To this end, we do not 
believe ACOs or others should be permitted to offer gifts or other 
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 Sec.  
425.304(a)(1) prohibit ACOs, ACO participants, ACO providers/suppliers, 
and other individuals or entities performing functions or services 
related to ACO activities from providing gifts or other remuneration to 
beneficiaries as inducements for receiving items or services from, or 
remaining in, an ACO. The regulation at Sec.  425.304(a)(2) permits 
certain in-kind items or services to be provided to beneficiaries if 
there is a reasonable connection between the items and services and the 
medical care of the beneficiary and certain other conditions are met. 
We would consider any inducement intended to coerce or influence a 
beneficiary attestation decision to be prohibited under Sec.  
425.304(a)(1) and not be considered reasonably connected to medical 
care under Sec.  425.304(a)(2). We would not, however, prohibit an ACO 
or its ACO participants and ACO providers/suppliers from providing a 
beneficiary with accurate descriptive information about the potential 
patient care benefits of aligning with an ACO. We are also soliciting 
comments on this issue.
(2) Seeking Comment on a Step-Wise Progression for ACOs To Take on 
Performance-Based Risk
    Under the current Shared Savings Program rules, an ACO may not 
include an entity on its list of ACO participants unless all ACO 
providers/suppliers billing through the entity's Medicare-enrolled TIN 
have agreed to participate in the program and comply with the program 
rules (see discussion in section II.B. of this proposed rule). 
Furthermore, it is not possible under our current regulations for some 
ACO providers/suppliers to participate in Track 1, while other ACO 
providers/suppliers that may be more ready to accept performance-based 
risk participate under Track 2. Some stakeholders have commented that 
requiring all ACO providers/suppliers billing through an ACO 
participant TIN to participate in the same risk track could deter some 
ACOs from entering higher risk arrangements (Tracks 2 or 3) if they do 
not believe that all of the ACO providers/suppliers billing through a 
given ACO participant TIN are prepared to operate under high levels of 
risk.

[[Page 72830]]

Conversely, we have heard from other stakeholders that requiring all 
ACO providers/suppliers billing though an ACO participant TIN to enter 
the same risk track can motivate an organization to work toward a 
common performance goal and implement uniform care processes that 
streamline patient care within and between various sites of care. We 
believe that the program works best when the incentives within an 
organization are aligned among all providers and suppliers in that 
organization. Given our policy objectives to encourage ACOs to redesign 
their care processes and move to increasing levels of financial risk, 
we are not proposing at this time to change our regulations in order to 
allow providers and suppliers billing through the same ACO participant 
TIN to participate in different tracks under the Shared Savings 
Program. However, we are interested in stakeholder opinion on this 
issue and seek comment on what options the program might consider in 
the future to encourage organizations to participate in the program 
while permitting the providers and suppliers within that organization 
to accept varying degrees of risk. In particular, we are interested in 
stakeholders' input on the advantages and disadvantages of allowing 
Shared Savings Program ACOs that wish to enter a track with increased 
risk to split their ACO participants into different tracks or split ACO 
provider/suppliers billing through a given Medicare-enrolled TIN so 
that a subset participate in a track that offers a higher sharing rate 
in exchange for taking on a greater degree of performance-based risk, 
while the remainder participate in a lower risk track. We intend to 
carefully review any comments that are received on these issues during 
the development of the final rule and will make an assessment at that 
time as to whether any change to our current policy is necessary and 
appropriate.
    For reasons already stated in the November 2011 final rule (76 FR 
67808 through 67811), we believe it is appropriate to use the Medicare-
enrolled TINs that make up each ACO as the basis for a number of 
operational processes under the Shared Savings Program, including 
beneficiary assignment, and that, as a result, all providers and 
suppliers billing through the TIN of an ACO participant must agree to 
participate in the ACO and comply with program regulations in order for 
the ACO to include the entity on its ACO participant list. Therefore, 
we do not believe it would be necessary or ideal to adopt an approach 
under which ACOs would be permitted to pick and choose ACO provider/
suppliers for participation. However, we are considering ways to 
encourage organizations to move in a step-wise progression to taking on 
performance-based risk when some entities on its ACO participant list 
are ready. Therefore, if we were to make modifications to our current 
policies to permit organizations to split their ACO participant TIN 
list into different risk tracks, we would anticipate the following:
     The ACO must have completed a full agreement period under 
Track 1 and meet requirements for renewing its agreement under Track 1 
as proposed in this proposed rule.
     The ACO must submit an ACO participant list in the form 
and manner designated by CMS and by a deadline established by us.
     The ACO must indicate, in the form and manner specified by 
CMS, which ACO participants would continue under Track 1 and which 
would participate under a performance-based risk track. We would 
consider this list to be a ``segmented list'' of ACO participants.
     The ACO as a whole would be required to meet the 
eligibility requirements to participate in the program, including the 
requirement that the ACO have at least 5,000 assigned beneficiaries and 
the governance requirements.
     Regarding quality measures submission, we considered 
whether the ACO as a whole would be responsible for submitting quality 
data in accordance with subpart F of the Shared Savings Program 
regulations. On the one hand, the ability of the ACO to report quality 
measures once on behalf of both segmented lists would reduce quality 
reporting burden with the same aggregate quality score applying to each 
segment of the ACO participants. On the other hand, if each segmented 
list was required to report quality separately, we may be able to get a 
more accurate assessment of the quality of care by each segmented list 
leading to a more accurate determination of shared savings or losses.
     Regarding benchmarking and assignment of beneficiaries, we 
considered whether each half of the segmented list of ACO participants 
would have its own benchmark and list of assigned beneficiaries. Under 
this option, the two groups of ACO participants would each receive 
their own performance reports from CMS and be subject to the data 
sharing rules appropriate for their track, and the determination of 
shared savings would occur according to the rules of the chosen track. 
Another option would be to develop one benchmark and list of assigned 
beneficiaries for the ACO as a whole. This option would require a 
uniform assignment methodology to be applied, regardless in which track 
the segmented lists are participating. Alternatively, we could limit 
segmented lists to participation in only Tracks 1 and 2 because these 
tracks have an assignment methodology that does not conflict.
     Regarding changes in the ACO participant lists during the 
agreement period, we considered whether an ACO would be permitted to 
add or delete ACO participants from the segmented list of ACO 
participants. One option considered would be to permit an ACO to add or 
delete ACO participants from the segmented lists pursuant to the 
proposed regulation at Sec.  425.118(b), but ACO participants would not 
be permitted to change risk tracks during the agreement period. Another 
option we considered and seek specific comments on is the option to 
require such organizations to articulate and carry out the transition 
of their Track 1 ACO participants to the list of ACO participants that 
are under a risk-based arrangement during the course of the agreement 
period. For example, in each year of the agreement period, the ACO 
would be required to remove ACO participants from the Track 1 list and 
add them to the list of ACO participants under the two-sided risk 
model. In this way, the ACO and its ACO participants would be better 
prepared to reapply to the Shared Savings Program under a two-sided 
risk model in its third agreement period.
    Although we are not specifically proposing to allow for different 
risk tracks within the same ACO, we seek comments on these options and 
other considerations for permitting organizations to move forward to 
performance-based risk in a step-wise manner. We specifically seek 
comment on ways to mitigate selection bias when considering these 
options, in other words, we seek comment on whether additional 
considerations should be made with regards to organizations that may 
choose to create two different ACO participant lists in an effort to 
advantage the part of the organization that is participating in the 
two-sided model at the expense of the part of the organization 
participating in the one-sided model. We believe the concern is 
minimized by the option we considered that we would only make this 
option available under an ACO's second agreement period. Moreover, we 
note that our proposed criteria for renewal include a review of the 
ACO's history of program integrity. We intend to

[[Page 72831]]

carefully review any comments that are received on these issues during 
the development of the final rule and will make an assessment at that 
time as to whether any change to our current policy is necessary and 
appropriate.
5. Modifications to Repayment Mechanism Requirements
a. Overview
    In the November 2011 final rule (76 FR 67937), we discussed the 
importance of a program requirement that ensures ACOs entering the two-
sided model will be capable of repaying Medicare for shared losses. The 
final rule established a requirement that ACOs applying to participate 
in the two-sided model must establish a repayment mechanism to assure 
CMS that they can repay losses for which they may be liable (Sec.  
425.204(f)). For an ACO's first performance year, the repayment 
mechanism must be equal to at least 1 percent of its total per capita 
Medicare Parts A and B FFS expenditures for its assigned beneficiaries, 
as determined based on expenditures used to establish the ACO's 
benchmark (Sec.  425.204(f)).
    Further, to continue participation in the program, each Track 2 ACO 
must annually demonstrate the adequacy of its repayment mechanism 
before the start of each performance year in which it takes risk (Sec.  
425.204(f)(3)). The repayment mechanism for each performance year must 
be equal to at least 1 percent of the ACO's total per capita Medicare 
Parts A and B FFS expenditures for its assigned beneficiaries, as 
determined based on expenditures for the ACO's most recent performance 
year.
    An ACO may demonstrate its ability to repay losses, or other monies 
determined to be owed upon first year reconciliation, by obtaining 
reinsurance, placing funds in escrow, obtaining surety bonds, 
establishing a line of credit (as evidenced by a letter of credit that 
the Medicare program can draw upon), or establishing another 
appropriate repayment mechanism that will ensure its ability to repay 
the Medicare program (Sec.  425.204(f)(2)). Given our experience in 
implementing the program, we are proposing to revisit our requirements 
to simplify them and to address stakeholder concerns regarding the 
transition to risk, as discussed in the previous sections.
b. Proposals for Amount and Duration of the Repayment Mechanism
    As noted previously, under the current regulations, ACOs entering a 
two-sided risk track must submit an adequate repayment mechanism at the 
time of application and again at the beginning of each performance 
year. The amount must be equal to at least 1 percent of the ACO's total 
per capita Medicare Parts A and B FFS expenditures for its assigned 
beneficiaries, as determined based either on expenditures used to 
establish the ACO's benchmark or expenditures for the ACO's most recent 
performance year. This amount is estimated by CMS and reported to the 
ACO so that it can set up its required mechanism. We have heard from 
stakeholders that establishing multiple repayment mechanisms during the 
agreement period can be very burdensome and ties up capital that could 
otherwise be used to support ACO operations. Therefore, we have 
considered whether it would be possible to streamline the repayment 
mechanism requirements. Specifically, we considered whether it would be 
feasible for an organization to establish a single repayment mechanism 
to cover the entire 3-year agreement period. Initially we were 
concerned that requiring an organization to establish a single 
repayment mechanism to cover 3 performance years would involve 
repayment amounts that were excessive and overly burdensome for 
organizations. However, our actuaries have determined that this may not 
be the case. We believe that rather than requiring ACOs to create and 
maintain two separate repayment mechanisms for two consecutive 
performance years, which would effectively double the amount of the 
repayment mechanism during the overlapping time period between the 
start of a new performance year and settlement of the previous 
performance year, the repayment mechanism that is established for the 
first performance year of an agreement period under a two-sided risk 
model can be rolled over for subsequent performance years.
    Thus, we propose to require an ACO to demonstrate at the time of 
its application to the Shared Savings Program or participation 
agreement renewal for a two-sided risk model and upon request 
thereafter that it would be able to repay shared losses incurred at any 
time within the agreement period, that is, upon each performance year 
reconciliation during the agreement period. Thus, an ACO would be 
required to establish a repayment mechanism for the required amount as 
discussed in this section to cover the entire agreement period under a 
two-sided risk model (that is, under Track 2 or under proposed Track 3) 
and a reasonable period of time after the end of the agreement period 
(the ``tail period''). The tail period shall be sufficient to permit 
CMS to calculate the amount of any shared losses that may be owed by 
the ACO and to collect this amount from the ACO. The length of the tail 
period shall be established by CMS in guidance.
    Under this approach, an ACO would be required to establish a 
repayment mechanism once at the beginning of a 3-year agreement period. 
We propose that an ACO must demonstrate the adequacy of its repayment 
mechanism and maintain the ability to repay 1 percent of the ACO's 
total per capita Medicare Parts A and B FFS expenditures for its 
assigned beneficiaries based on the expenditures used to establish the 
benchmark for the applicable agreement period, as estimated by CMS at 
the time of application or participation agreement renewal. If the 
repayment mechanism is used to repay any portion of shared losses owed 
to CMS, the ACO must promptly replenish the amount of funds available 
through the repayment mechanism within 60 days. This would ensure 
continued availability of funds to cover any shared losses generated in 
subsequent performance years. Given that we propose in section II.B. of 
this proposed rule to adjust an ACO's benchmark annually to account for 
changes in the ACO participant list, it is possible that an ACO's 
benchmark could change such that the repayment mechanism amount 
established at the beginning of the 3-year agreement period no longer 
represents one percent of the ACO's benchmark expenditures. Therefore, 
we are considering whether we should require the ACO to adjust the 
repayment mechanism to account for this change, or whether a threshold 
should be established that triggers a requirement for the ACO to add to 
its repayment mechanism. We seek comment on this issue, including the 
appropriate threshold that should trigger a requirement that the ACO 
increase the amount guaranteed by the repayment mechanism.
    These proposals are reflected in the proposed modifications to 
Sec.  425.204(f). We note that the reference to ``other monies 
determined to be owed'' in the current provision directly relates to 
the interim payments that were available in the first performance year 
only for ACOs that started participating in the program in 2012. 
Because interim payments are no longer offered to ACOs, we also propose 
to remove the reference to ``other monies determined to be owed'' from 
Sec.  425.204(f).

[[Page 72832]]

c. Proposals Regarding Permissible Repayment Mechanisms
    Under our current rules, ACOs may demonstrate their ability to 
repay shared losses by obtaining reinsurance, placing funds in escrow, 
obtaining surety bonds, establishing a line of credit (as evidenced by 
a letter of credit that the Medicare program can draw upon), or 
establishing another appropriate repayment mechanism that will ensure 
their ability to repay the Medicare program. Based on our experience 
with the program, we are proposing to remove the option that permits 
ACOs to demonstrate their ability to pay using reinsurance or an 
alternative mechanism. First, no Shared Savings Program ACOs have 
obtained reinsurance for the purpose of establishing their repayment 
mechanism. ACOs that have explored this option have told us that it is 
difficult to obtain reinsurance, in part, because of insurers' lack of 
experience with the Shared Savings Program and the ACO model, and 
because Shared Savings Program ACOs take on performance-based risk not 
insurance risk. Additionally, the terms of reinsurance policies 
obtained by ACOs could vary greatly and prove difficult for CMS to 
effectively evaluate. Second, based on our experience to date, a 
request to use an alternative repayment mechanism increases 
administrative complexity for both ACOs and CMS during the application 
process and is more likely to be rejected by CMS than one of the 
specified repayment mechanisms.
    Therefore, we propose to revise Sec.  425.204(f)(2) to limit the 
types of repayment mechanisms ACOs may use to demonstrate their ability 
to repay shared losses to the following: Placing funds in escrow; 
establishing a line of credit; or obtaining a surety bond. Under this 
proposed revision, ACOs would retain the flexibility to choose a 
repayment mechanism that best suits their organization. We also believe 
that CMS would be more readily able to evaluate the adequacy of these 
three types of arrangements, as compared to reinsurance policies and 
other alternative repayment mechanisms. For instance, escrow account 
agreements, letters of credit, and surety bonds typically have standard 
terms, that CMS can more readily assess as compared to the 
documentation for alternative repayment mechanisms, which tends to be 
highly variable.
    In addition, we propose to clarify that ACOs may use a combination 
of the designated repayment mechanisms, if needed, such as placing 
certain funds in escrow, obtaining a surety bond for a portion of 
remaining funds, and establishing a line of credit for the remainder. 
Thus, we are proposing to revise our rule at Sec.  425.204(f)(2) to 
indicate that an ACO may demonstrate its ability to repay shared losses 
owed by placing funds in escrow, obtaining surety bonds, establishing a 
line of credit, or by using a combination of these mechanisms. We seek 
comment on our proposed modifications to the repayment mechanism 
requirements and also welcome comments on the availability and adequacy 
of reinsurance as a repayment mechanism.
6. Seeking Comment on Methodology for Establishing, Updating, and 
Resetting the Benchmark
a. Background on Establishing, Updating, and Resetting the Benchmark
    Section 1899(d)(1)(B)(ii) of the Act addresses how ACO benchmarks 
are to be established and updated. This provision specifies that the 
Secretary shall estimate a benchmark for each agreement period for each 
ACO using the most recent available 3 years of per beneficiary 
expenditures for parts A and B services for Medicare FFS beneficiaries 
assigned to the ACO. Such benchmark shall be adjusted for beneficiary 
characteristics and such other factors as the Secretary determines 
appropriate and updated by the projected absolute amount of growth in 
national per capita expenditures for parts A and B services under the 
original Medicare fee-for-service program, as estimated by the 
Secretary. Such benchmark shall be reset at the start of each agreement 
period. Accordingly, through the initial rulemaking establishing the 
Shared Savings Program, we adopted policies for establishing, updating 
and resetting ACO benchmarks at Sec.  425.602. As described later in 
this section, under this methodology, we establish ACO-specific 
benchmarks that account for national FFS trends.
    As the statute requires the use of historical expenditures to 
establish an ACO's benchmark, the per capita costs for each benchmark 
year must be trended forward to current year dollars and then a 
weighted average is used to obtain the ACO's historical benchmark for 
the first agreement period. The statute further requires that we update 
the benchmark for each year of the agreement period based on the 
projected absolute amount of growth in national per capita expenditures 
for parts A and B services under the FFS program, as estimated by the 
Secretary. In the April 2011 proposed rule (76 FR 19609 through 19611), 
we considered a variety of options for establishing the trend factors 
used in establishing the historical benchmark and for accounting for 
FFS trends in updating the benchmark during the agreement period.
    In addition to the statutory benchmarking methodology established 
in section 1899(d), section 1899(i)(3) of the Act grants the Secretary 
the authority to use other payment models, including payment models 
that would use alternative benchmarking methodologies, if the Secretary 
determines that doing so would improve the quality and efficiency of 
items and services furnished under this title and the alternative 
methodology would result in program expenditures equal to or lower than 
those that would result under the statutory payment model. As described 
later in this section, in the November 2011 final rule, we considered 
whether to invoke this authority to modify certain aspects of the 
statutory benchmarking methodology, but elected not to do so. We note 
that we did invoke this authority to help create two-sided risk under 
Track 2.
(1) Background on Use of National Growth Rate as a Benchmark Trending 
Factor
    The statute does not specify the trending factor to be used in 
establishing the benchmark. In the April 2011 proposed rule (76 FR 
19610), we considered use of either national, or state or local growth 
factors for trending the benchmark. We explained that using the 
national growth rate in Medicare A and B FFS expenditures appeared to 
be more consistent with the statutory methodology for updating an ACO's 
benchmark. Further, a national growth rate would allow a single growth 
factor to be applied to all ACOs regardless of their size or geographic 
area. However, a national rate could also disproportionately encourage 
the development of ACOs in areas with historical growth rates below the 
national average that would benefit from having a relatively higher 
base, which increases the chances for shared savings, while 
discouraging the development of ACOs in areas with historically higher 
growth rates above the national average that would have a relatively 
lower base.
    In contrast, we explained in April 2011 proposed rule that trending 
expenditures based on State or local area growth rates in Medicare A 
and B expenditures may more accurately reflect the experience in an 
ACO's area and mitigate differential incentives for

[[Page 72833]]

participation based on location. Therefore, we considered an option to 
trend the benchmark by the lower of the national projected growth rate 
or the State or the local growth rate. This option balanced providing a 
more accurate reflection of local experience with not rewarding 
historical growth higher than the national average. We believed this 
method would instill strong saving incentives for ACOs in both high-
cost growth and low-cost growth areas.
    We proposed to employ the national growth rate in Medicare Parts A 
and B expenditures for FFS beneficiaries for trending forward the most 
recent 3 years of per beneficiary expenditures for Parts A and B 
services in order to establish the historical benchmark for each ACO. 
We believed this approach would help to ensure that ACOs in both high 
spending, high growth and low spending, low growth areas would have 
appropriate incentives to participate in the Shared Savings Program. We 
further indicated that this approach would allow us to move toward 
establishing a national standard to calculate and measure ACO financial 
performance. We sought comment on this proposal and on the alternatives 
to using a national growth rate to establish the benchmark.
    Some commenters supported our proposal to employ a national growth 
rate for setting the benchmark and recognized the importance of using 
national growth rates for rationalizing overall spending across regions 
nationwide. Many more favored the use of either local, regional, or 
State growth rates, and some favored our proposal to use the lower of 
either the national or State or local growth rates. Commenters also 
offered a number of alternative approaches for trending benchmark 
expenditures, including the following:
     Use a blend of national average growth and absolute dollar 
growth.
     Use the ACO's own percentage growth rate to trend forward 
the historical benchmark data.
     Account for local variation after analyzing national and 
local growth rates. (76 FR 67925).
    In the end, we finalized our policy under Sec.  425.602 of using 
the national growth rate in Medicare Parts A and B expenditures for FFS 
beneficiaries for trending forward the most recent 3 years of per 
beneficiary expenditures for Parts A and B services in order to 
establish the benchmark for each ACO. In doing so, we make calculations 
for separate cost categories for each of the following populations of 
beneficiaries: ESRD, disabled, aged/dual eligible and aged/non-dual 
eligible. We stated our belief that implementing a historical benchmark 
trending factor using the national growth rate for Parts A and B FFS 
expenditures appropriately balanced commenters' concerns that benchmark 
trending should encourage participation among providers that are 
already efficient or operating in low cost regions without unduly 
rewarding ACOs in high-cost areas. We further stated that we 
anticipated the net effect of using the same trending factor for all 
ACOs would be to provide a relatively higher expenditure benchmark for 
low-growth/low spending ACOs and a relatively lower benchmark for high 
growth/high spending ACOs. ACOs in high cost, high growth areas would 
therefore have an incentive to reduce their rate of growth more to 
bring their costs more in line with the national average; while ACOs in 
low cost low, growth areas would have an incentive to continue to 
maintain or improve their overall lower spending levels.
    Over 330 ACOs entered the Shared Savings Program between 2012 and 
2014 and are located throughout the country--across diverse 
geographies--in a mix of high-cost/high-growth and low-cost/low-growth 
areas. Further, within local markets where multiple ACOs have formed, 
we have observed that ACOs can be a mix of both high- and low-cost and 
high- and low-growth organizations. We are encouraged by the continued 
interest in the program: Of the ACOs that entered the program, only two 
voluntarily terminated at the end of the performance year concluding 
December 31, 2013. (One was eligible for a performance payment of 
shared savings and the other merged with another participating ACO.) In 
addition, we continue to see strong interest in new entrants for the 
January 2015 start date.
    Under the Pioneer ACO model, we adopted a different methodology for 
establishing an ACO's historical expenditure baseline for its first 
three performance years. See http://innovation.cms.gov/Files/x/PioneerACOBmarkMethodology.pdf. The Pioneer model benchmarking 
methodology trends forward baseline years 2009 and 2010 to 2011 by 
applying the growth in expenditures for the reference population. The 
reference population is defined as alignment-eligible beneficiaries 
with the same state of residence, eligibility status, age and sex as 
the ACO's aligned beneficiaries. The 3 historical baseline years under 
the Pioneer ACO Model also correspond to the 3 years prior to when ACOs 
entered the model, specifically 2009, 2010, and 2011. Further, baseline 
expenditures in 2011 dollars are updated to the appropriate performance 
year using a 50/50 blend of the national growth rate and the absolute 
dollar equivalent of that national growth rate. However, the 
benchmarking methodology used in the Pioneer ACO Model was revised for 
performance years four and five of the model to be more consistent with 
the benchmarking approach used in the Shared Savings Program, in part 
due to stakeholder feedback.
(2) Background on Use of National FFS Growth Factors in Updating the 
Benchmark During the Agreement Period
    Section 1899(d)(1)(B)(ii) of the Act states that the benchmark 
shall be updated by the projected absolute amount of growth in national 
per capita expenditures for parts A and B services under the original 
Medicare fee-for-service program, as estimated by the Secretary.
    In the April 2011 proposed rule (76 FR 19610 through 19611), we 
proposed to use a flat dollar amount equivalent of the absolute amount 
of growth in the national FFS expenditures to update the benchmark 
during an agreement period. We explained our view that in enacting 
section 1899(d)(1)(B)(ii) of the Act, Congress demonstrated interest in 
mitigating some of the regional differences in Medicare spending among 
ACOs and that this approach would help to ensure that ACOs in both high 
spending/high growth and low spending/low growth areas would have 
appropriate incentives to participate in the Shared Savings Program. We 
described the effect this update methodology might have in the 2nd and 
3rd years of an agreement period: Using a flat dollar increase, which 
would be the same for all ACOs, provides a relatively higher 
expenditure benchmark for low growth, low spending ACOs and a 
relatively lower benchmark for high growth, high spending ACOs. All 
else being equal, an ACO can more likely share in savings when its 
actual expenditures are judged against a higher, rather than a lower 
benchmark. Thus, with a flat dollar increase to the benchmark, ACOs in 
high cost/high growth areas must reduce their rate of growth more to 
bring their costs more in line with the national average. We 
acknowledged that this approach to updating the benchmark could 
contribute to selective program participation by participants in low 
growth areas, as well as result in Medicare costs due to an increase in 
the amount of performance payments for unearned savings.
    We also considered and sought comment on a second option, which

[[Page 72834]]

would be to use our authority under section 1899(i)(3) of the Act to 
update the benchmark by the lower of the national projected absolute 
amount of growth in national per capita expenditures or the local/State 
projected absolute amount of growth in per capita expenditures. We 
explained our belief that this option could instill strong saving 
incentives for ACOs in low-cost areas, as well as for those in high-
cost areas. Incorporating more localized growth factors reflects the 
expenditure and growth patterns within the geographic area served by 
ACO participants, potentially providing a more accurate estimate of the 
updated benchmark based on the area from which the ACO derives its 
patient population. Capping the update at the projected absolute amount 
of growth in national per capita expenditures, however, can advantage 
ACOs in low cost/low growth areas that have already achieved greater 
efficiencies, while still offering a strong incentive for those in high 
cost/high growth areas to reduce their spending.
    Commenters were mixed in their preference for either the proposed 
policy of updating the benchmark by absolute growth in national FFS 
expenditures, or use of the lower of the national projected absolute 
amount or the local/State projected absolute amount. For example, one 
commenter disagreed with the option to use the lower of the national 
projected absolute amount or the local/State projected absolute amount, 
suggesting it negatively prejudges all high growth sectors without 
regard to the underlying clinical or quality issues. However, another 
commenter favored this approach because this adjustment would afford 
ACOs the greatest potential for achieving shared savings and minimize 
the threat of an ACO being disadvantaged by virtue of pricing within 
its geographic location. Along these lines, one commenter stated the 
proposed approach offered insufficient incentives for efficient 
providers to form an ACO. More generally, many commenters urged CMS to 
adopt policies to encourage participation by organizations that are 
already efficient or in low cost areas. Several commenters urged use of 
regional or market-specific expense data for calculating the benchmark 
update.
    In the November 2011 final rule (76 FR 67926 through 67927), we 
finalized a policy of using the flat dollar amount equivalent of the 
projected absolute amount of growth in national per capita FFS 
expenditures to update the benchmark. We stated our belief that this 
method for updating the benchmark could best address the program's 
goals and commenters' overall concerns about the participation of 
efficient/low cost ACOs. The net effect of using the same update for 
all ACOs is to provide a relatively higher expenditure benchmark for 
low growth/low spending ACOs and a relatively lower benchmark for high 
growth/high spending ACOs. Further, with a flat dollar increase to the 
benchmark equivalent to the absolute amount of growth in the national 
FFS expenditures, ACOs in high cost, high growth areas must reduce 
their rate of growth more (compared to ACOs in low cost, low growth 
areas) to bring their costs in line with the national average. We 
stated that in light of the alternatives we considered, we believed 
that the policy of updating benchmarks by the absolute amount of growth 
in national FFS expenditures offers sufficient incentives for efficient 
providers to form ACOs. Thus, under the final update methodology, ACOs 
in low cost areas would achieve a greater amount of savings, based on 
the same performance, than a comparable ACO in a higher cost area. 
Moreover, we stated we believed that a benchmark methodology that 
encourages providers in higher cost areas to bring their spending more 
in line with the national average is a desirable outcome in furtherance 
of the program's goal of lowering Medicare expenditures. Finally, we 
noted that updating the benchmark during the agreement period using a 
national growth factor aligns with our approach of using a national 
growth rate to trend forward base year expenditures when establishing 
the historical benchmark. We stated that we believed this alignment 
could facilitate analysis of trends in ACO financial performance 
relative to national trends in Medicare expenditures. For these 
reasons, we finalized a policy of using the flat dollar amount 
equivalent of the projected absolute amount of growth in national FFS 
expenditures to update the benchmark.
    In applying these policies for ACOs that joined the program in 2012 
and 2013, we observed that the national growth factors used to trend 
the historical benchmark were declining, highlighted by negative annual 
per capita expenditure growth in three of four Medicare eligibility 
categories in 2012. We also found during the first performance year 
reconciliation that the national update amounts applied to the 
historical benchmark continued to reflect historically low growth in 
cost even after an adjustment to restore the effect of sequestration on 
2013 claim payments. These updates reflected the slow or negative FFS 
growth environment due to a number of factors, including demographic 
changes in program enrollment, low price updates for physician, skilled 
nursing, and other services, and a broad decrease in inpatient 
utilization. This resulted in ACOs having very low or even negative 
updates to their historical benchmarks. Recent projections estimate 
total Medicare per capita expenditure trends are likely to remain 
historically low through 2015 followed by a gradual return to 
historically-familiar positive trend rates starting in 2016.
(3) Background on Managing Changes to ACOs During the Agreement Period
    Section 425.214 of the Shared Savings Program regulations addresses 
the circumstance under which an ACO adds or removes ACO participants or 
ACO providers/suppliers (identified by TINs and NPIs, respectively) 
during the term of the participation agreement. The regulation 
specifies that the ACO's benchmark, risk scores, and preliminary 
prospective assignment may be adjusted for this change at CMS' 
discretion (Sec.  425.214(a)(3)). Subregulatory guidance further 
describes our use of this discretion. See ``Changes in ACO participants 
and ACO providers/suppliers during the Agreement Period'' available 
online at http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/sharedsavingsprogram/Updating-ACO-Participant-List.html. This guidance 
explains:

    After acceptance into the program and upon execution of the 
participation agreement with CMS, the ACO must certify the 
completeness and accuracy of its list of ACO participants. We set 
the ACO's historical benchmark at the start of the agreement period 
based on the assigned population in each of the three benchmark 
years by using the ACO Participant List certified by the ACO. The 
ACO must submit a new certified ACO Participant List at the start of 
each new performance year.
    CMS will adjust the ACO's historical benchmark at the start of a 
performance year if the ACO Participant List that the ACO certified 
at the start of that performance year differs from the one it 
certified at the start of the prior performance year. CMS will use 
the updated certified ACO Participant List to assign beneficiaries 
to the ACO in the benchmark period (the 3 years prior to the start 
of the ACO's agreement period) in order to determine the ACO's 
adjusted historical benchmark. As a result of changes to the ACO's 
certified ACO Participant List, we may adjust the historical 
benchmark upward or downward. We'll use the new certified list of 
ACO participants and the adjusted benchmark for the new performance 
year's assignment, quality measurement and sampling, reports for the 
new performance

[[Page 72835]]

year, and financial reconciliation. We will provide ACOs with the 
adjusted Historical Benchmark Report.

    During the program's first performance years, we experienced a high 
volume of change requests from ACOs, both adding and removing ACO 
participants. For example, cumulatively ACOs with 2012 and 2013 start 
dates requested the addition of over 2,800 ACO participants and removal 
of over 1,200 ACO participants. The ACO's composition of ACO 
participant TINs is used to determine the ACO's assigned beneficiary 
population. Changes to an ACO's participant list will result in changes 
to the ACO's assigned beneficiary population. As a result, it is 
necessary to make adjustments to the ACO's historical benchmark to 
account for these changes. In accordance with our guidance, we adjusted 
the historical benchmarks for 162 of 220 ACOs with 2012 and 2013 start 
dates for their second performance year to reflect changes in ACO 
participants. When an ACO adds new ACO participants or deletes existing 
ACO participants, the adjustments that are made to its historical 
benchmark will impact the ACO's performance in subsequent years, and 
can make forecasting performance more challenging.
    As noted in the guidance, when we adjust historical benchmarks 
during the agreement period to account for changes in beneficiary 
assignment arising from ACO participant list changes, the benchmark 
period (the 3 years prior to the start of the ACO's agreement period) 
remains the same. For instance, if an ACO with an agreement start date 
of January 1, 2013, added ACO participants for its second performance 
year, then the adjustments made to the historical benchmark to reflect 
the ACO's certified ACO participant list for performance year 2 would 
have been based on the same three benchmark years (2010, 2011, and 
2012) originally used to calculate the historical benchmark for the ACO 
based on its ACO participant list certified when it entered the program 
(for its first performance year).
    Further, changes in the ACO participant TINs that compose ACOs are 
relevant to determining beneficiary assignment across the program. A 
beneficiary is assigned to an ACO if the beneficiary received the 
plurality of his or her primary care services (measured in allowed 
charges) from ACO professionals billing under the TINs of ACO 
participants in the ACO rather than outside the ACO (such as from ACO 
professionals billing under the TINs of ACO participants in other ACOs, 
individual providers, or provider organizations). We perform the 
assignment process for ACOs simultaneously, including all eligible 
organizations. To determine where a beneficiary got the plurality of 
his or her primary care services, we compare the total allowed charges 
for each beneficiary for primary care services provided by the ACO (in 
total for all ACO participants) to the allowed charges for primary care 
services provided by ACO participants in other ACOs and by non-ACO 
providers and suppliers. See ``Medicare Shared Savings Program: Shared 
Savings and Losses and Assignment Methodology Specifications'' 
available online at http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/sharedsavingsprogram/Financial-and-Assignment-Specifications.html. Therefore, in the case where a beneficiary is 
receiving primary care services from ACO participants in multiple ACOs 
or from both ACO participants and non-ACO providers and suppliers, an 
ACO's participant composition is important in determining whether the 
beneficiary is assigned to the ACO at all, and in determining to which 
(among several) ACO the beneficiary may be assigned.
    In summary, in making adjustments to the historical benchmarks for 
ACOs within an agreement period to account for ACO participant list 
changes: The historical benchmark period remains constant, but 
beneficiary assignment reflects the influence of ACO participant list 
changes. Under this methodology, the historical benchmarks for ACOs 
with participant list changes from one performance year to the next 
continue to reflect the ACOs' historical costs in relation to their 
current composition.
(4) Background on Resetting the Benchmark
    In the November 2011 final rule (see 76 FR 67915) establishing the 
Shared Savings Program, some commenters expressed concerns that 
rebasing the benchmark at the start of each agreement period would make 
savings more difficult to attain and eventually make savings 
unattainable by ACOs. Stakeholders have continued to express concerns 
about this methodology for rebasing the benchmark. They assert that the 
current methodology may also reduce the incentive for ACOs to achieve 
savings since any savings achieved during a given agreement period 
would result in lower future benchmarks, generating an offsetting 
reduction in the shared savings payments the ACO would receive in those 
future agreement periods.
    During the initial rulemaking, commenters suggested a variety of 
alternatives to rebasing the benchmark for each agreement period, as 
well as technical suggestions on how to reset the benchmark (76 FR 
67915 through 76 FR 67916). In the November 2011 final rule, we adopted 
a policy under which an ACO's benchmark would be reset at the start of 
each agreement period, as required under section 1899(d)(1)(B)(ii) of 
the Act. In finalizing this policy, we explained our belief that 
resetting the benchmark at the beginning of each agreement period would 
most accurately account for changes in an ACO's beneficiary population 
over time. We explained that because of turnover in an ACO's assigned 
beneficiary population, by the end of the agreement period, an ACO's 
assigned population may be significantly different from the 
historically assigned beneficiary population used to calculate the 
ACO's initial benchmark. Further, resetting the benchmark at the 
beginning of subsequent agreement periods would allow the benchmark to 
more accurately reflect the composition of an ACO's population, and 
therefore protect both the Trust Funds and ACOs. We acknowledged 
commenters' concerns that resetting the benchmark after 3 years could 
ultimately make it more challenging for ACOs to achieve savings, 
particularly for low-cost ACOs. However, we explained our belief that 
one of the fundamental purposes of the Shared Savings Program is to 
provide incentives for ACOs to strive continually to make further 
advances in the quality and efficiency of the care they provide (76 FR 
67916).
    Under Sec.  425.602(c) of the rule, an ACO's benchmark would be 
reset at the start of its second or subsequent agreement period using 
the same methodology for establishing the historical benchmark under 
Sec.  425.602(a). The existing regulations do not specify any 
alternative methodology for rebasing the benchmarks for ACOs that have 
completed one or more agreement periods in the Shared Savings Program. 
For example, for an ACO with a January 2013 agreement start date that 
continues in the program for a second agreement period beginning 
January 1, 2016, we would establish the ACO's historical benchmark for 
its second agreement period according to the methodology set forth in 
Sec.  425.602(a). In particular, we would compute the ACO's benchmark 
for its second agreement period based on per capita Parts A and B fee-
for-service expenditures for beneficiaries that would have been 
assigned to the ACO

[[Page 72836]]

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 (Sec.  425.602(a)). In the example of an ACO with an initial 
agreement period beginning January 1, 2013 and a second agreement 
beginning January 1, 2016: The ACO's historical benchmark for its first 
agreement period would have been based on the historical years of 2010, 
2011 and 2012 and the ACO's historical benchmark for its second 
agreement period would be based on the historical years of 2013, 2014 
and 2015. In resetting the benchmark, the time period for the benchmark 
shifts forward to capture the ACOs participants' more recent historical 
spending. As noted previously, we adjust an ACO's benchmark based on 
the ACO participant list that it certifies at the start of each 
performance year, which may reflect changes during the course of the 
prior performance year. Similarly, in resetting the ACO's benchmark at 
the start of a second agreement period, we would effectively account 
for any ACO participant list changes between the ACO's third 
performance year under its first agreement period and its first 
performance year under its second agreement period.
    Early experience for ACOs participating in the Shared Savings 
Program is limited to financial performance results for the first 
performance year of ACOs with 2012 and 2013 start dates. However, we 
anticipate that the trend for ACOs participating in the Shared Savings 
Program will be similar to the trend for sites in the Physician Group 
Practice (PGP) demonstration, with more organizations generating 
savings as they gain experience in a shared savings model. In the 
initial performance year of the PGP Demonstration, two sites were 
eligible for shared savings payments. As the demonstration progressed, 
more PGP sites demonstrated savings. Over the course of the 5-year 
demonstration, 7 of the 10 PGP sites were eligible for shared savings 
payments in one or more performance years.
    The experience of PGP demonstration sites is also an indication 
that resetting ACO benchmarks at the start of the second and each 
subsequent agreement period would not deter ongoing participation in 
the program by ACOs. We note, however, that unlike the update 
methodology currently used in the Shared Savings Program, the 
benchmarks used in the PGP demonstration were updated using regional 
factors, as opposed to national factors. This approach is similar to 
some of the alternatives discussed later in this section, on which we 
are seeking comment. The benchmarks for the PGP sites were reset as 
they moved from the PGP demonstration to the PGP Transition 
Demonstration, and again when they transitioned into the Pioneer ACO 
Model or the Shared Savings Program. We note that most of the 
organizations participating in the PGP demonstration elected to 
continue their voluntary participation under these shared savings 
models, even though their benchmarks would be reset under the 
applicable benchmarking methodology. Based on this experience, we 
conclude that these organizations must have believed there was a 
sufficient opportunity to share in savings as well as other strategic 
and competitive advantages to warrant their continued participation in 
a shared savings initiative, even under a rebased benchmark that 
reflected the cost savings achieved by the site under the PGP 
demonstration.
    However, while the PGP experience establishes that the current 
approach to rebasing is consistent with continued participation, at 
least in some cases, it is possible that additional organizations would 
have continued into the Pioneer ACO Model or the Shared Savings Program 
under an alternative rebasing methodology. The PGP experience cannot 
rule out the possibility that an alternative rebasing methodology could 
induce ACOs to achieve greater savings, particularly as providers gain 
more familiarity with the payment model, or could prove more 
sustainable over time.
(5) Background on Stakeholders' Concerns about Benchmarking Methodology
    Since the initial rulemaking, stakeholders have continued to 
express their concern that resetting ACO benchmarks at the start of 
each agreement period, as required under the existing methodology, may 
disadvantage ACOs, particularly those that have generated shared 
savings. A closely related concern is that because savings achieved 
during one agreement period would lead to a lower benchmark in future 
agreement periods, achieving savings could hypothetically be 
financially unattractive for ACOs in some circumstances. Under the 
existing benchmarking methodology, an ACO that performs well in its 
first agreement period as a result of its effective strategies for 
lowering Medicare expenditures may have a significantly lower 
historical benchmark in its subsequent agreement period. Consequently, 
some stakeholders believe that achieving savings may sometimes be 
financially unattractive for ACOs because these savings would reduce 
their benchmarks for future periods. They are concerned that the value 
proposition of the program may diminish over time as ACOs become lower-
cost entities, and, as a result, face increased difficulty in achieving 
additional efficiencies (hence savings) when judged against decreasing 
benchmarks.
    Further, some stakeholders have expressed concern that the existing 
benchmarking methodology does not sufficiently account for the 
influence of cost trends in the surrounding region or local market on 
the ACO's financial performance. In particular, some stakeholders 
voiced concerns about the low or negative update amounts used during 
first performance year reconciliation under the existing benchmarking 
methodology, and favor alternative approaches, which they believe are 
more certain to yield positive updates to ACOs' historical benchmarks. 
Others have suggested that we move away from an approach for setting 
ACO-specific benchmarks and toward an approach for setting regionally-
specific benchmarks for ACOs. These concerns, as with those raised 
regarding the methodology for resetting benchmarks in subsequent 
agreement periods, center on whether the benchmarks are set at a level 
ACOs perceive to be sufficient to make program participation 
financially viable.
    We believe it is timely to consider these issues in the context of 
encouraging continued participation by ACOs in the program and 
continued improvement in ACO performance, particularly as ACOs with 
2012 and 2013 start dates begin to contemplate whether to continue in 
the program for a second agreement period. Further, we believe there 
may be important interactions between the way in which the benchmarks 
for ACOs are set in their initial agreement period and reset in their 
subsequent agreement periods and encouraging participation by ACOs in 
the program's two-sided models (particularly ACOs that entered the 
program under Track 1 and are contemplating moving to a risk based 
track); namely in terms of the value proposition of moving to a 
performance-based risk track.
b. Factors To Use in Resetting ACO Benchmarks and Alternative 
Benchmarking Methodologies
    We considered whether modifying the methodology used for 
establishing, updating, and resetting ACO benchmarks to account for 
factors relevant to ACOs that have participated in the program for 3 or 
more years

[[Page 72837]]

would help ensure that the Shared Savings Program remains attractive to 
ACOs and continues to encourage ACOs to improve their performance, 
particularly those that have achieved shared savings. As discussed 
later in this section, we considered a range of modifications to the 
benchmarking methodology in order to expand the methodology for 
resetting benchmarks to account for factors relevant to continued 
participation by ACOs in subsequent agreement periods and to increase 
incentives to achieve savings in a current agreement period, 
specifically: (1) Equally weighting the 3-benchmark years; (2) 
accounting for shared savings payments in benchmarks; (3) using 
regional FFS expenditures (as opposed to national FFS expenditures) to 
trend and update the benchmarks; (4) implementing an alternative 
methodology for resetting ACO benchmarks that would hold an ACO's 
historical costs, as determined for purposes of establishing the ACO's 
initial historical benchmark for its first agreement period, constant 
relative to costs in its region for all of the ACO's subsequent 
agreement periods; and (5) implementing an alternative methodology for 
resetting ACO benchmarks that would transition ACOs to benchmarks based 
only on regional FFS costs, as opposed to the ACO's own historical 
costs, over the course of multiple agreement periods. Further, we 
considered whether to apply these changes broadly to all ACOs or to 
apply these changes only when resetting benchmarks for ACOs entering 
their second or subsequent agreement periods. We also considered 
whether to apply these changes to a subset of ACOs, such as ACOs 
participating under a two-sided model (Tracks 2 and 3) or Track 3 ACOs 
only. In considering these potential options for modifying the 
benchmarking methodology, it is necessary to balance the desire to make 
the program more financially attractive to ACOs, against the need to 
protect the Medicare Trust Funds.
    Although we are not proposing any changes to our benchmarking 
methodology at this time, we are seeking comment on these alternatives 
for how we approach establishing, updating and resetting benchmarks, as 
well as suggestions regarding alternative approaches not described 
here. We will carefully consider the comments that are received 
regarding these options during the development of the final rule, and 
may consider adopting one or more of these options in the final rule. 
We note, however, that any option that relies upon the use of the 
authority under section 1899(i)(3) of the Act to adopt alternate 
payment models must be determined to improve quality and efficiency and 
not to increase program spending.
(1) Equally Weighting the 3 Benchmark Years
    Pursuant to section 1899(d)(1)(B)(ii) of the Act, in the November 
2011 final rule, we adopted a methodology for establishing ACO 
benchmarks under which we weight benchmark expenditures at 60 percent 
for Benchmark Year (BY) 3, 30 percent for BY2, and 10 percent for BY1 
(Sec.  425.602(a)(7)). As we explained in the November 2011 final rule 
(76 FR 67915), this weighting helps ensure that the benchmark reflects 
more accurately the latest expenditures and health status of the ACO's 
assigned beneficiary population. We indicated that giving BY3 the 
greatest weight would most accurately reflect recent cost trends for 
the Medicare beneficiaries who receive the plurality of their primary 
care from ACO providers/suppliers, and thus result in a more accurate 
benchmark.
    To establish an ACO's benchmark for an agreement period, we 
determine the per capita Parts A and B fee-for-service expenditures for 
beneficiaries that would have been assigned to the ACO in any of the 3 
most recent years prior to the agreement period using the ACO 
participants' TINs identified at the start of the agreement period 
(Sec.  425.602(a)). Therefore, an ACO's benchmark under a second or 
subsequent agreement period will reflect, to some degree, its previous 
performance under the program. For example, for ACOs with 2013 start 
dates that continue in the program for a second agreement period 
beginning January 1, 2016, BY1 will be based on expenditures for 
beneficiaries who were assigned to the ACO based on CY 2013 (the 
timeframe corresponding to performance year 1 under the first agreement 
period). Likewise, BY2 will be based on assignment for CY 2014 
(performance year 2) and BY3 will be based on assignment for CY 2015 
(performance year 3). We note, however, that a number of factors will 
affect beneficiary assignment for purposes of establishing ACO 
benchmarks in subsequent agreement periods, which may cause an ACO's 
benchmark year assigned population to deviate from its assigned 
population for the corresponding performance year. For example, an ACO 
may add or remove ACO participant TINs in its second or subsequent 
agreement period. Further, participation in the program by other 
organizations in an ACO's market may also change in the time between 
when we performed assignment for the performance year under the prior 
agreement and when we assign beneficiaries for the purpose of resetting 
the ACO's benchmark for the next agreement period, leading to changes 
in the ACO's assigned beneficiary population for purposes of 
establishing its benchmark for the new agreement period. The impact of 
these kinds of changes in the assigned beneficiary population between 
the performance year and the time the benchmark is established for a 
subsequent agreement is uncertain, and could result in either upward or 
downward adjustments to expenditures for purposes of establishing the 
benchmark.
    Among ACOs whose assigned beneficiary populations for purposes of 
resetting the benchmark closely match their assigned beneficiary 
population for the corresponding performance years, those ACOs that 
generated savings during a prior agreement period will have 
comparatively lower benchmarks for their next agreement period. This is 
because the ACOs were effective in lowering expenditures for these 
assigned beneficiaries. We assume, for example, that if an ACO 
generates savings in its first agreement period it is likely that the 
impact on claims would be most significant in the second or third 
performance year as opposed to being uniformly distributed across all 
three performance years. This hypothesis is supported by following 
factors:
     There may be a lag between when an ACO starts care 
management activities and when these activities have a measurable 
impact upon expenditures for the ACO's assigned beneficiary population.
     ACOs may improve their effectiveness over time as they 
gain experience with population management and improve processes.
     There may be higher care costs during the early period of 
performance to treat or stabilize certain patients, as the ACO's care 
management activities involving these patients commence. Once 
stabilized, these patients may show relatively lower care costs over 
the course of time due to more effective, coordinated and quality care.
    Under these circumstances, resetting the benchmark for ACOs 
starting a second or subsequent agreement period under the Shared 
Savings Program becomes a trade-off between the accuracy gained by 
weighting the benchmark years at 60 percent for BY3, 30 percent for BY2 
and 10 percent for BY1 and the potential for further reducing the 
benchmarks for these ACOs by giving greater weight to the

[[Page 72838]]

later performance years of the preceding agreement period. Unchanged, 
the application of this methodology for weighting the benchmark years 
when resetting benchmarks could reduce the incentive for ACOs that 
generate savings or that are trending positive in their first agreement 
period to participate in the program over the longer run, or to reduce 
incentives for ACOs to achieve savings in their first agreement period. 
For instance, ACOs that have previously performed well under the 
program may be discouraged from continuing to participate in the 
program if their rebased benchmark is so low that they would have 
difficulty continuing to lower expenditures sufficiently to exceed 
their MSR in order to be eligible for shared savings during their next 
agreement period.
    We considered an alternative methodology for resetting benchmarks 
where we would weigh the benchmark years equally (ascribing a weight of 
one-third to each benchmark year). We believe that equally weighting 
the benchmark years could more gradually lower the benchmarks of ACOs 
that perform well in their first agreement period, in contrast to 
giving the greatest weight to the most recent prior benchmark year, 
which, for the reasons discussed previously, is likely to be the year 
in which an ACO would have been most effective in lowering expenditures 
for its assigned population. This alternative approach would have the 
most significant impact upon ACOs whose assigned population during the 
three performance years of the preceding agreement period most closely 
approximates the assigned population used to determine their benchmark 
for the subsequent agreement period. This approach may be less 
accurate, and therefore less protective of the Trust Funds, since it 
may not sufficiently account for an ACO's most recent historical cost 
experience, particularly in the case of an ACO whose ACO participant 
composition (and therefore its assigned beneficiary population) changed 
over the course of the agreement period, such that its assigned 
beneficiary population in the subsequent agreement period is 
significantly different from the beneficiary population in the early 
years of its prior agreement period; this effect could be counteracted 
to the extent that this approach encourages greater participation in 
the Shared Savings Program or encourages ACOs to achieve greater shared 
savings.
(2) Accounting for Shared Savings Payments in Benchmarks
    We also considered revising the methodology for resetting ACO 
benchmarks to account for shared savings earned by an ACO in its prior 
agreement period, as a way to encourage ongoing participation by 
successful ACOs and improve the incentive to achieve savings. Similar 
to the option of equally weighting the benchmark years discussed above, 
accounting for an ACO's shared savings during its prior agreement 
period would more gradually lower the benchmarks of ACOs that perform 
well in their prior agreement period.
    The statute outlines the scope of Medicare expenditures to be used 
in calculating ACO benchmarks. Section 1899(d)(1)(B)(ii) of the Act 
specifies that the benchmark is established ``. . . using the most 
recent available 3 years of per-beneficiary expenditures for parts A 
and B services for Medicare fee-for-service beneficiaries assigned to 
the ACO.'' This provision of the Act further specifies: ``Such 
benchmark shall be adjusted for beneficiary characteristics and such 
other factors as the Secretary determines appropriate.'' In the 
November 2011 final rule establishing the Shared Savings Program, we 
explained that in implementing section 1899(d)(1)(B)(ii) of the Act, we 
would take into account payments made from the Medicare Trust Funds for 
Parts A and B services, for assigned Medicare fee-for-service 
beneficiaries, including payments made under a demonstration, pilot or 
time limited program when computing average per capita Medicare 
expenditures under the ACO. Our policies for determining per capita 
expenditures for purposes of establishing the benchmark are specified 
at Sec.  425.602(a)(1). Shared savings payments are paid from the 
Medicare Trust Funds for the beneficiary population assigned to an ACO 
and are intended to recognize the costs incurred by the ACO and its ACO 
participants and ACO providers/suppliers in coordinating care and 
improving the quality of care for the assigned beneficiaries. 
Accordingly, we are considering whether it would be appropriate to 
revise our methodology under Sec.  425.602(a)(1) for establishing an 
ACO's benchmark to incorporate the ACO's share of savings for those 
ACOs that receive shared savings payments under the prior agreement 
period. We considered how to account for these payments in ACOs' 3-year 
weighted average per capita benchmarks since ACO shared savings 
payments are determined at the population-level, reflecting aggregated 
per capita expenditures that have been truncated and annualized and 
weighted by the proportion of assigned beneficiaries in each of the 
four Medicare enrollment types: ESRD, disabled, aged/dual and aged/non-
dual. For instance, we could develop a per-beneficiary average based on 
the shared savings payment for the particular performance year under 
the prior agreement period and apply this adjustment on a per 
beneficiary basis to the assigned population for the corresponding 
benchmark year. We also considered whether to make a symmetric 
adjustment in benchmarks for ACOs that owed losses in a previous 
agreement period.
    We believe there are merits to upwardly adjusting benchmarks for 
ACOs in a second or subsequent agreement period to reflect any shared 
savings payments in the most recent prior agreement period. An 
adjustment that reflects the ACO's share of savings--based on its final 
sharing rate, which is a function of its quality performance--in the 
computation of the benchmark would increase the ACO's benchmark for the 
subsequent agreement period. This increase in the benchmark, relative 
to the ACO's prior success in the program, may address concerns 
expressed by some stakeholders (described previously) that under the 
existing benchmarking methodology achieving savings may sometimes be 
financially unattractive for ACOs because of the potential impact on 
their benchmarks in future agreement periods.
    There are clear advantages of this adjustment for ACOs and the 
Medicare program. In particular, ACOs would have an increased incentive 
to continue to generate shared savings and improve quality because of 
the prospect of having a higher benchmark in future agreement periods. 
Consequently, ACOs may demonstrate improved performance over longer 
term participation in the program. Further, ACOs may be encouraged to 
enter the program's two-sided models (such as the proposed Track 3), 
which offer higher final sharing rates because making an adjustment to 
the benchmark for these ACOs to reflect successful participation during 
one agreement period may improve their potential to receive shared 
savings in the next agreement period. Other implications of this 
adjustment for consideration include the following:
     Not all ACOs would benefit. By making the adjustment only 
for ACOs that receive shared savings payments in their prior agreement 
period, some ACOs that reduce expenditures would

[[Page 72839]]

not receive the benefit of this adjustment. Specifically, ACOs whose 
performance year expenditures are lower than their benchmark 
expenditures by an amount that did not meet or exceed their MSR, and 
ACOs that generated savings outside their MSRs, but that failed to 
satisfy the quality reporting standard, would not receive the 
adjustment.
     Availability of performance data relative to timely 
creation of benchmarks. We anticipate completing financial 
reconciliation for an ACO's most recent prior performance year (for 
example, PY3 under the first agreement period which corresponds to BY3 
for the second agreement period) mid-way through its current 
performance year (for example, PY1 under the second agreement period). 
As a result, one downside of relying on the availability of performance 
data from the most recent prior performance year is that it would delay 
the finalization of an ACO's historical benchmark for its first 
performance year during its subsequent agreement period.
(3) Use of Regional Factors (as Opposed to National Factors) in 
Establishing and Updating Benchmarks
    Some stakeholders have expressed concern that the existing 
benchmarking methodology does not sufficiently account for the 
influence of cost trends in the surrounding region or local market on 
the ACO's financial performance. We considered addressing these 
concerns by using regional FFS expenditures, instead of national FFS 
expenditures, to trend forward the most recent 3 years of per 
beneficiary expenditures for Parts A and B services in order to 
establish the historical benchmark for each ACO under section 
1899(d)(1)(B)(ii) of the Act. In addition, we considered making this 
modification in combination with an alternative payment model under 
section 1899(i)(3) of the Act under which we would use regional FFS 
expenditures, instead of national FFS expenditures, to update the 
benchmark for each performance year during an agreement period. We also 
considered other approaches to address this concern, as discussed later 
in this section describing alternative benchmarking methodologies.
    In considering how to establish and update benchmarks based on 
regional factors, we favor use of an approach similar to the method for 
updating benchmarks used under the PGP demonstration, which has been 
tested and validated with physician groups across the country, 
including groups in rural, urban and suburban areas. Under this 
approach, much of the Shared Savings Program's existing benchmarking 
methodology would remain the same. Instead of using national Medicare 
FFS expenditure data to trend expenditures in establishing the 
historical benchmark (Sec.  425.602(a)(5)) and to update the benchmark 
for each performance year (Sec.  425.602(b)(1)), we would use regional 
FFS expenditure data to make these adjustments. We would calculate the 
ACO's regional expenditure trend and update factors according to the 
cost experience of a reference population. Specifically, in 
establishing benchmarks under the PGP demonstration, a comparison group 
was created using the PGP's service area. The growth rate of the 
comparison group expenditures was calculated and used as the growth 
rate for updating the PGP's benchmark. Specifically, we used each PGP's 
annual assigned beneficiary population to determine the PGP's service 
area. A PGP's service area was defined as all counties where one 
percent or more of assigned PGP beneficiaries reside. We identified 
which beneficiaries residing in each service area met the comparison 
group assignment criteria and assigned them to the PGP comparison 
group. The service area and comparison group for the PGP were re-
determined each year to account for changes in the PGP's assigned 
beneficiaries. The expenditure growth rate for the PGP's comparison 
group was calculated and used to update the PGP's historical benchmark 
for purposes of determining each PGP's performance under the shared 
savings calculation methodology used in the demonstration. This 
benchmarking methodology was used over the course of the 5-year PGP 
demonstration. Given that we have already tested and refined this 
methodology, we believe that a similar approach could be implemented 
within the Shared Savings Program. As noted previously, over the course 
of the PGP demonstration, 7 of 10 sites were eligible for shared 
savings payments in one or more performance years. Taking these factors 
into consideration, we believe stakeholders may welcome this approach 
to revising the program's benchmarking methodology.
    However, we have also identified a number of additional factors 
that must be considered in using this approach in the Shared Savings 
Program:
     Whether the comparison group counties should be weighted 
by the percent of assigned beneficiaries in the county out of all 
assigned beneficiaries in all comparison group counties. For example, 
for an ACO in a rural or suburban county near a large metropolitan 
area: On a weighted basis, the large metropolitan area would contribute 
less to the comparison group than on an unweighted basis. 
Alternatively, an ACO with high penetration in a specific county would 
have its regional factors significantly influenced by that county.
     Whether to establish a minimum sample size for the 
comparison group, such as equal to or greater than 25,000. Smaller 
comparison groups are more likely to demonstrate idiosyncratic 
expenditure trends, for instance, if an ACO has a high penetration in 
its service area, the remaining population may be non-representative 
compared to the ACO's patient population. These factors would seem to 
support the use of a minimum sample size threshold. Based on 
statistical modeling for an effective sample size, we anticipate that 
the minimum sample size threshold would be set not lower than 25,000 
beneficiaries. In turn, a minimum sample size raises a question of what 
criteria should be used to ensure the ACO's comparison group is large 
enough. For instance, in markets where the ACO's assigned beneficiaries 
represent a substantial share (for example, more than 40 percent) of 
Medicare FFS beneficiaries, should the region be expanded--perhaps to 
include the entire corresponding metropolitan statistical area (MSA), 
hospital referral region (HRR), or another regional grouping approach? 
Similarly, in markets where multiple ACOs represent a substantial share 
(for example, more than 50 percent) of Medicare FFS beneficiaries, 
should the region be similarly expanded as described previously? We 
also considered whether to lock-in the counties composing the 
comparison group at the start of the agreement period, since over the 
course of the agreement the counties where one percent or more of 
assigned ACO beneficiaries reside may fluctuate (for example, just 
above or just below 1 percent).
(4) Alternative Benchmark Resetting Methodology: Holding the ACO's 
Historical Costs Constant Relative to its Region
    Some stakeholders have also expressed a preference for further 
changes in the methodology used to reset ACO benchmarks to address the 
concerns described previously. For example, some stakeholders have 
suggested that ACOs would have stronger incentives to achieve shared 
savings during a given agreement period and to continue to participate 
in the program in subsequent agreement periods if we used a methodology 
for resetting benchmarks that held the ACO's historical per assigned

[[Page 72840]]

beneficiary spending constant relative to its local market so that 
improvements in efficiency that the ACO achieved during an agreement 
period would not lower its benchmark for a subsequent agreement period.
    Accordingly, we considered using the authority under section 
1899(i)(3) of the Act to establish an approach to resetting an ACO's 
benchmark at the start of a new agreement period under which the ACO's 
benchmark from the prior agreement period would be updated according to 
trends in FFS costs in the ACO's region, effectively holding a portion 
of the ACO's benchmark constant relative to its region. Under this 
approach, an ACO's benchmark for its initial agreement period would be 
set according to an approach similar to the existing methodology. For 
subsequent agreement periods, the trend in regional costs would be 
calculated using an approach based on the PGP demonstration, described 
previously, and the historical benchmark would be updated by increasing 
it by a percentage equal to the percentage increase in regional costs. 
This approach would prevent an ACO's improved efficiency during an 
agreement period from lowering its benchmark in a future agreement 
period.
    We also considered a similar approach that would use information 
regarding the ACO's historical costs under its first agreement period 
to adjust regional FFS benchmarks developed for future agreement 
periods by developing a scaling factor. The scaling factor could be 
calculated as the ratio of--(1) an ACO's historical benchmark under its 
first agreement period (computed using an approach similar to the 
existing methodology) divided by; (2) the regional FFS benchmark that 
would have been calculated for the ACO for the third benchmark year of 
its first agreement period. We would compute an ACO's benchmark for 
each subsequent performance year by multiplying this scaling factor by 
the ACO's regional FFS benchmark for that performance year to account 
for the difference originally exhibited between the ACO expenditures 
and the regional FFS benchmark expenditures in the year prior to the 
beginning of the ACO's first agreement period. The regional FFS 
benchmark for an ACO in a given performance year would be computed 
using an approach based on the PGP demonstration described above. For 
example, if the ACO's assigned beneficiaries expenditures were 10 
percent higher than what its regional FFS benchmark would have been in 
its most recent base year of its initial agreement period, the ACO's 
future benchmark based on regional FFS expenditures would be adjusted 
by 10 percent to account for this baseline difference. This approach 
would likely generate benchmarks very similar to those described in the 
previous paragraph and thus have a similar effect on an ACO's 
incentives to improve efficiency.
    Under both of these approaches, we considered whether to adjust the 
benchmark or scaling factor to reflect changes in the list of ACO 
participant TINs over time, as we do now based on our authority under 
Sec.  425.602((a)(8). We considered two approaches to making such 
adjustments, each of which could be used with either of the basic 
approaches to holding benchmarks constant relative to an ACO's region 
that were previously described. Under the first approach, we considered 
basing such adjustments off our current method of adjusting the 
benchmark on an annual basis to reflect ACO participant changes. Under 
the second approach, we considered an adjustment method to reflect the 
historical cost experience of any ACO participant TINs that are added 
to the ACO and to remove the influence of the cost experience of those 
ACO participant TINs that leave the ACO, but not incorporate updated 
cost information for ACO participants that have continued in the ACO.
    First, we considered using an approach similar to our existing 
method for adjusting the ACO's benchmark during the course of its 
agreement period to account for changes in its ACO participant list as 
described previously.
    Under this approach, each performance year that the ACO's 
participant list changed, we would recompute its initial historical 
benchmark or scaling factor using cost information from the benchmark 
period corresponding to the ACO's initial agreement period. This 
approach has the advantage that it is similar to the approach we have 
used successfully to adjust ACO benchmarks within an agreement period 
in response to changes in ACO participant lists. However, we recognize 
that not all ACO participants joining the ACO in subsequent agreement 
periods may have historical claims data during the 3 years prior to the 
start of the ACO's first agreement period. Therefore, we considered the 
need to expand this approach to include adjustments to the benchmark or 
scaling factor to account for ACO participant list changes.
    Second, we considered an approach that would adjust an ACO's 
benchmark (or scaling factor) after each annual change in the ACO 
participant list based on the relative cost experience of patient 
populations associated with the new performance year's set of TINs 
relative to the prior performance year's set of TINs, as measured 
during a period immediately preceding the change in the ACO participant 
list. We note that under our current benchmarking methodology, assigned 
beneficiaries and benchmark expenditures are determined in aggregate at 
the ACO level rather than at the individual ACO participant TIN level. 
Therefore, under this alternative approach, we would develop a 
methodology for associating assigned beneficiary costs to individual 
ACO participant TINs that continue in the program so as not to 
incorporate updated cost information for the patient populations 
associated with the continuing ACO participants, as well as to 
incorporate updated cost information for the patient populations 
associated with new ACO participants or remove the influence of cost 
information for patient populations associated with departing ACO 
participants.
    The advantage of this type of approach is that it could generate 
more accurate benchmarks in cases where an ACO adds many participant 
TINs that were not active during the ACO's initial agreement period. 
However, this approach could be more complicated to implement and could 
reintroduce a limited ability for ACOs to influence future benchmarks 
through current decisions.
    A potential disadvantage of approaches that determine benchmarks by 
holding an ACO's costs constant relative to its region is that future 
benchmarks are influenced to a large degree by holding the cost 
experience for the ACO participants that continue in the ACO static. 
This static cost experience would become dated and would not 
necessarily reflect the evolving complex factors that influence the 
cost profile of the beneficiary populations assigned to the ACO in 
future agreement periods. By holding costs static for existing ACO 
participants, there would be incentives for successful ACOs to continue 
to participate in the program (with the same ACO participant 
composition) against more favorable benchmarks. Moreover, some ACOs may 
``shop'' for a particularly advantageous benchmark, for instance by 
delaying program entry, and only improving their expenditure and 
utilization trends in later years. As a result, these approaches might 
continue to yield shared savings for some ACOs despite marginal effort 
to improve efficiency, and push out ACOs for whom cumulative variation 
creates a

[[Page 72841]]

predictable and unrealistically low expenditure target.
    To the extent that this approach for resetting ACO benchmarks also 
incorporates elements of the other approaches described in this 
section, we would be faced with related concerns. For instance, when 
trending the benchmark according to regional FFS costs based on the PGP 
demonstration approach described above, we would need to determine what 
criteria to use in establishing the comparison group. Further, as 
discussed under the alternative benchmarking methodology later in this 
section, we may need to consider whether the risk adjustment 
methodology would need to be modified, in this case to account for 
changes in each ACO's risk profile relative to the risk profile of its 
regional comparison population. The types of approaches described in 
this section would require use of our authority under section 
1899(i)(3) of the Act because we would be deviating from the 
requirement at section 1899(d)(1)(B)(ii) of the Act that the benchmark 
be reset at the start of each agreement period. Specifically, the 
benchmark would not be reset using the most recent available 3 years of 
per beneficiary expenditures for parts A and B services for those 
Medicare FFS beneficiaries that were assigned to the ACO during the 
preceding agreement period.
(5) Alternative Benchmark Methodology: Transitioning ACOs to Benchmarks 
Based Only on Regional FFS Costs Over the Course of Multiple Agreement 
Periods
    We also considered using our authority under section 1899(i)(3) of 
the Act to transition ACOs from benchmarks based on their historical 
costs toward benchmarks based only on regional FFS costs, an approach 
suggested by stakeholders, including MedPAC. We recognize that under 
the existing benchmarking methodology, ACOs in the same market would 
have unique benchmarks, which may vary widely depending on the 
historical expenditures for the beneficiaries that receive care from 
the ACO participants in each ACO. As a result, ACOs within the same 
market may have substantially different benchmarks, such as the case of 
a historically low-cost ACO within a traditionally high cost market. 
Under the existing benchmarking methodology, the program may be more 
attractive (initially) to historically high-cost ACOs able to enter the 
program and achieve substantial shared savings by bringing costs down 
compared to their historical cost performance. ACOs with historically 
low costs may be less likely to enter and continue in the program 
because of their perceived difficulty in further reducing their 
assigned beneficiaries' costs relative to a benchmark based on their 
assigned beneficiaries populations' past experiences. However, as noted 
previously, the current benchmarking methodology may provide additional 
opportunity for increased shared savings for ACOs with low costs 
relative to the national average through the use of a flat dollar 
update for growth in national FFS expenditures, assuming program 
expenditure trends return to historically-familiar positive rates as 
compared to the unusually low growth experienced in the first several 
years of the program.
    Under this alternative approach, over the course of several 
agreement periods, we would transition to using regional FFS cost data 
to make ACO benchmarks gradually more independent of the ACO's past 
performance and gradually more dependent on the ACO's success in being 
more cost efficient relative to its local market. For example, for the 
ACO's first agreement period, we may use the existing benchmarking 
methodology or one of the options described previously, which accounts 
for regional FFS expenditures. Starting in an ACO's second agreement 
period, we would calculate each ACO's benchmark as a weighted average 
of the ACO benchmark using the existing approach or one of the 
alternative approaches described above and risk adjusted regional FFS 
costs. The weight placed on risk adjusted regional FFS costs would 
increase over time. ACOs' assigned beneficiaries would be counted in 
the calculation of regional FFS costs and the definition of an ACO's 
region would require careful consideration so that the ACO's assigned 
beneficiary population would not be allowed to make up an unreasonable 
proportion of the region itself. This benchmarking methodology would 
help ensure the program remains attractive to ACOs, particularly those 
who have achieved shared savings in previous agreement periods, and 
strengthen the connection between the determination of the amount of 
shared savings earned by the ACO and an ACO's actual success in 
achieving savings relative to its region and local market.
    An approach where we transition from ACO-specific benchmarks based 
on each ACO's historical costs to benchmarks based on regional FFS 
spending may be attractive to low-cost ACOs in high-cost regions 
because they would likely transition to a relatively higher (regional) 
benchmark over time against which they could likely show more savings 
because they have lower relative costs. However, high-cost ACOs in low-
cost regions may find a regional benchmark unattractive because they 
would be required to create new efficiencies to fully offset their 
higher costs relative to their region in order to show savings under 
the benchmark. To mitigate the cost of any resulting selective 
participation by favored low-cost ACOs in high cost regions we 
considered whether a benchmark transition process could be employed 
over a number of agreement periods involving a gradual shift from the 
current methodology to one where benchmarks are set based on regional 
FFS spending (for example, using a weighted average of the two 
approaches whereby the weight for the regional FFS benchmark is 
gradually increased over several agreement periods). Using regional FFS 
spending to establish benchmarks could reward low-cost, high-quality 
ACOs, and further encourage them to attract more ACO participants and 
Medicare FFS beneficiaries over the course of time. We would also 
expect that a gradual transition may at least initially maintain an 
incentive for existing ACOs with high costs relative to their region to 
remain in the program because the initial ACO-specific benchmark would 
allow the ACOs to achieve shared savings for lowering their costs 
compared to their own historical performance. As they transition to a 
benchmark based on regional FFS spending, these ACOs' benchmarks would 
likely decline (given the overall experience of the market), 
encouraging these ACOs to continue to reduce their costs, while 
maintaining high quality care under the program. However, we also note 
that some ACOs may not perceive an ability to reduce their beneficiary 
expenditures below the regional average and therefore there remains a 
risk that the eventual transition to a regional benchmark would result 
in selective participation regardless of how the transition is 
performed. For instance, an ACO that perceives its patient population 
as having high relative costs may perceive itself as disadvantaged 
under this approach.
    Therefore, to further mitigate selective participation and improve 
the accuracy of the benchmarks, we considered whether the regional FFS 
benchmark should be adjusted to reflect a regional or local reference 
population, similar to the method used in the PGP demonstration. 
However, as described previously, additional adjustment may be 
necessary to ensure the comparison

[[Page 72842]]

population is sufficiently large and representative of the ACO's 
assigned patient population, particularly in the cases where ACOs make 
up a significant portion of their regional market.
    We also considered whether the risk adjustment methodology would 
need to be modified to account for changes in the risk profile of the 
regional population rather than the national population. For instance, 
it may be necessary to account for coding intensity differences 
relative to the ACO's region rather than just the change in coding 
intensity by the ACO. As we explained in the November 2011 final rule 
(see 76 FR 67916), it may be necessary to guard against changes that 
result from more specific or comprehensive coding as opposed to 
improvements in the coordination and quality of health care. Thus, we 
considered the need for normalization of risk scores for ACO assigned 
beneficiaries and the comparison group beneficiaries relative to the 
regionally based comparison group. For instance, the benchmark could be 
normalized to the mix of beneficiaries assigned across the four 
Medicare enrollment types (ESRD, disabled, aged/dual, aged/non-dual) to 
the same strata within the regional comparison population. We also 
considered risk adjusting the growth rates, for example based upon risk 
scores for the comparison group, in combination with using a regional 
coding intensity adjustment or independently.
    We also considered how to account for ACO participant TIN changes, 
over time, under a methodology where we transition ACOs from ACO-
specific to regionally based benchmarks. For instance, we considered 
whether to continue to adjust the benchmark at the start of each 
performance year to reflect changes in the set of ACO participant TINs 
that constitutes the ACO, perhaps similar to our current approach to 
managing changes to ACO participants during the agreement period.
    We also considered the pace for transitioning ACOs from ACO-
specific to regional benchmarks, including the following factors:
     The period of time for transitioning to regional FFS 
benchmarks: For instance, should the transition occur over two 
agreement periods, or five agreement periods, or longer.
     Whether to consider the ACO's performance during a prior 
agreement period in determining the pace of its transition to regional 
FFS benchmarks. For example, should we delay downward adjustments to an 
ACO's benchmark if the ACO fails to achieve shared savings.
     Whether to consider the ACO's historical costs, relative 
to regional Medicare FFS average per capita costs, in determining the 
pace of its transition to regional FFS benchmarks. For example, should 
low-cost ACOs (those below the risk adjusted regional Medicare FFS 
average per capita costs) transition more quickly to regional FFS 
benchmarks than high-cost ACOs.
    Another consideration was whether this kind of benchmarking 
methodology would allow the Shared Savings Program to maintain a fiscal 
balance. For instance, would the shared savings paid to low-cost ACOs 
(treating beneficiaries at below average costs) be more than offset 
with savings from lower than expected spending in high-cost ACOs and 
further control of spending growth in low-cost ACOs. We also recognize 
that more customized benchmarking approaches make it more difficult to 
provide ACOs with information they can use to predict their 
performance.
(6) Seeking Comment on the Benchmarking Alternatives Considered and the 
Applicability of These Approaches
    In general we seek comment on the approaches to adjusting the 
methodology for establishing, updating and resetting ACO benchmarks 
discussed in detail above. In particular, we seek comment on the 
following:
     Using combinations of these approaches, as opposed to any 
one approach. Specifically, we considered revising the methodology for 
resetting ACO benchmarks by equally weighting the three benchmark 
years, and/or accounting for shared savings payments received by an ACO 
in its prior agreement period, and/or using regional FFS expenditures 
instead of national FFS expenditures in establishing and updating the 
benchmark. We also considered and seek comment on revising the 
benchmarking methodology more broadly, shifting either to a methodology 
that resets ACOs' benchmarks between agreement periods by holding an 
ACO's historical costs constant relative to costs in its region or to a 
methodology that transitions ACOs from benchmarks based on their 
historical costs toward benchmarks based only on regional FFS costs, 
potentially in combination with some or all of the other revisions we 
are considering to the benchmarking methodology.
     How broadly or narrowly to apply these alternative 
benchmarking approaches to the program's Tracks. Specifically, we 
envisioned that the revisions in the benchmarking methodology under 
section 1899(d)(1)(B)(ii) of the Act. (for example, equally weighing 
the three benchmark years, and accounting for shared savings payments 
received by an ACO in its prior agreement period) would be applied when 
resetting the benchmarks for all ACOs, regardless of the model they 
participate under (Tracks 1, 2, and 3). We envisioned applying the 
approaches requiring use of our authority under section 1899(i)(3) of 
the Act to ACOs participating under performance-based risk models 
(Tracks 2 and Track 3) because stakeholders' concerns about resetting 
the benchmarks were closely related to ensuring the program remains 
sustainable over time, and we envision ACOs would be transitioning to 
the performance-based risk models over time, specifically given our 
proposal to limit the number of agreement periods an ACO can remain 
under Track 1. We also considered and seek comment on applying these 
alternative benchmarking methodologies more broadly, specifically to 
all ACOs participating in a risk-based model (Tracks 2 and 3), or to 
all ACO financial models (Tracks 1, 2, and 3).
     Whether to use regional FFS expenditures instead of 
national FFS expenditures in establishing and updating the benchmark 
and/or a methodology for transitioning ACOs from benchmarks based on 
their historical costs toward benchmarks based only on regional FFS 
costs only when resetting ACO benchmarks under their second or 
subsequent agreement period, or when establishing the benchmark for all 
participating ACOs (regardless of agreement start date) the next full 
performance year after the effective date of the final rule. In other 
words, if a final rule adopting a revised benchmarking methodology is 
issued in early 2015, should the revised methodology be used to 
determine the benchmark that will apply during the 2016 performance 
year for all ACOs.
     The criteria for defining the comparison group for using 
regional FFS expenditure data to establish, update or reset the 
historical benchmark. In particular we welcome comments on the criteria 
we described previously and welcome commenters' suggestions for 
different criteria.
     We believe the concerns about risk adjustment raised in 
this section in the context of the alternative benchmarking methodology 
for establishing, updating and/or transitioning from ACO-specific 
benchmarks to regionally based benchmarks are also relevant to the 
approach where we would use regional FFS expenditures (as opposed to

[[Page 72843]]

national FFS expenditures) in establishing or in updating the 
benchmark. We welcome comments on these concerns and commenters' 
suggestions about the use of regional normalization or coding intensity 
adjustments to guard against regional or other coding differences that 
may affect the characteristics of the ACOs' assigned beneficiary 
population in relation to the comparison group.
     We welcome commenters' detailed suggestions on our 
considerations of factors to use in resetting ACO benchmarks and for 
the alternative benchmark methodology; as well as considerations or 
concerns not described; and suggestions for alternative approaches for 
a benchmarking methodology that transition to use of regional 
benchmarks over the course of time. In particular, we seek commenters' 
input on whether an approach that transitions ACOs to regional 
benchmarks would encourage continued participation by existing low-cost 
and high-cost ACOs.
    We also request commenters' input on alternatives not described 
here for resetting benchmarks to encourage ongoing participation by 
ACOs who perform well in the program and are successful in reducing 
expenditures for their assigned beneficiaries. We seek comment on 
whether these alterative benchmarking approaches would have unintended 
consequences for ACO participation in the program, for the Medicare 
Trust Funds, or for Medicare FFS beneficiaries. We intend to carefully 
review any comments that are received on these issues during the 
development of the final rule and will make an assessment at that time 
as to whether any change to our current methodology for establishing 
benchmarks is necessary and appropriate.
7. Seeking Comment on Technical Adjustments to the Benchmark and 
Performance Year Expenditures
    When computing average per capita Medicare expenditures for an ACO 
during both the benchmark period and performance years under Sec.  
425.602, Sec.  425.604, and Sec.  425.606, we take into account all 
Parts A and B expenditures, including payments made under a 
demonstration, pilot or time limited program, with the exception of IME 
and DSH adjustments, which are excluded from these calculations. In the 
November 2011 final rule (76 FR 67919 through 67923), we considered 
whether to make adjustments to benchmark and performance year 
expenditures to exclude certain adjustments to Part A and B 
expenditures, including IME and DSH payments, geographic payment 
adjustments and some bonus payments and penalties. In the final rule, 
we acknowledged that taking into consideration payment changes could 
affect ACOs' financial performance and their ability to realize 
savings. However, with the exception of the adjustment to account for 
IME and DSH payments, we ultimately declined to make any adjustments to 
account for various differences in payment rates among providers and 
suppliers. We explained that while section 1899(d)(1)(B)(ii) of the Act 
provides a way of adjusting an ACO's benchmark for such payments, the 
statute does not include similar authority to adjust performance year 
expenditures. Therefore, we noted that while we could make adjustments 
to the ACO's benchmark to exclude certain payments under our authority 
in section 1899(d)(1)(B)(ii) of the Act, we did not have a similar 
authority to make adjustments in our calculation of an ACO's 
performance year expenditures, which would create a mismatch in 
expenditure calculations.
    However, we were persuaded by commenters that not excluding IME and 
DSH payments in determining ACO financial performance could adversely 
affect the care of beneficiaries by creating an incentive for ACOs to 
avoid making appropriate referrals to teaching hospitals in an effort 
to demonstrate savings. Therefore, we considered using our authority 
under section 1899(i)(3) of the Act, which authorizes us to use other 
payment models for making payments under the Shared Savings Program 
that the agency ``determines will improve the quality and efficiency of 
items and services'' furnished under Medicare. Specifically we 
considered whether it would be appropriate to use this authority to 
include an adjustment to performance year expenditures to exclude IME 
and DSH payments. To exercise our authority under section 1899(i)(3) of 
the Act, we must also determine that the alternative payment model ``. 
. . does not result in spending more for such ACO for such 
beneficiaries than would otherwise be expended . . . if the model were 
not implemented . . .''
    In the November 2011 final rule (76 FR 67921 through 67922), we 
stated that we believed excluding IME and DSH payments would be 
consistent with the requirements under section 1899(i)(3) of the Act. 
That is, excluding these payments would both improve the care for 
beneficiaries while also not resulting in greater payments to ACOs than 
would otherwise have been made if these payments were included. 
Specifically, we stated that removing IME and DSH payments from 
benchmark and performance year expenditures would allow us to more 
accurately reward actual decreases in unnecessary utilization of 
healthcare services, rather than decreases arising from changes in 
referral patterns. In addition, we believed that excluding these 
payments from our financial calculations would help to ensure 
participation in ACOs by hospitals that receive these payments. Taken 
in combination, we believed these factors could result in Medicare 
beneficiaries receiving higher quality, better coordinated, and more 
cost-efficient care. As a result, we did not expect that excluding IME 
and DSH payments from the determination of ACOs' financial performance 
would result in greater payments to ACOs than would otherwise have been 
made. We also found that excluding these amounts was operationally 
feasible since they are included in separate fields on claims allowing 
them to be more easily excluded from financial calculations than 
certain other payments that are included on Part A and B claims. 
Therefore, we finalized a policy of excluding IME and DSH payments from 
both the benchmark and performance year expenditure calculations. We 
stated that we intended to monitor this issue and would revisit it if 
we determine that excluding these payments has resulted in additional 
program expenditures (76 FR 67922).
    In addition to IME and DSH payments, we also considered whether 
standardizing payments to account for other types of payment 
adjustments would alleviate concerns resulting from changes in the 
Medicare payment systems. However, in light of the numerous payment 
adjustments included throughout the Medicare payment systems, we were 
concerned about the complexity resulting from standardizing payments 
and whether standardized payment information would provide meaningful 
and consistent feedback regarding ACO performance. We stated that we 
intended to evaluate this issue and would potentially address it in 
future rulemaking.
    We also considered requests from commenters that we make 
adjustments to ACO benchmark and performance year expenditures to 
account for a number of other payments (76 FR 67922). We specifically 
considered how geographic payment adjustments, applied under Medicare 
payment systems (for example, the IPPS wage index adjustments and the 
physician fee schedule geographic practice cost index (GPCI) 
adjustments) could affect an

[[Page 72844]]

ACO's ability to realize savings. These adjustments increase and 
decrease payments under the applicable payment systems to account for 
the different costs of providing care in different areas of the 
country. We further noted that there have been a number of temporary 
legislative adjustments to the wage indexes for various parts of the 
country during recent years. In some cases these have been extended on 
virtually an annual basis while others have been updated more 
intermittently. We recognized that the timing of these adjustments 
could result in changes being made during an ACO's agreement period and 
between the benchmark and the performance years, thus influencing an 
ACO's ability to realize savings under the program. Additionally, there 
have been cases where hospitals have moved in and out of 
reclassification status which can either increase or decrease the wage 
index in the state.
    Of the comments received, most favored excluding geographic 
payments from benchmark and performance year expenditures (76 FR 
67923). Commenters suggested specific adjustments, such as exclusion of 
payments based on the area wage index, low cost county payment 
adjustments, GPCI, and the frontier States policy adjustment. Some 
commenters, however, expressed concerns that variations in cost growth 
across geographic areas as well as the current CMS methods for 
accounting for differences in local input and practice costs may create 
incentives that reward ACO formation in some markets but not in others. 
Others suggested that inclusion of these geographic payment adjustments 
could have unintended consequences for referral patterns by ACOs, such 
as driving referrals based on geographic wage adjustments rather than 
performance. Yet others were generally concerned that making geographic 
payment adjustments would disproportionately disadvantage some ACOs.
    Ultimately, we disagreed with commenters' suggestions that we 
adjust expenditures to account for various differences in cost and 
payment. We stated that we believed that making such extensive 
adjustments, or allowing for benchmark adjustments on a case-by-case 
basis, would create an inaccurate and inconsistent picture of ACO 
spending and may limit innovations in ACOs' redesign of care processes 
or cost reduction strategies (76 FR 67920). Unlike the IME/DSH 
adjustments, we stated we did not believe these other payment 
adjustments that are made to Part A and B payments (such as geographic 
payment adjustments) would result in a significant incentive to steer 
patients away from particular hospitals or providers since an ACO's 
financial performance would be compared to its own historical 
expenditure benchmark, as updated.
    Since the publication of the November 2011 final rule, some 
questions have persisted regarding the most appropriate way to handle 
payment differences and changes under Medicare FFS; including whether 
to take into consideration certain payment changes that could affect 
ACO financial performance. We are not proposing to make any further 
adjustments at this time. However, now that both CMS and external 
stakeholders have some experience with our policies, we are interested 
in seeking further comment from stakeholders on this issue that we 
could potentially consider in future rulemaking. We are particularly 
interested in comments regarding standardization of payments, including 
which elements to adjust for, the impact of value-based payment 
adjustments on payments to physicians and hospitals, and the value of 
providing feedback on nonstandardized results while using standardized 
results to perform financial reconciliation.
    Table 7 summarizes certain provisions of the current regulations 
and our proposals to change them as discussed in this section.

                                                    Table 7--Shared Savings Financial Model Overview
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                              Track 1: One-sided risk model                         Tracks 2 and 3: Two-sided risk models
--------------------------------------------------------------------------------------------------------------------------------------------------------
               Issue                         Current                Proposed            Current Track 2        Proposed Track 2       Proposed Track 3
--------------------------------------------------------------------------------------------------------------------------------------------------------
Transition to Two-Sided Model......  First agreement period  Remove requirement to   ACOs may elect Track   No change............  Same as Track 2.
                                      under one-sided         transition to two-      2 without completing
                                      model. Subsequent       sided model for a       a prior agreement
                                      agreement periods       second agreement        period under a one-
                                      under two-sided model.  period.                 sided model. Once
                                                                                      elected, ACOs cannot
                                                                                      go into Track 1 for
                                                                                      subsequent agreement
                                                                                      periods.
Assignment.........................  Preliminary             No change.............  Preliminary            No change............  Prospective
                                      prospective                                     prospective                                   assignment for
                                      assignment for                                  assignment for                                reports and
                                      reports;                                        reports;                                      financial
                                      retrospective                                   retrospective                                 reconciliation.
                                      assignment for                                  assignment for
                                      financial                                       financial
                                      reconciliation.                                 reconciliation.
Benchmark..........................  Reset at the start of   Seeking comment on      Same as Track 1......  Seeking comment on     Same as Tracks 1 and
                                      each agreement period.  alternative                                    alternative            2 and seeking
                                                              methodology.                                   methodology.           comment on
                                                                                                                                    alternative
                                                                                                                                    methodology.

[[Page 72845]]

 
Adjustments for health status and    Historical benchmark    No change.............  Same as Track 1......  No change............  Same as Tracks 1 and
 demographic changes.                 expenditures adjusted                                                                         2.
                                      based on CMS-HCC
                                      model. Updated
                                      historical benchmark
                                      adjusted relative to
                                      the risk profile of
                                      the performance year.
                                      Performance year:
                                      Newly assigned
                                      beneficiaries
                                      adjusted using CMS-
                                      HCC model;
                                      continuously assigned
                                      beneficiaries
                                      adjusted using
                                      demographic factors
                                      alone unless CMS-HCC
                                      risk scores result in
                                      a lower risk score.
Adjustments for IME and DSH........  IME and DSH excluded    No change.............  Same as Track 1......  No change............  Same as Tracks 1 and
                                      from benchmark and                                                                            2.
                                      performance year
                                      expenditures..
Other payment adjustments..........  Include other payment   Seeking comment on      Same as Track 1......  Seeking comment on     Same as Tracks 1 and
                                      adjustments included    other technical                                other technical        2.
                                      in Part A and B         adjustments.                                   adjustments.
                                      claims such as,
                                      geographic payment
                                      adjustments and HVBP
                                      payments, in
                                      benchmark and
                                      performance year
                                      expenditures.
Quality Sharing Rate...............  Up to 50 percent based  Up to 50 percent based  Up to 60 percent       No change............  Up to 75 percent
                                      on quality              on quality              based on quality                              based on quality
                                      performance.            performance for first   performance.                                  performance.
                                                              agreement period,
                                                              reduced by 10
                                                              percentage points for
                                                              each subsequent
                                                              agreement period
                                                              under the one-sided
                                                              model.
Minimum Savings Rate...............  2.0 percent to 3.9      No change.............  Fixed 2.0 percent....  2.0 percent to 3.9     Fixed 2.0 percent.
                                      percent depending on                                                   percent depending on
                                      number of assigned                                                     number of assigned
                                      beneficiaries.                                                         beneficiaries.
Minimum Loss Rate..................  Not applicable........  No change.............  Fixed 2.0 percent....  2.0 percent to 3.9     Fixed 2.0 percent.
                                                                                                             percent depending on
                                                                                                             number of assigned
                                                                                                             beneficiaries.
Performance Payment Limit..........  10 percent............  No change.............  15 percent...........  No change............  20 percent.
Shared Savings.....................  First dollar sharing    No change.............  Same as Track 1......  No change............  Same as Tracks 1 and
                                      once MSR is met or                                                                            2.
                                      exceeded.
Shared Loss Rate...................  Not applicable........  No change.............  One minus final        No change............  One minus final
                                                                                      sharing rate applied                          sharing rate applied
                                                                                      to first dollar                               to first dollar
                                                                                      losses once minimum                           losses once minimum
                                                                                      loss rate is met or                           loss rate is met or
                                                                                      exceeded; shared                              exceeded; shared
                                                                                      loss rate not to                              loss rate may not be
                                                                                      exceed 60 percent.                            less than 40 percent
                                                                                                                                    or exceed 75
                                                                                                                                    percent.
Loss Sharing Limit.................  Not applicable........  No change.............  Limit on the amount    No change............  15 percent. Losses in
                                                                                      of losses to be                               excess of the annual
                                                                                      shared in phases in                           limit would not be
                                                                                      over 3-years                                  shared.
                                                                                      starting at 5
                                                                                      percent in year 1;
                                                                                      7.5 percent in year
                                                                                      2; and 10 percent in
                                                                                      year 3 and any
                                                                                      subsequent year.
                                                                                      Losses in excess of
                                                                                      the annual limit
                                                                                      would not be shared.
--------------------------------------------------------------------------------------------------------------------------------------------------------

G. Additional Program Requirements and Beneficiary Protections

1. Background
    Section 1899(a)(1)(A) of the Act authorizes the Secretary to 
specify criteria that ACOs must satisfy in order to be eligible to 
participate in the Shared Savings Program. In the November 2011 final 
rule, we finalized policies regarding how ACOs will be monitored with 
respect to program requirements and what actions will be taken against 
ACOs that are not in compliance with the requirements of the Shared 
Savings Program. Based on our initial experience with the Shared 
Savings Program, we propose several refinements and clarifications to 
our policies on--
     Public reporting (Sec.  425.308);
     Termination of the participation agreement (Sec. Sec.  
425.218 and 425.220);
     Enforcement of ACO compliance with quality performance 
standards (Sec.  425.316(c)); and

[[Page 72846]]

     Reconsideration review procedures (Sec. Sec.  425.802 and 
425.804)).
2. Public Reporting and Transparency
a. Overview
    Section 1899 of the Act sets forth a number of requirements for 
ACOs. Section 1899(b)(2)(H) of the Act requires ACOs to demonstrate 
that they meet patient-centeredness criteria specified by the 
Secretary. We believe that one important aspect of patient-centeredness 
is patient engagement and transparency. Increasingly, transparency of 
information in the health care sector is seen as a means to help 
patients become more active in their health care choices and to 
generate feedback that may improve the quality of care and lower the 
cost of care. In addition, transparency may improve oversight and 
program integrity. Public reporting also supports the mandate for ACOs 
to be willing to ``become accountable for the quality, cost, and 
overall care'' of the Medicare beneficiaries assigned to them. Reports 
on ACO quality and cost-performance hold ACOs accountable and 
contribute to the dialogue on how to drive improvement and innovation 
in health care. Public reporting of ACO cost and quality data may 
improve a beneficiary's ability to make informed health care choices 
and facilitate an ACO's ability to improve the quality and efficiency 
of its care.
    Therefore, for these reasons, which are described in more detail in 
the November 2011 final rule, we finalized requirements specified at 
Sec.  425.308 that ACOs must make certain information publicly 
available. Since publication of the Shared Savings Program final rule, 
minor updates were made to Sec.  425.308(e) in the 2013 PFS final rule 
with comment period (77 FR 69164 through 69170) and in the 2015 PFS 
final rule with comment period (79 FR 67769). For purposes of the 
Shared Savings Program, each ACO is currently required at Sec.  425.308 
to publicly report certain organizational information (such as the 
identification of ACO participants and governing body members), the 
amount of any shared savings or shared losses incurred, the proportion 
of shared savings invested in resources that support the three-part aim 
and certain quality performance information. (Specifically, ACOs are 
required to report the results of the claims-based quality measures 
while CMS will report the CAHPS and GPRO measure results on Physician 
Compare.) We recommend that ACOs publicly report the specified 
information in a standardized format that we have made available to 
ACOs through guidance at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/sharedsavingsprogram/Statutes_Regulations_Guidance.html. Our guidance recommended that ACOs 
report the required information on a Web site that complies with the 
marketing requirements set forth at Sec.  425.310. Because Web pages 
used to publicly report the information specified in Sec.  425.308 
constitute ``marketing materials and activities,'' as defined at Sec.  
425.20, any changes to such Web pages must be submitted for CMS review 
in accordance with Sec.  425.310. Thus, if an ACO changes any of the 
information on its public reporting Web page, such as adding an ACO 
participant or replacing a member of the governing body, the ACO must 
submit its Web page 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 Sec.  425.308 supports our goals of program transparency 
and patient centeredness. We also continue to believe that it is 
important for the ACO to be responsible for making this information 
available to the public. We believe that the best way to do this is via 
an ACO-maintained Web site, the mechanism through which most ACOs have 
chosen to publicly report. However, based on our initial experience 
with the Shared Savings Program and requests from some ACOs, we propose 
some refinements to the requirements related to public reporting and 
transparency.
    We propose to modify Sec.  425.308 to reflect these new 
requirements. In Sec.  425.308(a), we propose to require that each ACO 
maintain a dedicated Web page on which the ACO must publicly report the 
information listed in paragraph (b). In addition, we propose that an 
ACO must report to us the address of the Web page on which it discloses 
the information set forth in Sec.  425.308 and apprise us of changes to 
that Web site 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 Sec.  425.308(b), we require ACOs to report certain information 
in a standardized format to be specified by CMS. Although we currently 
set forth a recommended standardized format in guidance, we intend to 
make a specific template available that ACOs must use so that ACOs 
report information uniformly. This would minimize the compliance burden 
on ACOs, enhance transparency for the public, and improve our oversight 
of ACO compliance with the public reporting requirement. We envision 
that the template would have fields in which the ACO must insert the 
applicable public reporting information. Additionally, because the ACOs 
would report information using a standard template, we do not believe 
the information would require marketing review each time the 
information is updated. Therefore, we propose in Sec.  425.308(c) that 
information reported on an ACO's public reporting Web page which is in 
compliance with the requirements of the standardized format specified 
by CMS, (that is, through use of the template) is not subject to 
marketing review and approval under Sec.  425.310. ACOs should keep in 
mind that although information reported using the template would not be 
subject to marketing review, we intend to monitor both the use of the 
template and the information inserted by ACOs into the template as part 
of our ongoing program monitoring and compliance oversight efforts.
    Using a standardized format, such as a template, for this purpose 
has several advantages over the way ACOs currently make this 
information publicly available. First, using a template would improve 
the usefulness of this information for the public by standardizing the 
way the information is made available across ACOs. Second, using a 
template would minimize the compliance burden on ACOs by ensuring the 
information is reported in the way we intend. Finally, the use of a 
standardized format also affords CMS a more streamlined approach for 
our monitoring and compliance oversight activities. We seek comment on 
the proposal to use a standardized format for public reporting 
purposes.
    We also propose to make a few changes to the information that must 
be publicly reported. In Sec.  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 Sec.  
425.308(b)(3)(iv) that ACOs publicly identify key clinical and 
administrative leaders within their organization as part of the public 
reporting requirements. ACOs are already required to identify the 
members of their governing body, associated committees and committee 
leadership. However, key members of the ACO's clinical and 
administrative leadership might not be members of the governing body or 
committee leadership. For example, the ACO's medical director may be a 
stand-alone leadership position but not hold a committee leadership 
position or be a

[[Page 72847]]

member on the ACO's governing body. Because clinical and administrative 
leadership is an eligibility requirement for program participation, we 
believe that requiring the ACO to publicly report its clinical and 
administrative leadership would lend additional transparency and 
insight into the ACO's organization.
    Second, we believe it would be helpful for the public to have a 
better understanding of the types of ACO participants or combinations 
of ACO participants that have joined to form the ACO. At Sec.  
425.102(a), we articulate the following types of ACO participants or 
combinations of ACO participants that are eligible to form an ACO:
     ACO professionals in group practice arrangement.
     Networks of individual practices of ACO professionals.
     Partnerships or joint venture arrangements between 
hospitals and ACO professionals.
     Hospitals employing ACO professionals.
     CAHs that bill under Method II.
     RHCs and FQHCs.
    We note that if revised by our proposals in section II.E. of this 
proposed rule, this list would also include teaching hospitals. On the 
application to the Shared Savings Program, each ACO must indicate the 
types of entities that formed the ACO. We propose to add a provision at 
Sec.  425.308(b)(3)(vi) requiring ACOs to publicly report the types of 
ACO participants or combinations of ACO participants, as listed in 
Sec.  425.102(a), that form the ACO. Stakeholders have requested 
information about the composition of ACOs. Providing the types and 
combinations of ACO participants would assist stakeholders in 
understanding the composition of ACOs.
    In addition, we propose at Sec.  425.308(b)(5) to require each ACO 
to publicly report its performance on all quality measures used to 
assess the quality of care furnished by the ACO. We currently require 
ACOs to post only the results of their performance on claims-based 
measures. The results of quality measures are reported by CMS on 
Physician Compare. We agree with the comments made by stakeholders that 
requiring an ACO to publicly report its performance on all quality 
measures (as defined at Sec.  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'' (Sec.  425.308(d)(1)). However, to conform this provision to 
the definition of ``shared savings'' at Sec.  425.20, we propose to 
remove the term ``performance payment'' from the phrase. The new 
language is found at revised Sec.  425.308(b)(4)(i).
    Finally, for purposes of program transparency, we find it useful to 
post on Physician Compare and our Web site (www.cms.gov/sharedsavingsprogram/) certain information about ACOs, such as ACO 
public contact information, ACO public reporting Web page addresses, 
the amount of any shared savings or losses incurred, and quality 
performance results. Therefore, in addition to information we already 
post on our Web site and Physician Compare, we propose at Sec.  
425.308(d) to post ACO-specific information, including information the 
ACO is required to publicly report under Sec.  425.308, as is necessary 
to support program goals and transparency. We solicit comment on what 
other information should be published on our Web site. Because proposed 
Sec.  425.308(d) encompasses our ability to publicly report ACO 
performance on all quality measures, we propose to remove Sec.  
425.308(e) or reserve it for future use. We intend to continue 
reporting ACO quality measure performance on Physician Compare in the 
same way as for group practices that report under PQRS.
3. Terminating Program Participation
a. Overview
    Section 425.218 of our regulations sets forth the grounds for 
terminating an ACO for failure to comply with the requirements of the 
Shared Savings Program (Sec.  425.218(a)). For example, an ACO's or ACO 
participant's failure to notify beneficiaries of their provider's 
participation in the program as required under Sec.  425.312 would 
constitute grounds for terminating the ACO. In addition, we may 
terminate an ACO for a number of other violations, such as those 
related to certain fraud and abuse laws, the antitrust laws, or other 
applicable Medicare laws and regulations relevant to ACO operations, or 
if certain sanctions have been imposed on the ACO by an accrediting 
organization or a federal, state or local government agency (Sec.  
425.218(b)).
    Prior to termination, we may take interim steps such as issuing the 
ACO a warning notice or placing the ACO on a corrective action plan 
(CAP) (Sec.  425.216). However, we reserve the right to immediately 
terminate a participation agreement if necessary (Sec.  425.218(c)). We 
notify the ACO in writing if the decision is made to terminate the 
participation agreement.
    Under Sec.  425.220, an ACO may voluntarily terminate its 
participation agreement. Such an ACO is required to provide CMS and all 
of its ACO participants with a 60-day advance written notice of its 
decision to terminate its participation in the Shared Savings Program. 
An ACO is not required to notify beneficiaries of the ACO's decision to 
terminate from the Shared Savings Program. Under current regulations, 
an ACO that terminates its participation agreement before completion of 
the participation agreement does not share in any savings for the 
performance year during which it notifies CMS of its decision to 
terminate the participation agreement (Sec.  425.220(b)). This is 
because an ACO that terminates its participation agreement during a 
performance year will have failed to complete the entire performance 
year and will therefore have failed to meet the requirements for shared 
savings.
b. Proposed Revisions
    We propose several modifications to the regulations related to 
termination of a participation agreement. First, we propose to permit 
termination for failure to timely comply with requests for documents 
and other information and for submitting false or fraudulent data. In 
addition, we propose to add a new regulation at Sec.  425.221 requiring 
ACOs to implement certain close-out procedures upon termination and 
nonrenewal. Finally, we propose to address in new Sec.  425.221 the 
payment consequences upon termination of a participation agreement.
(1) Grounds for Termination
    First, at Sec.  425.218(b) we propose to modify the grounds for 
termination to specifically include the failure to comply with CMS 
requests for submission of documents and other information by the CMS 
specified deadline. At times, we may request certain information from 
the ACO in accordance with program rules. The submission of those 
documents by the specified due date is important for program 
operations. For example, we require each ACO to submit to us, on an 
annual basis, its list of ACO participants and their TINs (existing 
Sec.  425.304 and proposed Sec.  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

[[Page 72848]]

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 Sec.  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 Sec.  425.302, an individual with the authority 
to legally bind the individual or entity submitting data or information 
to CMS must certify the accuracy, completeness, and truthfulness of the 
data and information to the best of his or her knowledge and belief. 
However, circumstances could arise in which the data and information 
submitted was falsified or erroneous. Submission of false or fraudulent 
data, (for example, data submitted through the CMS web interface used 
to determine an ACO's quality performance) could impact the amount of 
shared savings calculated for the ACO and cause CMS to overpay the ACO. 
Because of the severity of the consequences of submitting false or 
fraudulent data, we propose to modify Sec.  425.218(b) to permit 
termination of an ACO agreement for submission of false or fraudulent 
data. We note that ACOs are obligated to repay shared savings payments 
to which they are not entitled, including, by way of example only, any 
overpayment to the ACO based on the submission of false or fraudulent 
data.
(2) Close-Out Procedures and Payment Consequences of Early Termination
    We propose to add new Sec.  425.221 to address close-out procedures 
and payment consequences of early termination. First, we believe it is 
important to establish an orderly close-out process when an ACO's 
participation agreement is terminated. Therefore, we are proposing in 
Sec.  425.221(a) that an ACO whose participation agreement is 
terminated prior to its expiration either voluntarily or by CMS must 
implement close-out procedures in a form, manner, and deadline 
specified by CMS. These close-out procedures shall address data sharing 
issues such as data destruction, beneficiary notification issues (for 
example removal of marketing materials and ensuring beneficiary care is 
not interrupted), compliance with quality reporting, record retention 
issues, and other issues established through guidance. We note that the 
close-out procedures would also apply to those ACOs that have elected 
not to renew their agreements upon expiration of the participation 
agreement. We further propose in Sec.  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 Sec.  425.221(b) to address certain payment 
consequences of early termination. Currently under Sec.  425.220(b), an 
ACO that voluntarily terminates its agreement at any time during a 
performance year will not share in any savings for the performance year 
during which it notifies CMS of its decision to terminate the 
participation agreement. However, stakeholders have suggested that 
completion of the performance year, as part of an orderly close-out 
process, could be mutually beneficial to the ACO, its ACO participants 
and ACO providers/suppliers, and to CMS. Specifically, stakeholders 
have suggested that an ACO should be entitled to receive shared savings 
if the ACO completes a performance year through December 31 and 
satisfies all requirements for sharing in savings for that performance 
year (for example, the quality reporting for the performance year). 
Additionally, by completing quality reporting as part of the close-out 
process, the ACO participants would not be penalized by the ACO's 
decision to terminate its participation agreement. For example, 
eligible professionals that bill through the TIN of an ACO participant 
could satisfy the reporting requirement to avoid the downward payment 
adjustment under the PQRS in a subsequent year.
    Therefore, we propose in Sec.  425.221(b) to permit an ACO whose 
participation agreement is voluntarily terminated by the ACO under 
Sec.  425.220 to qualify for shared savings, if--
     The effective date of termination is December 31; and
     By a date specified by CMS, it completes its close-out 
process for the performance year in which the termination becomes 
effective.
    In order to effectively manage this option in the case of voluntary 
termination, the ACO must specify in its termination notice, and CMS 
must approve, a termination effective date of December 31 for the 
current performance year. Because the proposed new provision at Sec.  
425.221 will address the consequences of termination, including the 
payment consequences, we also propose to make a conforming change to 
Sec.  425.220 to remove paragraph (b) addressing the payment 
consequences of early termination.
    We note that the opportunity to share in savings for a performance 
year would not extend to ACOs that terminate their participation 
agreement with effective dates prior to December 31 or to ACOs that CMS 
terminates under Sec.  425.218. Those ACOs that terminate prior to 
December 31 will not have completed the performance year and thus would 
not qualify for shared savings. ACOs terminated by CMS under Sec.  
425.218 would not qualify for shared savings irrespective of the 
termination date because maintaining eligibility to participate in the 
Shared Saving Program is a pre-requisite for sharing in savings (see 
Sec. Sec.  425.604(c) and 425.606(c)). In such cases, we strongly 
encourage ACOs to fulfill their obligations to their ACO participants 
and ACO providers/suppliers by reporting quality for the performance 
year in which it terminates so that their ACO participants and ACO 
providers/suppliers are not unduly penalized by the ACO's decision. 
However, even if the ACO completes quality reporting on behalf of its 
ACO participants and ACO provider/suppliers, if the ACO terminates its 
participation midyear or is terminated by CMS under Sec.  425.218 
(prior to December 31), it would not be eligible to share in savings 
for the performance year. The ACO would not be eligible to share in 
savings because the ACO would not have satisfied all requirements for 
sharing in savings for that performance year.
(3) Reconsideration Review Process
(A) Overview
    Under Sec.  425.802(a), an ACO may appeal an initial determination 
that is not subject to the statutory preclusion on administrative or 
judicial review (see section 1899(g) of the Act). Specifically, the 
following determinations are not subject to administrative or judicial 
review:
     The specification of quality and performance standards 
under Sec. Sec.  425.500 and 425.502.
     The assessment of the quality of care furnished by an ACO 
under the performance standards.
     The assignment of beneficiaries.
     The determination of whether the ACO is eligible for 
shared savings and the amount of such shared savings (including the 
determination of the estimated average per capita Medicare expenditures 
under the ACO for beneficiaries assigned to the ACO and the average 
benchmark for the ACO).
     The percent of shared savings specified by the Secretary 
and the limit on the total amount of shared savings established under 
Sec. Sec.  425.604 and 425.606.

[[Page 72849]]

     The termination of an ACO for failure to meet the quality 
performance standards.
    Initial determinations that are not precluded from administrative 
or judicial review would include the denial of an ACO application or 
the involuntary termination of an ACO's participation agreement by CMS.
    Under Sec.  425.802(a), an ACO may appeal an initial determination 
that is not prohibited from administrative or judicial review by 
requesting reconsideration review by a CMS official. The request for 
review must be submitted for receipt by CMS within 15 days of the 
notice of the initial determination. Section 425.802(a)(2) provides 
that reconsiderations may be heard orally (that is, in person, by 
telephone or other electronic means) or on the record (review of 
submitted documentation) at the discretion of the reconsideration 
official.
(B) Proposed Changes
    To date, CMS reconsideration official(s) have reviewed all 
reconsideration requests received as on-the-record reviews. We believe 
that on-the-record reviews are fair to both parties. Experience to date 
has demonstrated that a robust oral review is not necessary in light of 
the narrow scope of review. The issues eligible for review can be 
easily communicated in a detailed writing by both parties and do not 
require in-person witness testimony. Finally, we believe that on-the-
record reviews do not require as many agency resources and can 
therefore ensure that decisions are made in a timely manner.
    Accordingly, we propose to modify Sec.  425.802 to permit only on-
the-record reviews of reconsideration requests. Additionally, we 
propose to similarly modify Sec.  425.804 and also clarify that the 
reconsideration process allows both ACOs and CMS to submit one brief 
each in support of its position by the deadline established by the CMS 
reconsideration official.
4. Monitoring ACO Compliance With Quality Performance Standards
    We propose a technical revision to Sec.  425.316(c) to clarify our 
administrative enforcement authority when ACOs fail to meet the quality 
reporting requirements. Specifically, we propose to remove Sec.  
425.316(c)(3), which sets forth various required actions the ACO must 
perform if it fails to report one or more quality measures or fails to 
report completely and accurately on all measures in a domain. We also 
propose to remove Sec.  425.316(c)(4), which sets forth the 
administrative action we may take against an ACO if it exhibits a 
pattern of inaccurate or incomplete reporting of quality measures or 
fails to make timely corrections following notice to resubmit. The 
actions identified in Sec.  425.316(c)(3) and (4) include request for 
missing or corrected information, request for a written explanation for 
the noncompliance, and termination. All of these actions are already 
authorized under Sec.  425.216 and Sec.  425.218. Therefore, to reduce 
redundancy, prevent confusion, and to streamline our regulations, we 
propose to modify Sec.  425.316(c) to remove Sec.  425.316(c)(3) and 
(c)(4).
    In addition, we propose a technical change to Sec.  425.316(c)(5), 
which currently provides that an ACO ``will not qualify to share in 
savings in any year it fails to report fully and completely on the 
quality performance measures.'' We propose to redesignate this 
paragraph as Sec.  425.316(c)(3) and replace ``fully and completely'' 
with ``accurately, completely, and timely'' to align with Sec.  
425.500(f) and to emphasize the importance of timely submission of 
measures.

III. Collection of Information Requirements

    As stated in section 3022 of the Affordable Care Act, Chapter 35 of 
title 44, United States Code, shall not apply to the Shared Savings 
Program. Consequently, the information collection requirements 
contained in this proposed rule need not be reviewed by the Office of 
Management and Budget.

IV. Response to Comments

    Because of the large number of public comments we normally receive 
on Federal Register documents, we are not able to acknowledge or 
respond to them individually. We will consider all comments we receive 
by the date and time specified in the DATES section of this proposed 
rule, and, when we proceed with a subsequent document, we will respond 
to the comments in the preamble to that document.

V. Regulatory Impact Analysis

A. Statement of Need

    This proposed rule is necessary to propose payment and policy 
changes to the Medicare Shared Savings Program established under 
section 1899 of the Act. The Shared Savings Program promotes 
accountability for a patient population, coordinates items and services 
under parts A and B, and encourages investment in infrastructure and 
redesigned care processes for high quality and efficient service 
delivery.

B. Overall Impact

    We have examined the impacts of this rule as required by Executive 
Order 12866 on Regulatory Planning and Review (September 30, 1993), 
Executive Order 13563 on Improving Regulation and Regulatory Review 
(January 18, 2011), the Regulatory Flexibility Act (RFA) (September 19, 
1980, Pub. L. 96-354), section 1102(b) of the Social Security Act, 
section 202 of the Unfunded Mandates Reform Act of 1995 (March 22, 
1995; Pub. L. 104-4), Executive Order 13132 on Federalism (August 4, 
1999) and the Congressional Review Act (5 U.S.C. 804(2)).
    Executive Orders 12866 and 13563 direct agencies to assess all 
costs and benefits of available regulatory alternatives and, if 
regulation is necessary, to select regulatory approaches that maximize 
net benefits (including potential economic, environmental, public 
health and safety effects, distributive impacts, and equity). Section 
3(f) of Executive Order 12866 defines a ``significant regulatory 
action'' as an action that is likely to result in a rule: (1) Having an 
annual effect on the economy of $100 million or more in any 1 year, or 
adversely and materially affecting a sector of the economy, 
productivity, competition, jobs, the environment, public health or 
safety, or state, local or tribal governments or communities (also 
referred to as ``economically significant''); (2) creating a serious 
inconsistency or otherwise interfering with an action taken or planned 
by another agency; (3) materially altering the budgetary impacts of 
entitlement grants, user fees, or loan programs or the rights and 
obligations of recipients thereof; or (4) raising novel legal or policy 
issues arising out of legal mandates, the President's priorities, or 
the principles set forth in the Executive Order.
    A regulatory impact analysis (RIA) must be prepared for major rules 
with economically significant effects ($100 million or more in any 1 
year). We estimate that this rulemaking is ``economically significant'' 
as measured by the $100 million threshold, and hence also a major rule 
under the Congressional Review Act. Accordingly, we have prepared a 
Regulatory Impact Analysis, which to the best of our ability presents 
the costs and benefits of the rulemaking.

C. Anticipated Effects

1. Effects on the Medicare Program
    The Shared Savings Program is a voluntary program involving an 
innovative mix of financial incentives

[[Page 72850]]

for quality of care and efficiency gains within FFS Medicare. As a 
result, the changes being proposed to the Shared Savings Program could 
result in a range of possible outcomes. In previous rulemaking (76 FR 
67904), we indicated that participation in Track 1 might enable ACOs to 
gain the experience necessary to take on risk in a subsequent agreement 
period under a two-sided arrangement, possibly enhancing the 
opportunity for greater program savings in years beyond the first 
agreement period. Conversely, if in that first agreement period, ACOs 
come to reliably predict a bias that ensures an outcome--whether 
favorable or unfavorable--the program would be at risk for increasingly 
selective participation from favored ACOs and any real program savings 
could be overwhelmed by outsized shared-savings payments (76 FR 67964). 
Further, even ACOs that opt for a two-sided arrangement could 
eventually terminate their agreements if they anticipate that efforts 
to improve efficiency are overshadowed by their particular market 
circumstances. This scenario could also contribute to selective program 
participation by ACOs favored by the national flat-dollar growth 
target, or favored by other unforeseen biases affecting performance.
    However, as we indicated in the previous rulemaking, even with the 
optional liability for a portion of excess expenditures, which offers 
less incentive to reduce costs than a model involving full capitation, 
the opportunity to share in FFS Medicare savings still represents an 
incentive for efficiency. The actual effects of shared savings (and 
potential liabilities in the form of shared losses) will have varying 
degrees of influence on hospitals, primary care physicians, specialty 
physicians, and other providers and suppliers. Moreover, while certain 
care improvements might be achieved relatively quickly (for example, 
prevention of hospital readmissions and emergency-room visits for 
certain populations with chronic conditions), some ACOs might need more 
than 3 years to achieve comprehensive efficiency gains.
    As of the spring of 2014, over 330 organizations have chosen to 
participate in the Shared Savings Program. These organizations care for 
nearly 5 million assigned FFS beneficiaries living in 47 states, plus 
Puerto Rico and the District of Columbia. Half of all ACOs characterize 
themselves as networks of individual practices and the other half 
include hospitals. In the fall of 2014, CMS announced the final 
financial reconciliation and quality performance results for 
performance year 1 for ACOs with 2012 and 2013 agreement start dates. 
Of the 220 ACOs with 2012 and 2013 start dates, 58 ACOs generated 
shared savings during their first performance year. They held spending 
$705 million below their targets and earned shared savings payments of 
more than $315 million as their share of program savings. One ACO in 
Track 2 overspent its target by $10 million and owed shared losses of 
$4 million. Total net savings to Medicare is close to $383 million, 
including repayment of shared losses by one Track 2 ACO. An additional 
60 ACOs reduced health costs compared to their benchmark, but did not 
qualify for shared savings, as they did not meet the minimum savings 
threshold. While evaluation of the program's overall impact is ongoing, 
the performance year 1 final financial reconciliation and quality 
results are within the range originally projected for the program's 
first year. Also, at this point, we have seen no evidence of systematic 
bias in ACO participation or performance that would raise questions 
about the savings that have been achieved.
    Earlier in this proposed rule, we proposed additions to or changes 
in policy that are intended to better encourage ACO participation in 
risk-based models by--
     Easing the transition from Track 1 to Track 2;
     Reducing risk under Track 2; and
     Adopting an alternative risk-based model--Track 3.
    First, as is currently the case, an ACO would be able to apply to 
participate in Track 1 for its initial agreement period during which 
the ACO could be eligible for shared savings payments in all 3 
performance years of the agreement period without the risk of being 
responsible for repayment of any losses if actual expenditures exceed 
the benchmark. However, rather than requiring all Track 1 ACOs to 
transition to a risk-based model in their second agreement period, as 
is currently required, we are proposing to improve the transition from 
the shared-savings only model to a risk-based model for Track 1 ACOs 
that might require additional experience with the program before taking 
on performance-based risk. Specifically, in this proposed rule, we are 
proposing that Track 1 ACOs may elect to continue participation under 
Track 1 for a subsequent agreement period, albeit with a lower sharing 
rate, provided that they meet the eligibility requirements to continue 
in the program under Track 1.
    Second, we are proposing to reduce the current level of risk for 
ACOs that participate in Track 2, which provides an opportunity for an 
ACO to receive a higher percentage of shared savings for all years of 
the agreement period, but with potential liability for shared losses in 
each of the agreement years if annual expenditures exceed the 
benchmark. Specifically, in this proposed rule, we are proposing to 
replace the current flat 2 percent MSR and MLR under Track 2 with a 
variable MSR and MLR using the same methodology as is currently used to 
establish the MSRs for ACOs under Track 1. Under this methodology an 
ACO's MSR varies based on the number of assigned beneficiaries using a 
sliding scale. Similarly, we are proposing to vary a Track 2 ACO's MSR 
and MLR based on the number of assigned beneficiaries. This proposal 
would reduce risk for many Track 2 ACOs by increasing the threshold 
before they would have to share in additional costs that they had 
incurred for the program.
    Third, in this proposed rule, we are proposing to establish an 
additional risk-based option (Track 3) that offers a higher maximum 
shared savings percentage (75 percent) and performance payment limit 
(20 percent) than is available under Track 2 (60 percent and 15 percent 
respectively), a fixed MSR and MLR of 2 percent, and a cap on the 
amount of losses for which an ACO is liable that is fixed at 15 percent 
of its updated benchmark in each year. Also, under this model, 
beneficiaries would be assigned prospectively so an ACO would know in 
advance those beneficiaries for which it would be responsible.
    As detailed in Table 8, we estimate at baseline (that is, without 
the proposed changes detailed in this proposed rule) a total aggregate 
median impact of $730 million in net federal savings for calendar years 
(CY) 2016 through 2018 from the continued operation of the Shared 
Savings Program for ACOs electing a second agreement period starting in 
January 2016. The 10th and 90th percentiles of the estimate 
distribution, for this same time period, yield a net savings of $380 
million and $1,160 million, respectively. These estimated impacts 
represent the effect on federal transfers of payments to Medicare 
providers and suppliers. The median estimated federal savings are 
higher than the estimate for the program effects over the preceding 
calendar years (CY) 2012 through 2015 published in the previous final 
rule (estimated median net savings of $470 million for such 4 year 
period). This increase in savings is due to multiple factors related to 
maturation of the program, including continued phase-in of assumed 
savings potentials, lowered effective sharing

[[Page 72851]]

rates due in part to rebased benchmarks, and increased collection of 
shared losses due to mandatory enrollment in Track 2 in a second 
agreement period. However, absent changes to improve the viability of 
participation for ACOs considering a second agreement period, we 
estimate fewer than one in four ACOs will opt for continued 
participation under downside risk in Track 2 as required under the 
current regulations. Further, we estimate approximately one in three of 
such re-enrolling ACOs would ultimately drop out of the program by 2018 
to avoid future shared loss liability.
    Alternatively, as detailed in Table 9, by including the proposed 
changes detailed in this rule, the total aggregate median impact would 
increase to $1,010 million in net federal savings for calendar years 
(CY) 2016 through 2018. The 10th and 90th percentiles of the estimate 
distribution, for the same time period, would also be higher, yielding 
net savings of $430 million and $1,650 million, respectively. Such 
median estimated federal savings are $280 million greater than the $730 
million median net savings estimated at baseline absent proposed 
changes. A key driver of an anticipated increase in net savings is 
through improved ACO participation levels in a second agreement period. 
We estimate that at least 90 percent of eligible ACOs will renew their 
participation in the Shared Savings Program if presented with the new 
options, primarily under Track 1 and, to a lesser extent, under Track 
3. This expansion in the number of ACOs willing to continue their 
participation in the program is estimated to result in additional 
improvements in care efficiency of a magnitude significantly greater 
than the reduced shared loss receipts estimated from baseline (median 
shared loss dollars reduced by $140 million relative to baseline) and 
the added shared savings payments flowing from a higher sharing rate in 
Track 3 and continued one-sided sharing available in Track 1 (median 
shared savings payments increased by $320 million relative to 
baseline).
    With respect to costs incurred by ACOs, as discussed later in this 
section, for purposes of this analysis, we are retaining our assumption 
included in our November 2011 final rule (76 FR 67969) of an average of 
$0.58 million for start-up investment costs but are revising our 
assumption for average ongoing annual operating costs for an ACO 
participating in the Shared Savings Program to $0.86 million, down from 
the $1.27 million assumed in our November 2011 final rule (76 FR 
67969). This revision is related to the lower average number of 
beneficiaries currently observed to be assigned to existing Shared 
Savings Program ACOs compared to the larger organizations participating 
in the Physician Group Practice Demonstration upon which the original 
assumption was based. We also believe that our proposals to streamline 
the administrative requirements for the program could further assist in 
lowering administrative costs.
    For our analysis, we are comparing the effects of the proposed 
changes in this proposed rule for a cohort of ACOs that either 
continued their participation, beginning in 2016 or newly began 
participation in that same year. For purposes of our analysis, we 
assume that roughly one quarter of ACOs will incur aggregate start-up 
investment costs in 2016, ranging from $7 million under the baseline 
scenario to $30 million under the alternative (all proposed changes) 
scenario in aggregate. Aggregate-ongoing operating costs are estimated 
to range from $43 million under the baseline scenario to $181 million 
under the alternative scenario. Both start-up investment and ongoing 
operating cost ranges assume an anticipated average participation level 
of 50 (baseline scenario) to 210 (alternative scenario) new or 
currently participating ACOs that establish or renew participation 
agreements in 2016. For purposes of this analysis, we assume that some 
portion of ACOs currently participating in the program will not renew 
their participation agreement for a subsequent agreement period. As a 
result, under our baseline scenario, we assume 50 ACOs will either 
renew or begin an agreement period in 2016--far fewer than the 100 new 
ACOs that have entered the program in each of the last 2 years. The 3-
year aggregate ongoing operating cost estimate also reflects our 
assumption that, under the baseline scenario, there would be a greater 
propensity for ACOs that have completed the full term of their initial 
agreement period, and that would be required to participate under Track 
2 in their second agreement period, to drop out of the program after 
receiving poor results from their final settlement for the first 
performance year under Track 2 in the new agreement period. Therefore, 
as illustrated in Table 8 for the baseline scenario, for CYs 2016 
through 2018, total median ACO shared savings payments of $310 million 
offset by $170 million in shared losses coupled with the aggregate 
average start-up investment and ongoing operating cost of $121 million 
result in an estimated net private benefit of $19 million. 
Alternatively, as illustrated in Table 9 for the all changes scenario, 
for CYs 2016 through 2018 the total median ACO shared savings payments 
of $630 million, offset by $30 million in shared losses, coupled with 
the aggregate average start-up investment and ongoing operating costs 
of $562 million, result in an estimated net private benefit of $38 
million. By proposing to no longer require ACOs to accept risk in their 
second agreement period, our proposed changes also provide the benefit 
of reducing the per-ACO average shared loss liability by over 95 
percent compared to the baseline. Therefore, the proposed changes would 
likely prevent a significant number of ACOs that would renew their 
participation agreements in 2016 from leaving the program prior to 
2018.
    By encouraging greater Shared Savings Program participation, the 
changes proposed in this rule will also benefit beneficiaries through 
broader improvements in accountability and care coordination than would 
occur under current regulations. Accordingly, we have prepared a 
regulatory impact analysis (RIA) that to the best of our ability 
presents the costs and benefits of this proposed rule.

   Table 8--Baseline (Absent All Proposed Changes) Estimated Net Federal Savings, Costs and Benefits, CYs 2016
                                                  Through 2018
----------------------------------------------------------------------------------------------------------------
                                        CY 2016             CY 2017             CY 2018         CYs (2016-2018)
----------------------------------------------------------------------------------------------------------------
Net Federal Savings:
    10th Percentile.............  $200 million......  $150 million......  $20 million.......  $380 million.
    Median......................  $340 million......  $270 million......  $110 million......  $730 million.
    90th Percentile.............  $510 million......  $430 million......  $240 million......  $1160 million.
ACO Shared Savings:
    10th Percentile.............  $40 million.......  $60 million.......  $70 million.......  $180 million.
    Median......................  $80 million.......  $110 million......  $120 million......  $310 million.

[[Page 72852]]

 
    90th Percentile.............  $130 million......  $170 million......  $190 million......  $480 million.
ACO Shared Losses:
    10th Percentile.............  $20 million.......  $40 million.......  $10 million.......  $80 million.
    Median......................  $60 million.......  $80 million.......  $30 million.......  $170 million.
    90th Percentile.............  $100 million......  $150 million......  $60 million.......  $290 million.
----------------------------------------------------------------------------------------------------------------
Costs...........................     The estimated aggregate average start[dash]up investment and 3[dash]year
                                   operating costs is $121 million. The total estimated start[dash]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[dash]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.

 Table 9--Alternative Scenario Assuming All Proposed Changes Estimated Net Federal Savings, Costs and Benefits,
                                              CYs 2016 Through 2018
----------------------------------------------------------------------------------------------------------------
                                        CY 2016             CY 2017             CY 2018         CYs (2016-2018)
----------------------------------------------------------------------------------------------------------------
Net Federal Savings:
    10th Percentile.............  $190 million......  $150 million......  $80 million.......  $430 million.
    Median......................  $380 million......  $350 million......  $280 million......  $1,010 million.
    90th Percentile.............  $590 million......  $570 million......  $510 million......  $1650 million.
ACO Shared Savings:
    10th Percentile.............  $90 million.......  $150 million......  $220 million......  $470 million.
    Median......................  $140 million......  $210 million......  $280 million......  $630 million.
    90th Percentile.............  $200 million......  $280 million......  $350 million......  $820 million.
ACO Shared Losses:
    10th Percentile.............  $0 million........  $0 million........  $0 million........  $10 million.
    Median......................  $10 million.......  $20 million.......  $0 million........  $30 million.
    90th Percentile.............  $30 million.......  $40 million.......  $20 million.......  $70 million.
----------------------------------------------------------------------------------------------------------------
Costs...........................     The estimated aggregate average start[dash]up investment and 3[dash]year
                                   operating costs is $562 million. The total estimated start[dash]up investment
                                   costs average $30 million, with ongoing costs averaging $181 million, for the
                                                anticipated mean baseline participation of 210 ACOs.
----------------------------------------------------------------------------------------------------------------
Benefits........................   Improved healthcare delivery and quality of care and better communication to
                                                    beneficiaries through patient-centered care.
----------------------------------------------------------------------------------------------------------------
Note that the percentiles for each individual year do not necessarily sum to equal the corresponding percentiles
  estimated for the total 3-year impact in the column labeled CYs 2016 through 2018, due to the annual and
  overall distributions being constructed independently. Also, the cost estimates for this table reflect our
  assumptions for increased ACO participation as well as changes in the mix of new and continuing ACOs.

    There remains uncertainty as to the number of ACOs that will 
continue to participate in the program, provider and supplier response 
to the financial incentives offered by the program in the medium and 
long run, and the ultimate effectiveness of the changes in care 
delivery that may result as ACOs work to improve the quality and 
efficiency of patient care. These uncertainties continue to complicate 
efforts to assess the financial impacts of the Shared Savings Program 
and result in a wide range of potential outcomes regarding the net 
impact of the proposed changes in this proposed rule on Medicare 
expenditures.
    To best reflect these uncertainties, we continue to utilize a 
stochastic model that incorporates assumed probability distributions 
for each of the key variables that will affect the overall financial 
impact of the Shared Savings Program. Using a Monte Carlo simulation 
approach, the model randomly draws a set of specific values for each 
variable, reflecting the expected covariance among variables, and 
calculates the program's financial impact based on the specific set of 
assumptions. We repeated the process for a total of 2,500 random 
trials, tabulating the resulting individual cost or savings estimates 
to produce a distribution of potential outcomes that reflects the 
assumed probability distributions of the incorporated variables, as 
shown in Table 9. In this way, we can evaluate the full range of 
potential outcomes based on all combinations of the many factors that 
will affect the financial impact, and with an indication of the 
likelihood of these outcomes. It is important to note that these 
indications do not represent formal statistical probabilities in the 
usual sense, since the underlying assumptions for each of the factors 
in the model are based on reasonable judgments, using independent 
expert opinion when available.
    The median result from the distribution of simulated outcomes 
represents the ``best estimate'' of the financial effect of the 
proposed changes to the Shared Savings Program. The full distribution 
illustrates the uncertainty surrounding the mean or median financial 
impact from the simulation.
    The median estimate involves a combination of--
     Reduced actual Medicare expenditures due to more efficient 
care;
     Shared savings payments to ACOs; and
     Payments to CMS for shared losses when actual expenditures 
exceed the

[[Page 72853]]

benchmark, resulting in a projected total of $1,010 million in net 
savings over CYs 2016 through 2018, or $280 million greater than the 
median projected total at baseline without the changes proposed in this 
rule.
    This net Federal savings estimate, detailed at the top of Table 9, 
can be summed with the projected ACO shared savings less projected ACO 
shared losses--both also detailed in Table 9--to show the median 
expected effect on Medicare claim expenditures before accounting for 
shared savings payments (that is, the reduction in actual Medicare 
expenditures due to more efficient care).
    A net savings (cost) occurs when payments of earned and unearned 
shared savings (less shared losses collected) resulting from: (1) 
Reductions in spending; (2) care redesign; and (3) random group claim 
fluctuation, in total are less than (greater than) assumed savings from 
reductions in expenditures.
    As continued emerging data become available on the differences 
between actual expenditures and the target expenditures reflected in 
ACO benchmarks, it may be possible to evaluate the financial effects 
with greater certainty. The estimate distribution shown in Table 10 
provides an objective and reasonable indication of the likely range of 
financial outcomes, given the chosen variables and their assumed 
distributions at this time in the program's operation.
a. Assumptions and Uncertainties
    We continue to rely on input gathered as part of the analysis for 
the existing regulation from a wide range of external experts, 
including credentialed actuaries, consultants, and academic 
researchers, to identify the pertinent variables that could determine 
the efficacy of the program, and to identify the reasonable ranges for 
each variable. We also continue to monitor emerging evidence from 
current participation in this program, the Pioneer ACO Model, and 
related published evidence where available. The factors that we are 
continuing to consider for modeling include all of the following:
     Number of participating ACOs, including the sensitivity to 
burdens of participation and the generosity of the sharing arrangement.
     Size mix of participating ACOs.
     Type of ACO that would consider accepting risk.
     Participating ACOs' current level of integration and 
preparedness for improving the quality and efficiency of care delivery.
     Baseline per-capita costs for ACOs, relative to the 
national average.
     Number and profile of providers and suppliers available to 
participate in the Shared Savings Program as a result of Innovation 
Center model initiatives.
     Range of gross savings achieved by ACOs, and the time 
required for full phase-in.
     Local variation in expected claims cost growth relative to 
the national average.
     Quality reporting scores and resulting attained sharing 
(or loss) percentages.
     Potential 'spillover' effects between the Shared Savings 
Program and other value-based incentive programs implemented by CMS 
and/or other payers.
    We assumed that overall between 0.8 million Medicare beneficiaries 
(under baseline) and 3.3 million Medicare beneficiaries (with all 
proposed changes) would annually be assigned to between 50 and 210 ACOs 
beginning a new agreement period in 2016. Given data on current 
participation, we anticipate the program will continue to garner 
comparable levels of participation from markets exhibiting baseline 
per-capita FFS expenditures above, at, or below the national average. 
In addition, we assumed the level of savings generated by an ACO to 
positively correlate to the achieved quality performance score and 
resulting sharing percentage.
    For estimating the impact of the proposed changes, we assume that 
most ACOs (approximately 9 out of 10, on average) will choose Track 1 
despite a proposed decrease in the savings sharing percentage. This is 
because the ACOs will seek to simultaneously: (1) Avoid the potential 
for financial loss if expenditures experience a significant upward 
fluctuation or efficiency improvements are less effective than planned; 
and (2) continue to build organizational experience to achieve a per-
capita cost target as determined under the program's benchmark 
methodology.
    In contrast, we assume that a minority of ACOs--disproportionately 
represented from a more capable subset of the total program 
participation--will opt for Track 3 in the second agreement period. 
These ACOs will be enabled by experience accepting risk and/or 
achieving success in their first agreement period in this program, and 
motivated by the provision for prospective assignment of beneficiaries 
and the greater sharing percentage as proposed for this new option. A 
particularly important cause for uncertainty in our estimate is the 
high degree of variability observed for local per-capita cost growth 
rates relative to the national average ``flat dollar'' growth (used to 
update ACO benchmarks). The benchmark or expenditure target effectively 
serves as the chief measure of efficiency for participating ACOs. 
Factors such as lower-than-average baseline per-capita expenditure and 
variation in local growth rates relative to the national average can 
trigger shared savings payments even in the absence of any efficiency 
gains. Similarly, some ACOs could find that factors, such as prevailing 
per-capita expenditure growth in their service area that is higher than 
the national average, limit efficiency gains and reduce or prevent 
shared savings.
b. Detailed Stochastic Modeling Results
    Table 10 shows the distribution of the estimated net financial 
impact for the 2,500 stochastically generated trials under the scenario 
where all proposed changes are implemented. (The amounts shown are in 
millions, with negative net impacts representing Medicare savings). The 
net impact is defined as the total cost of shared savings less--(1) any 
amount of savings generated by reductions in actual expenditures; and 
(2) any shared losses collected from ACOs that accepted risk and have 
actual expenditures exceeding their benchmark.
    The median estimate of the Shared Savings Program financial impact 
for ACOs potentially entering a second agreement period as proposed in 
this rule and covering calendar years 2016 through 2018 is a net 
federal savings of $1,010 million, which is $280 million higher than 
our estimate for the same period assuming a baseline scenario, which 
excludes the changes proposed in this rule. This amount represents the 
``best estimate'' of the financial impact of the Shared Savings Program 
during the applicable period. However, it is important to note the 
relatively wide range of possible outcomes. While over 99 percent of 
the stochastic trials resulted in net program savings, the 10th and 
90th percentiles of the estimated distribution show net savings of $430 
million to net savings of $1,650 million, respectively. In the extreme 
scenarios, the results were as large as $2.9 billion in savings or $200 
million in costs.
    The stochastic model and resulting financial estimates were 
prepared by the CMS Office of the Actuary (OACT). The median result of 
$1,010 million in savings is a reasonable ``point estimate'' of the 
impact of the Shared Savings Program during the period between 2016 and 
2018 if the changes proposed

[[Page 72854]]

in this proposed rule are finalized and implemented. However, we 
emphasize the possibility of outcomes differing substantially from the 
median estimate, as illustrated by the estimate distribution. As we 
analyze additional data on ACO performance in the first agreement 
period, we may likely improve the precision of future financial impact 
estimates.
    To the extent that the Shared Savings Program will result in net 
savings or costs to Part B of Medicare, revenues from Part B 
beneficiary premiums would also be correspondingly lower or higher. In 
addition, because MA payment rates depend on the level of spending 
within traditional FFS Medicare, savings or costs arising from the 
Shared Savings Program would result in corresponding adjustments to MA 
payment rates. Neither of these secondary impacts has been included in 
the analysis shown.
[GRAPHIC] [TIFF OMITTED] TP08DE14.000

    Table 11 shows the median estimated financial effects for the 
Shared Savings Program of ACOs entering in a new agreement period 
starting in 2016 and the associated 10th and 90th percentile ranges, 
assuming all changes in this proposed rule are implemented. Net savings 
(characterized by a negative net impact on federal outlays) are 
expected to moderately contract over the 3-year period, from a median 
of $380 million in 2016 to $270 million in 2018. This progression is 
related to the maturation of efficiencies achieved by renewing ACOs 
contrasted by progressive increases in shared savings payments due to 
increasing variability in expenditures in later performance years 
relative to a static benchmark expenditure baseline. To similar effect, 
the potential that Track 3 ACOs experiencing losses may elect to 
voluntarily terminate their participation in the program could work to 
decrease net savings in the last year of the period relative to prior 
years. We note that the percentiles are tabulated for each year 
separately. Therefore, the overall net impact distribution (Table 9) 
will not necessarily exactly match the sum of distributions for each 
distinct year.

[[Page 72855]]

[GRAPHIC] [TIFF OMITTED] TP08DE14.001

c. Further Consideration
    The impact analysis shown is only for the 3 years 2016 through 2018 
corresponding to the second agreement period potentially available for 
the up to nearly 220 ACOs that will complete their first agreement 
period in 2015. As of January 1, 2014, 123 additional ACOs have joined 
the program and would potentially be eligible for a second agreement 
period beginning in 2017. For both groups of ACOs, uncertainties exist 
regarding providers' continued engagement with program goals and 
incentives, especially for providers who fail to generate shared 
savings revenue comparable to the cost of effective participation in 
the program. It is possible that, notwithstanding the enhancements 
proposed in this rule, a significant drop-off in participation could 
materialize from ACOs failing to achieve significant revenue from 
shared savings in the short run. On the other hand, value-based payment 
models are showing significant growth in arrangements from state 
Medicaid programs, private insurers, and employer-sponsored plans. 
Moreover, we would also note that the number of providers and suppliers 
participating in these models and in the existing ACOs continues to 
grow. Therefore, providers may view continued participation in this 
program as part of a wider strategy for care redesign rather than be 
driven only by the potential for receiving incentives in the form of 
shared savings payments from the Medicare Shared Savings Program. 
Therefore, there remains a potential for broad gains in efficiency and 
quality of care delivery across all populations served by ACOs 
participating in the Shared Savings Program with possible additional 
``spillover'' effects on federal savings potentially traceable to 
momentum originally created by this program. The stochastic model for 
estimating future program impacts starting in 2016 does not incorporate 
either of these divergent longer-run scenarios, but both remain 
possibilities. An impact estimate expanded to include performance 
beyond the 2016 through 2018 agreement period would likely entail a 
significantly wider range of possible outcomes. However, emerging 
results of the first performance cycle will help inform estimates of 
the ongoing financial effects of the Shared Savings Program.
2. Effects on Beneficiaries
    This program is still in the early stages of implementation. 
However, we continue to believe that the Shared Savings Program will 
benefit beneficiaries because the intent of the program is to--
     Encourage providers and suppliers to join together to form 
ACOs that will be accountable for the care provided to an assigned 
population of Medicare beneficiaries;
     Improve the coordination of FFS items and services; and

[[Page 72856]]

     Encourage investment in infrastructure and redesigned care 
processes for high quality and efficient service delivery that 
demonstrates a dedication to, and focus on, patient-centered care that 
results in higher quality care.
    The benefits of a payment model that encourages providers and 
suppliers to become accountable for the overall care furnished to 
Medicare beneficiaries were evidenced by the PGP demonstration, upon 
which many features of the Shared Savings Program are based. Under the 
PGP demonstration, all of the PGP participants achieved improvements in 
their scores for most of the quality measures over time. While only 2 
PGP participants met all 10 quality measure targets active in their 
first performance year, by the fifth performance year, seven sites met 
all 32, or 100 percent of their targets, and the remaining 3 PGP 
participants met over 90 percent of the targets. More specifically, as 
we previously discussed in our November 2011 final rule (76 FR 67968), 
over the first 4 years of the PGP Demonstration, physician groups 
increased their quality scores an average of 10 percentage points on 
the ten diabetes measures, 13 percentage points on the ten congestive 
heart failure measures, 6 percentage points on the seven coronary 
artery disease measures, 9 percentage points on the 2 cancer screening 
measures, and 3 percentage points on the 3 hypertension measures. 
Further analysis is provided in the Physician Group Practice 
Demonstration Evaluation Report (Report to Congress, 2009; http://www.cms.gov/DemoProjectsEvalRpts/downloads/PGP_RTC_Sept.pdf).
    As we have also previously discussed (76 FR 67968), in addition to 
the overall increases in quality scores, we can examine the impact of 
the PGP Demonstration on quality by comparing the values of the seven 
claims-based quality measures for each PGP site and its comparison 
group. Our analysis found that, on the claims-based measures, PGP 
performance exceeded that of the comparison groups (CGs) on all 
measures between the base year (BY) and performance year 2 (PY2). It 
also found that the PGP sites exhibited more improvement than their CGs 
on all but one measure between the BY and PY2. Even after adjusting for 
pre-demonstration trends in the claims-based quality indicators, the 
PGP sites improved their claims-based quality process indicators more 
than their comparison groups.
    Further, for the first year of the Pioneer ACO Model, all 32 
Pioneer ACOs successfully reported quality measures and achieved the 
maximum quality score for complete and accurate reporting, earning 
incentive payments for their reporting accomplishments. Overall, 
Pioneer ACOs performed better than published rates in FFS Medicare for 
all 15 clinical quality measures for which comparable data are 
available. For example,
     Twenty-five of 32 Pioneer ACOs generated lower risk-
adjusted readmission rates for their aligned beneficiaries than the 
benchmark rate for all Medicare FFS beneficiaries.
     Pioneer ACOs performed better on clinical quality measures 
that assess hypertension control for patients. The median rate among 
Pioneer ACOs on blood pressure control among beneficiaries with 
diabetes was 68 percent compared to 55 percent as measured in adult 
diabetic population in 10 managed care plans across 7 states from 2000 
to 2001.
     Pioneer ACOs performed better on clinical quality measures 
that assess low density lipoprotein (LDL) control for patients with 
diabetes. The median rate among Pioneer ACOs for LDL control among 
beneficiaries with diabetes was 57 percent compared to 48 percent in an 
adult diabetic population in 10 managed care plans across 7 states from 
2000 to 2001.
    Additionally, under the Shared Savings Program, all but 6 
organizations fully and completely reported quality measures for the 
2013 reporting period, providing important information on current 
performance that can be used to improve patient engagement and make 
meaningful positive impacts on patient care.
    Above and beyond the early quality data generated by participating 
organizations, we have anecdotal evidence that illustrates the 
importance of encouraging participation in the Shared Savings Program. 
For example, ACO providers/suppliers report very meaningful changes in 
patient engagement through beneficiary participation on the governing 
body of the ACO and on patient advisory committees. In response to 
beneficiary input, clinical practices are offering extended office 
hours, including weekend hours, and ensuring timely appointments and 
access to clinical staff. Using the data shared by CMS, ACOs are able 
to identify high risk beneficiaries that require additional clinical 
attention, assign case managers, and actively work to improve care for 
these beneficiaries. One ACO reported that it has implemented a process 
for performing in-home medication reconciliation and review of care 
plans as a follow up to hospital discharge and for one third of those 
patients, discovered an intervention that avoided an unnecessary 
hospital readmission. Active identification and management of these 
patients has uncovered previously unaddressed issues that factored into 
patient inability to adhere to treatment plans. For example, one ACO 
reported that it has uncovered several psycho-social issues that were 
resulting in avoidable readmissions such as--
     The inability to self-medicate (the ACO arranged for home 
health services);
     Lack of transportation to clinical practices (the ACO's 
affiliated hospitals had a taxi service voucher program that the ACO 
was able to expand to the beneficiary population assigned to the ACO):
     Inadequate access to healthy food resources (the ACO 
worked with community stakeholders to have meals delivered to the 
patient's home).
    Additionally, ACOs are using claims data to identify diagnoses 
prevalent in the assigned population and develop best practice 
guidelines for those conditions, and educating and alerting ACO 
participants and ACO providers/suppliers to standardize care.
    We expect that the changes proposed in this proposed rule, 
specifically those easing administrative requirements, smoothing the 
transition to a risk-based model, and expanding opportunities to share 
in a higher level of savings will encourage greater program 
participation by ACOs, which will in turn increase the number of 
beneficiaries that can potentially benefit from high quality and more 
coordinated care. Nonetheless, this program does not affect 
beneficiaries' freedom of choice regarding which providers and 
suppliers they see for care since beneficiaries assigned to an ACO 
continue to be in the traditional Medicare program. Thus, beneficiaries 
may continue to choose providers and suppliers that do not participate 
in ACOs under the Shared Savings Program.
3. Effect on Providers and Suppliers
    Based on discussions with ACOs that generated interim shared 
savings and demonstrated high quality care during their first 
performance year in the Shared Savings Program, we know that ACOs are 
busy implementing a variety of strategies designed to improve care 
coordination for beneficiaries and lower the rate of growth in 
expenditures. Most of these ACOs consider themselves to be ``physician-
based'' organizations, rather than ``hospital-based'', although many 
state that a strong collaboration between

[[Page 72857]]

inpatient and outpatient facilities is critical to better care 
coordination across sites of care. ACOs mentioned several strategies 
they believed were important such as careful pre-participation 
planning, transparency between the ACO leadership and its ACO 
participants and ACO providers/suppliers, education of ACO providers/
suppliers regarding the ACO's care processes, strong physician 
leadership, and working to streamline and transform practices for 
highly efficient coordinated care across sites of care. Several 
clinicians in ACOs have reported to us that the ACO is providing them 
with the support and structure needed to practice ``how [they] always 
hoped [they] could''. All of the ACOs recognize that they are early in 
the process of implementing their strategies to improve care 
coordination and reduce the rate of growth in expenditures and have 
plans to refine and improve based upon their early lessons learned.
    We realize that ACOs bear costs in building the organizational, 
financial and legal infrastructure that is necessary to participate in 
the Shared Savings Program and implementing the strategies previously 
articulated, as well as performing the tasks required of an ACO, such 
as: Quality reporting, conducting patient surveys, and investing in 
infrastructure for effective care coordination. While provider and 
supplier participation in the Shared Savings Program is voluntary, we 
have examined the potential costs of continued program participation.
    In this proposed rule, we are proposing to revise several program 
policies in order to reduce the burden associated with the 
infrastructure, start-up and ongoing annual operating costs for 
participating ACOs in the Shared Savings Program. These proposals 
include simplifying the application process for certain ACOs with 
experience under either Pioneer ACO Model or the Shared Savings Program 
streamlining sharing of beneficiary data. These significant proposed 
policy modifications are discussed in detail in sections II.B., C., and 
D. of this proposed rule.
    The Shared Savings Program is still relatively new, and the initial 
group of organizations that applied to participate has only recently 
completed the first performance year. Because of this limited 
experience with the program and flexibility regarding the composition 
of providers and suppliers within an ACO and the strategies that the 
provider community will pursue in order to improve quality and reduce 
cost of care, precise estimates of expected provider costs or changes 
to their costs due to this proposed rule are difficult to create.
    In our November 2011 final rule (76 FR 67968), we discussed a 
Government Accountability Office analysis of the PGP demonstration. The 
GAO study showed that both start-up and annual operating costs varied 
greatly across the participating practices. Thus, as we indicated in 
the November 2011 final rule (76 FR 67968), we use GAO's analysis not 
to predict cost investment and operating expenditures, but to 
demonstrate that we expect the range of investment to vary greatly 
across ACOs and to provide the potential scope for aspiring 
participants.
    For purposes of our current impact analysis, we are retaining the 
assumption included in our November 2011 final rule (76 FR 67969) of 
$0.58 million in average start-up investment cost but are revising our 
assumption for average ongoing annual operating costs for an ACO from 
$1.27 million to $0.86 million to reflect the lower average number of 
beneficiaries assigned to existing Shared Savings Program ACOs 
(approximately 14,700 beneficiaries) compared to the ten PGP sites 
examined by GAO (average size approximately 22,400 beneficiaries). 
Therefore, our cost estimates for purposes of this proposed rule 
reflect an average estimate of $0.58 million for the start-up 
investment costs and $0.86 million in ongoing annual operating costs 
for an ACO participating in the Shared Savings Program. Assuming an 
expected range of ACOs participating in the Shared Savings Program of 
50 to 210 ACOs (baseline scenario and all changes scenario, 
respectively) yields an estimated aggregate start-up investment cost 
ranging from $7 million to $30 million (assuming 1 in 4 ACOs will incur 
start-up costs), with aggregate ongoing operating costs ranging from 
$43 million to $181 million for the agreement period coinciding with 
CYs 2016 through 2018. We are also assuming that ACOs participating in 
a track that includes two-sided performance-based risk will in certain 
cases drop out of the program after receiving poor results for the 
first performance period beginning in 2016. Such drop out activity is 
assumed to affect a greater proportion of ACOs at baseline than under 
the all changes scenario because of the requirement that all renewing 
ACOs participate in Track 2 under the baseline scenario. When utilizing 
the anticipated mean participation rate of ACOs in the Shared Savings 
Program for such agreement period coupled with the average start-up 
investment and ongoing annual operating costs for the up to 3 years 
that ACOs may participate for such agreement period, this yields 
estimated aggregate average start-up investment and ongoing operating 
costs of $121 million for 50 ACOs (assuming no regulatory changes) to 
$562 million for 210 ACOs (assuming the proposed regulatory changes) 
for the agreement period covering CYs 2016 through 2018.
    While there will be a financial cost placed on ACOs that 
participate, there will be benefits to the respective organizations in 
the form of increased operational and healthcare delivery efficiency. 
Furthermore, as discussed previously, and explained in more detail in 
the preamble of this proposed rule, there will be an opportunity for 
financial reward for success in the program in the form of shared 
savings. As shown in Table 12, the estimate of the shared savings that 
will be paid to participating ACOs is a median of $630 million during 
CYs 2016 through 2018, with $470 million and $820 million reflecting 
the 10th and 90th percentiles, respectively. (Similar to the previously 
presented stochastic distributions, the distribution represents 
uncertainty given the range of expert opinion, rather than a true 
statistical probability distribution.)
    Compared to shared savings payments, under our proposed changes to 
the program, we anticipate collection from participating ACOs of a 
relatively moderate $30 million in shared losses during the same 
period, with our 10th and 90th percentiles projecting $10 million and 
$70 million in shared losses collected, respectively. Shared losses 
decrease relative to the baseline (median of $170 million over the same 
3 years) because, in contrast to the baseline requirement, not all 
renewing ACOs would be required to enter Track 2 and take on downside 
risk. Modeling indicates that not all ACOs choosing downside risk in a 
second agreement period, whether required, as under the current 
regulation or as an alternative option under the proposed changes, will 
achieve shared savings and some may incur a financial loss, due to the 
requirement to repay a share of actual expenditures in excess of their 
benchmark as shared losses. The significantly reduced level of shared 
losses anticipated under the all proposed changes scenario is largely 
attributable to the proposed option for eligible ACOs to be able to 
renew under a modified Track 1, and illustrates a key reason why the 
program would be anticipated to see significantly stronger continued 
participation under the proposed changes than at baseline.

[[Page 72858]]

    Assuming the proposed changes in this proposed rule, total median 
ACO shared savings payments ($630 million) net of median shared losses 
($30 million) to ACOs with agreement periods covering CYs 2016 through 
2018 are $600 million in net payments. Such median total net payment 
amount, coupled with the aggregate average start-up investment and 
ongoing operating cost of $562 million, incurred by the mean 
participation rate of ACOs in the Shared Savings Program during the 
same time period, yields a net private benefit of $38 million. At 
baseline, absent the proposed changes, the median net payments to ACOs 
over the same time period would be only $140 million ($310 million in 
shared savings payments less $170 million in shared losses). Such lower 
net sharing at baseline, combined with baseline average start-up 
investment and ongoing operating costs of $121 million, yields a net 
private benefit of $19 million. We expect that a significant portion of 
Track 1 ACOs that are assumed to be unwilling to renew under the 
program without the protection from downside risk will welcome the 
opportunity to continue under Track 1 for a second agreement period, 
albeit with a lower maximum sharing rate of 40 percent. Moreover, the 
proposed changes reduce the estimated per-ACO average shared loss 
liability by over 95 percent compared to the baseline, and increase the 
chance an ACO renewing in 2016 will continue to participate for all 3 
years of the new agreement period.
    We would note that our estimates of net private benefits under the 
baseline and all proposed changes scenarios are influenced by 
assumptions that could vary in practice and thus result in a very 
different actual result than what was estimated. First, we assume that 
savings realized by existing ACOs during their first agreement period 
are built into their benchmarks and our baseline for their successive 
agreement period. This means that these ACOs may have to achieve 
greater efficiencies and quality improvements during their successive 
agreement period compared to their prior one in order to share in 
savings. Moreover, the extent to which these ACOs actually exceed or 
fall short of our assumed baseline savings will result in higher or 
lower actual net private benefits relative to our estimate. Second, our 
estimates assume a large proportion of existing Track 1 ACOs will 
continue participating under Track 1 for 2016 to 2018, albeit at the 
lower 40 percent sharing rate. This assumption has the effect of 
diminishing estimated benefits under our model. Thus, all else being 
equal, the extent to which a smaller or larger percentage of these ACOs 
remain under Track 1 for their second agreement period will also 
respectively increase or decrease the actual net private benefits 
relative to what we estimated. Finally, to the extent that actual ACO 
quality performance exceeds or falls short of our estimates, the net 
private benefits could be respectively higher or lower than what we 
estimated.
    We also note that the net private benefits actually experienced by 
a given ACO may increase as a result of other benefits associated with 
participation in the Shared Savings Program. For example, an ACO that 
is participating in the Shared Savings Program and simultaneously 
receives value-based contracts from other payers may receive additional 
benefits. Such potential benefits are not considered in our analysis 
because they are not readily quantifiable. Therefore, we limit our 
benefit-cost estimate to shared savings and shared loss dollars 
received under the Shared Savings Program relative to estimated 
operational costs associated with participating in the program as 
previously described.

[[Page 72859]]

[GRAPHIC] [TIFF OMITTED] TP08DE14.002

4. Effect on Small Entities
    The RFA requires agencies to analyze options for regulatory relief 
of small entities, if a rule has a significant impact on a substantial 
number of small entities. For purposes of the RFA, small entities 
include small businesses, nonprofit organizations, and small 
governmental jurisdictions. Most physician practices, hospitals and 
other providers are small entities, either by virtue of their nonprofit 
status or by qualifying as small businesses under the Small Business 
Administration's size standards (revenues of less than $7.5 to $38.5 
million in any 1 year; NAIC Sector-62 series). States and individuals 
are not included in the definition of a small entity. For details, see 
the Small Business Administration's Web site at http://www.sba.gov/content/small-business-size-standards. For purposes of the RFA, 
approximately 95 percent of physicians are considered to be small 
entities. There are over 1 million physicians, other practitioners, and 
medical suppliers that receive Medicare payment under the Physician Fee 
Schedule (PFS).
    Although the Shared Savings Program is a voluntary program and 
payments for individual items and services will continue to be made on 
a FFS basis, we acknowledge that the program can affect many small 
entities and have drafted the proposed changes to our rules and 
regulations accordingly in order to minimize costs and administrative 
burden on such entities as well as to maximize their opportunity to 
participate. Small entities are both allowed and encouraged to 
participate in the Shared Savings Program, provided they have a minimum 
of 5,000 assigned beneficiaries, thereby potentially realizing the 
economic benefits of receiving shared savings resulting from the 
utilization of enhanced and efficient systems of care and care 
coordination. Therefore, a solo, small physician practice or other 
small entity may realize economic benefits as a function of 
participating in this program and the utilization of enhanced clinical 
systems integration, which otherwise may not have been possible.
    We have determined that this proposed rule will have a significant 
impact on a substantial number of small entities and we present more 
detailed analysis of these impacts, including costs and benefits to 
small entities and alternative policy considerations throughout this 
RIA. However, as detailed in this RIA, total median shared

[[Page 72860]]

savings payments net of shared losses will offset about 107 percent of 
the average costs borne by entities participating in the Shared Savings 
Program, with an offset significantly greater than the cost of 
participation for the subset of ACOs that achieve shared savings in a 
given year, and no downside risk of significant shared losses for ACOs 
choosing to remain under Track 1 for a second agreement period. As a 
result, this regulatory impact section, together with the remainder of 
the preamble, constitutes our preliminary Regulatory Flexibility 
Analysis.
5. Effect on Small Rural Hospitals
    Section 1102(b) of the Act requires us to prepare a regulatory 
impact analysis if a rule may have a significant impact on the 
operations of a substantial number of small rural hospitals. This 
analysis must conform to the provisions of section 603 of the RFA. For 
purposes of section 1102(b) of the Act, we define a small rural 
hospital as a hospital that is located outside of a metropolitan 
statistical area and has fewer than 100 beds. Although the Shared 
Savings Program is a voluntary program, this proposed rule will have a 
significant impact on the operations of a substantial number of small 
rural hospitals. We have proposed changes to our regulations such that 
rural hospitals will have stronger incentives to participate in the 
program through offering a smoother transition to risk-based models, 
additional opportunities to potentially share in savings under proposed 
new Track 3, and streamlined administrative requirements. As detailed 
in this RIA, the estimated aggregate median impact of shared savings 
payments to participating ACOs is approximately 107 percent of the 
average costs borne by entities that voluntarily participate in the 
Shared Savings Program, with an offset significantly greater than the 
cost of participation for the subset of ACOs that achieve shared 
savings in a given year, and no downside risk of significant shared 
loss penalties for ACOs choosing to remain under Track 1 for a second 
agreement period.
6. Unfunded Mandates
    Section 202 of the Unfunded Mandates Reform Act of 1995 (UMRA) also 
requires that agencies assess anticipated costs and benefits before 
issuing any rule whose mandates require spending in any 1 year of $100 
million in 1995 dollars, updated annually for inflation. In 2014, that 
is approximately $141 million. This proposed rule does not include any 
mandate that would result in spending by state, local or tribal 
governments, in the aggregate, or by the private sector in the amount 
of $141 million in any 1 year. Further, participation in this program 
is voluntary and is not mandated.

D. Alternatives Considered

    In the November 2011 final rule (76 FR 67971), we noted in the 
regulatory impact analysis that many tenets of the program are 
statutorily mandated and thus allow for little, if any, flexibility in 
the rulemaking process. Where there was flexibility, we made our policy 
decisions regarding alternatives based on a balance between creating 
the least possible negative impact on the stakeholders affected by the 
program and satisfactorily fitting the vision of the program within 
given operational constraints. This proposed rule contains a range of 
modifications to program policies that take this balance into 
consideration. The preceding preamble provides descriptions of the 
various statutory provisions that are addressed in this proposed rule, 
identifies those policies where discretion has been allowed and 
exercised, presents the rationales for our proposals and, where 
relevant, alternatives that were considered.
    In addition to estimating the difference between impacts at 
baseline and assuming all proposed changes are adopted, the stochastic 
model was also adapted to isolate marginal impacts for several 
alternative scenarios related to individual proposals within the 
overall set of proposed changes to the program. In one scenario, all 
proposed changes were assumed except the addition of Track 3. Relative 
to the all-changes scenario, this modification was not anticipated to 
materially reduce overall participation. However, we estimated that 
excluding Track 3 as a proposal would reduce median gross savings by 
$70 million over 3 years as fewer ACOs would be willing to accept the 
stronger incentive of downside risk without the opportunity to earn 
enhanced shared savings up to the 75 percent maximum sharing percentage 
under Track 3. Lastly, median shared losses under this scenario would 
decline by $10 million. Thus, the overall impact on net federal savings 
of offering Track 3 in the context of all other proposed changes to the 
program is minimal. However for individual ACOs, the higher sharing 
rate available under Track 3 may boost efforts to build capacity for 
accepting downside risk while potentially accelerating activities 
related to improving the efficiency of care. Also, the opportunity 
under Track 3 to share in a greater percentage of the savings that are 
achieved could assist in addressing the concerns of ACOs that were 
successful in achieving savings in their first agreement period but are 
concerned that their new expenditure baseline for the agreement period 
starting in 2016 will be lower as a result of their prior success in 
reducing the cost of care for their assigned beneficiaries, thus making 
it more difficult to achieve savings.
    Another alternative scenario we considered included all proposed 
changes except for lowering the Track 1 sharing rate from 50 percent to 
40 percent for Track 1 ACOs that elect to renew for a second agreement 
period under this model starting in 2016. Similar to the previous 
scenario, this change would not be expected to materially change 
overall assumed participation. However, relative to the all changes 
model, the net effect of this alternative would be to increase median 
shared savings payments by $110 million over 3 years. Furthermore, 
because a portion of ACOs that would have otherwise chosen Track 3 
under the all changes scenario would now be expected to choose Track 1 
given the higher sharing rate, overall median gross savings would 
decline by $30 million under this alternative, resulting in an overall 
reduction of $140 million in median net federal savings compared to the 
all changes scenario.
    Lastly, an alternative scenario was considered where no changes 
were proposed other than to allow current Track 1 ACOs a 2-year 
extension to their current agreement period, after which they would 
then be limited to participating under Track 2 as required under the 
current regulations. This alternative was assumed to boost ACO 
participation in 2016 and 2017 comparable to the participation level 
expected for such years in the all-changes scenario. However, we would 
anticipate a significant contraction in participation in 2018 similar 
to the rate of participation assumed at baseline for that year. The net 
impact of this alternative would be $220 million in reduced net federal 
savings compared to all changes as proposed in this rule, driven mainly 
by reduced program participation in the third year and by increased 
shared savings payments in 2016 and 2017 because ACO benchmarks would 
not be rebased until 2018.

E. Accounting Statement and Table

    As required by OMB Circular A-4 under Executive Order 12866, in 
Table 13, we have prepared an accounting statement showing the change 
in (A) net

[[Page 72861]]

federal monetary transfers, (B) shared savings payments to ACOs net of 
shared loss payments from ACOs and (C) the aggregate cost of ACO 
operations for ACO participants and ACO providers/suppliers from 2016 
to 2018 that are associated with the provisions of this proposed rule 
as compared to baseline.

                                                    Table 13--Accounting Statement Estimated Impacts
                                                                     [CYs 2016-2018]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                Primary estimate    Minimum estimate    Maximum estimate
                   Category                       (in millions)       (in millions)       (in millions)        Source citation  (RIA, preamble, etc.)
--------------------------------------------------------------------------------------------------------------------------------------------------------
BENEFITS:
    Annualized monetized transfers...........              -$76.3              -$12.0             -$129.7  Change from baseline (Table 8) to proposed
    Discount rate: 7%........................                                                               changes (Table 9)
----------------------------------------------------------------------------------------------------------
    Annualized monetized transfers...........              -$83.8              -$13.7             -$142.0
    Discount rate: 3%........................
--------------------------------------------------------------------------------------------------------------------------------------------------------
    From whom to whom?.......................         Negative values reflect reduction in federal net cost resulting from care management by ACOs
--------------------------------------------------------------------------------------------------------------------------------------------------------
BENEFITS:
    Annualized monetized transfers...........              $124.1               $96.5              $152.0  Change from baseline (Table 8) to proposed
    Discount rate: 7%........................                                                               changes (Table 9)
----------------------------------------------------------------------------------------------------------
    Annualized monetized transfers...........              $134.8              $105.1              $164.7
    Discount rate: 3%........................
--------------------------------------------------------------------------------------------------------------------------------------------------------
    From whom to whom?.......................              Positive values reflect increase in aggregate shared savings net of shared losses
--------------------------------------------------------------------------------------------------------------------------------------------------------
OPERATIONAL COST:
    Annualized monetized transfers...........              $121.3  ..................  ..................  Change from baseline (Table 8) to proposed
    Discount rate: 7%........................                                                               changes (Table 9)
----------------------------------------------------------------------------------------------------------
    Annualized monetized transfers...........              $130.7  ..................  ..................
    Discount rate: 3%........................
--------------------------------------------------------------------------------------------------------------------------------------------------------
    From whom to whom?.......................      Positive values reflect increase in aggregate ACO operating costs largely attributable to assumed
                                                increased participation as a result of the proposals included in this proposed rule compared to baseline
--------------------------------------------------------------------------------------------------------------------------------------------------------

F. Conclusion

    The analysis in this section, together with the remainder of this 
preamble, provides a Regulatory Impact Analysis. As a result of this 
proposed rule, the median estimate of the financial impact of the 
Shared Savings Program for CYs 2016 through 2018 would be net federal 
savings (after shared savings payments) of $1,010 million. Under this 
proposed rule, median savings would be about $280 million higher than 
we estimate assuming none of the proposed changes for this period. 
Although this is the ``best estimate'' of the financial impact of the 
Shared Savings Program during CYs 2016 through 2018, a relatively wide 
range of possible outcomes exists. While over 99 percent of the 
stochastic trials resulted in net program savings, the 10th and 90th 
percentiles of the estimated distribution show net savings of $430 
million to net savings of $1,650 million, respectively. In the extreme 
scenarios, the results were as large as $2.9 billion in savings or $200 
million in costs.
    In addition, at the anticipated mean participation rate of ACOs in 
the Shared Savings Program, participating ACOs may experience an 
estimated aggregate average start-up investment and ongoing operating 
cost of $815 million for CYs 2016 through 2018. Lastly, we estimate an 
aggregate median impact of $630 million in shared savings payments to 
participating ACOs in the Shared Savings Program for CYs 2016 through 
2018. The 10th and 90th percentiles of the estimate distribution, for 
the same time period, yield shared savings payments to ACOs of $470 
million and $820 million, respectively. Therefore, the total median ACO 
shared savings payments of $630 million during CYs 2016 through 2018, 
net of a median $30 million shared losses, coupled with the aggregate 
average start-up investment and ongoing operating cost of $562 million 
yields a net private benefit of $38 million.
    Overall, we assumed greater participation by ACOs under the 
policies contained in this proposed rule due to our proposals to ease 
the transition from Track 1 to Track 2, reduce risk under Track 2, and 
adopt an alternative risk-based model--Track 3. This resulted in total 
shared savings increasing significantly, while shared losses decreased 
due to these changes. Moreover, as participation in the Shared Savings 
Program continues to expand, we anticipate there will be a broader 
focus on care coordination and quality improvement among providers and 
suppliers within the Medicare program that will lead to both increased 
efficiency in the provision of care and improved quality of the care 
that is provided to beneficiaries.
    In accordance with the provisions of Executive Order 12866, this 
rule was

[[Page 72862]]

reviewed by the Office of Management and Budget.

List of Subjects in 42 CFR Part 425

    Administrative practice and procedure, Health facilities, Health 
professions, Medicare, Reporting and recordkeeping requirements.

    For the reasons set forth in the preamble, the Centers for Medicare 
& Medicaid Services proposes to amend 42 CFR part 425 as follows:

PART 425--MEDICARE SHARED SAVINGS PROGRAM

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

    Authority: Secs. 1102, 1106, 1871, and 1899 of the Social 
Security Act (42 U.S.C. 1302 and 1395hh).

Sec.  425.10  [Amended]

0
2. Amend Sec.  425.10 (b)(6) by removing the phrase ``two-sided model'' 
and adding in its place the phrase ``two-sided models''.
0
3. Amend Sec.  425.20 as follows:
0
A. By revising the definition of ``ACO participant''.
0
B. By adding the definition of ``ACO participant agreement'' in 
alphabetical order.
0
C. By revising the definitions of ``ACO professional'', ``ACO provider/
supplier'', ``Agreement period'', and ``Assignment''.
0
D. By adding the definition of ``Assignment window'' in alphabetical 
order.
0
E. By revising the definitions of ``Continuously assigned 
beneficiary'', ``Hospital'', and ``Newly assigned beneficiary''.
0
F. By adding the definition of ``Participation agreement'' in 
alphabetical order.
0
G. In the definition of ``Performance year'' by removing the phrase 
``in the ACO's agreement'' and adding in its place the phrase ``in the 
participation agreement''.
0
H. In paragraph (2) of the definition of ``Primary care services'', by 
removing the ``;'' and adding in its place ``.''.
0
I. By adding paragraphs (4) and (5) to the definition of ``Primary care 
services''.
    The revisions and additions read as follows:

Sec.  425.20  Definitions.

* * * * *
    ACO participant means an entity identified by a Medicare-enrolled 
billing TIN through which one or more ACO providers/suppliers bill 
Medicare, that alone or together with one or more other ACO 
participants compose an ACO, and that is included on the list of ACO 
participants that is required under Sec.  425.118.
    ACO participant agreement means the written agreement (as required 
at Sec.  425.116) between the ACO and ACO participant in which the ACO 
participant agrees to participate in, and comply with, the requirements 
of the Shared Savings Program.
    ACO professional means an individual who is Medicare-enrolled and 
bills for items and services furnished to Medicare fee-for-service 
beneficiaries under a Medicare billing number assigned to the TIN of an 
ACO participant in accordance with applicable Medicare regulations and 
who is either of the following:
    (1) A physician legally authorized to practice medicine and surgery 
by the State in which he or she performs such function or action.
    (2) A practitioner who is one of the following:
    (i) A physician assistant (as defined at Sec.  410.74(a)(2) of this 
chapter).
    (ii) A nurse practitioner (as defined at Sec.  410.75(b) of this 
chapter).
    (iii) A clinical nurse specialist (as defined at Sec.  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 Sec.  400.202 of this chapter); or
    (ii) Supplier (as defined at Sec.  400.202 of this chapter).
    (2) Is enrolled in Medicare.
    (3) Bills for items and services furnished to Medicare fee-for-
service beneficiaries during the agreement period under a Medicare 
billing number assigned to the TIN of an ACO participant in accordance 
with applicable Medicare regulations.
    (4) Is included on the list of ACO providers/suppliers that is 
required under Sec.  425.118.
    Agreement period means the term of the participation agreement, 
which is 3 performance years unless otherwise specified in the 
participation agreement.
* * * * *
    Assignment means the operational process by which CMS determines 
whether a beneficiary has chosen to receive a sufficient level of the 
requisite primary care services from ACO professionals so that the ACO 
may be appropriately designated as exercising basic responsibility for 
that beneficiary's care during a given benchmark or performance year.
    Assignment window means the 12-month period used to assign 
beneficiaries to an ACO.
* * * * *
    Continuously assigned beneficiary means a beneficiary assigned to 
the ACO in the current performance year who was either assigned to or 
received a primary care service from any of the ACO participants during 
the assignment window for the most recent prior benchmark or 
performance year.
* * * * *
    Hospital means a hospital as defined in section 1886(d)(1)(B) of 
the Act.
* * * * *
    Newly assigned beneficiary means a beneficiary that is assigned to 
the ACO in the current performance year who was neither assigned to nor 
received a primary care service from any of the ACO participants during 
the assignment window for the most recent prior benchmark or 
performance year.
* * * * *
    Participation agreement means the written agreement required under 
Sec.  425.208(a) between the ACO and CMS that, along with the 
regulations in this part, govern the ACO's participation in the Shared 
Savings Program.
* * * * *
    Primary care services * * *
    (4) CPT codes 99495 and 99496 and HCPCS code GXXX1.
    (5) Additional codes designated by CMS as primary care services for 
purposes of the Shared Savings Program, including new HCPCS/CPT and 
revenue center codes and any subsequently modified or replacement codes 
for the HCPCS/CPT and revenue center codes identified in paragraphs (1) 
through (4) of this definition.
* * * * *

Sec.  425.100  [Amended]

0
4. Amend Sec.  425.100 as follows:
0
A. In paragraph (b) by removing the reference ``under Sec.  425.604 or 
Sec.  425.606'' and adding in its place the reference ``under Sec.  
425.604, Sec.  425.606 or Sec.  425.610''.
0
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''.
0
C. In paragraph (c) by removing the reference ``under Sec.  425.606'' 
and adding in its place the reference ``under Sec.  425.604, Sec.  
425.606 or Sec.  425.610''.
0
5. Amend Sec.  425.102 as follows:
0
A. By adding paragraph (a)(8).
0
B. In paragraph (b) by removing the phrase ``eligible participate'' and 
adding in its place the phrase ``eligible to participate''.
    The addition reads as follows:

Sec.  425.102  Eligible providers and suppliers.

    (a) * * *
    (8) Teaching hospitals that have elected under Sec.  415.160 of 
this chapter

[[Page 72863]]

to receive payment on a reasonable cost basis for the direct medical 
and surgical services of their physicians.
* * * * *

Sec.  425.104  [Amended]

0
6. Amend Sec.  425.104(b), by removing the phrase ``otherwise 
independent ACO participants must'' and adding in its place the phrase 
``ACO participants, each of which is identified by a unique TIN, 
must''.
0
7. Amend Sec.  425.106 by revising paragraphs (a), (b)(3), (c)(1), 
(c)(2), and (c)(5) to read as follows:

Sec.  425.106  Shared governance.

    (a) General rule. (1) An ACO must maintain of an identifiable 
governing body with ultimate authority to execute the functions of an 
ACO as defined under this part, including but not limited to the 
processes defined under Sec.  425.112 to promote evidence-based 
medicine and patient engagement, to report on quality and cost 
measures, and to coordinate care.
    (2) The governing body of the ACO must satisfy all of the following 
criteria:
    (i) Be the same as the governing body of the legal entity that is 
the ACO.
    (ii) Be separate and unique to the ACO and must not be the same as 
the governing body of any ACO participant, in the case of an ACO that 
comprises two or more ACO participants.
    (iii) Satisfy all other requirements of this section.
    (b) * * *
    (3) The governing body members must have a fiduciary duty to the 
ACO, including the duty of loyalty, and must act consistent with that 
fiduciary duty.
* * * * *
    (c) * * *
    (1) The ACO must--(i) Establish a mechanism for shared governance 
among the ACO participants or combinations of ACO participants (as 
identified in Sec.  425.102(a)) that formed the ACO; and
    (ii) Provide for meaningful participation in the composition and 
control of the ACO's governing body for ACO participants or their 
designated representatives.
    (2) The ACO governing body must include a Medicare beneficiary 
who--
    (i) Is served by the ACO;
    (ii) Is not an ACO provider/supplier;
    (iii) Does not have a conflict of interest with the ACO; and
    (iv) Does not have an immediate family member who has a conflict of 
interest with the ACO.
* * * * *
    (5) In cases in which the composition of the ACO's governing body 
does not meet the requirements of paragraphs (c)(2) of this section, 
the ACO must describe--
    (i) Why it seeks to differ from this requirement; and
    (ii) How it will provide meaningful representation of Medicare 
beneficiaries in ACO governance.
* * * * *
0
8. Amend Sec.  425.108 by removing paragraph (e) and revising paragraph 
(c) to read as follows:

Sec.  425.108  Leadership and management.

* * * * *
    (c) Clinical management and oversight must be managed by a senior-
level medical director. The medical director must be--
    (1) A board-certified physician;
    (2) Licensed in a State in which the ACO operates; and
    (3) Physically present on a regular basis at any clinic, office or 
other location of the ACO, ACO participant or ACO provider/supplier.
* * * * *
0
9. Amend Sec.  425.110 by revising paragraphs (a)(2) and (b) to read as 
follows:

Sec.  425.110  Number of ACO professionals and beneficiaries.

    (a) * * *
    (2) CMS deems an ACO to have initially satisfied the requirement to 
have at least 5,000 assigned beneficiaries as specified in paragraph 
(a)(1) of this section if 5,000 or more beneficiaries are historically 
assigned to the ACO participants in each of the 3 benchmark years, as 
calculated using the assignment methodology set forth in subpart E of 
this part. In the case of the third benchmark year, CMS uses the most 
recent data available to estimate the number of assigned beneficiaries.
    (b) If at any time during the performance year, an ACO's assigned 
population falls below 5,000, the ACO may be subject to the actions 
described in Sec. Sec.  425.216 and 425.218.
    (1) While under a CAP, the ACO remains eligible for shared savings 
and losses and the MSR is set at a level consistent with the number of 
assigned beneficiaries.
    (2) If the ACO's assigned population is not at least 5,000 by the 
end of the performance year specified by CMS in its request for a CAP, 
CMS terminates the participation agreement and the ACO is not eligible 
to share in savings for that performance year.
0
10. Amend Sec.  425.112 by adding paragraphs (b)(4)(ii)(C), (D), and 
(E) to read as follows:

Sec.  425.112  Required processes and patient-centeredness criteria.

* * * * *
    (b) * * *
    (4) * * *
    (ii) * * *
    (C) Describe how the ACO will encourage and promote use of enabling 
technologies for improving care coordination for beneficiaries. 
Enabling technologies may include one or more of the following:
    (1) Electronic health records and other health IT tools.
    (2) Telehealth services, including remote patient monitoring.
    (3) Electronic exchange of health information.
    (4) Other electronic tools to engage beneficiaries in their care.
    (D) Describe how the ACO intends to partner with long-term and 
post-acute care providers, both inside and outside the ACO, to improve 
care coordination for their assigned beneficiaries.
    (E) Define and submit a set of major milestones or performance 
metrics the ACO will use in each performance year to assess the 
progress of its ACO participants in implementing the processes 
described in paragraph (b)(4) of this section.
0
11. Add Sec.  425.116 to subpart B to read as follows:

Sec.  425.116  Agreements with ACO participants and ACO providers/
suppliers.

    (a) ACO participant agreements. The ACO must have an ACO 
participant agreement with each ACO participant that complies with the 
following criteria:
    (1) The only parties to the agreement are the ACO and the ACO 
participant.
    (2) The agreement must be signed on behalf of the ACO and the ACO 
participant by individuals who are authorized to bind the ACO and the 
ACO participant, respectively.
    (3) The agreement must expressly require the ACO participant to 
agree, and to ensure that each ACO provider/supplier billing through 
the TIN of the ACO participant agrees, to participate in the Shared 
Savings Program and to comply with the requirements of the Shared 
Savings Program and all other applicable laws and regulations 
(including, but not limited to, those specified at Sec.  425.208(b)).
    (4) The agreement must set forth the ACO participant's rights and 
obligations in, and representation by, the ACO, including without 
limitation, the quality reporting requirements set forth in subpart F 
of this part, the beneficiary notification requirements set forth at 
Sec.  425.312, and how participation in the Shared Savings Program 
affects the

[[Page 72864]]

ability of the ACO participant and its ACO providers/suppliers to 
participate in other Medicare demonstration projects or programs that 
involve shared savings.
    (5) The agreement must describe how the opportunity to receive 
shared savings or other financial arrangements will encourage the ACO 
participant to adhere to the quality assurance and improvement program 
and evidence-based medicine guidelines established by the ACO.
    (6) The agreement must require the ACO participant to update its 
enrollment information, including the addition and deletion of ACO 
professionals and ACO providers/suppliers billing through the TIN of 
the ACO participant, on a timely basis in accordance with Medicare 
program requirements and to notify the ACO of any such changes within 
30 days after the change.
    (7) The agreement must permit the ACO to take remedial action 
against the ACO participant, and must require the ACO participant to 
take remedial action against its ACO providers/suppliers, including 
imposition of a corrective action plan, denial of incentive payments, 
and termination of the ACO participant agreement, to address 
noncompliance with the requirements of the Shared Savings Program and 
other program integrity issues, including those identified by CMS.
    (8) The agreement must be for a term of at least one performance 
year and must articulate potential consequences for early termination 
from the ACO.
    (9) The agreement must require completion of a close-out process 
upon termination or expiration of the agreement that requires the ACO 
participant to furnish all data necessary to complete the annual 
assessment of the ACO's quality of care and addresses other relevant 
matters.
    (b) Agreements with ACO providers/suppliers. ACOs have the option 
of contracting directly with its ACO providers/suppliers regarding 
items and services furnished to beneficiaries aligned to the ACO. An 
ACO's agreement with an ACO provider/supplier regarding such items and 
services must satisfy the following criteria:
    (1) The only parties to the agreement are the ACO and the ACO 
provider/supplier.
    (2) The agreement must be signed by the ACO provider/supplier and 
by an individual who is authorized to bind the ACO.
    (3) The agreement must expressly require the ACO provider/supplier 
to agree to participate in the Shared Savings Program and to comply 
with the requirements of the Shared Savings Program and all other 
applicable laws and regulations (including, but not limited to, those 
specified at Sec.  425.208(b)).
    (4) The agreement must set forth the ACO provider's/supplier's 
rights and obligations in, and representation by, the ACO, including 
without limitation, the quality reporting requirements set forth in 
subpart F of this part, the beneficiary notification requirements set 
forth at Sec.  425.312, and how participation in the Shared Savings 
Program affects the ability of the ACO provider/supplier to participate 
in other Medicare demonstration projects or programs that involve 
shared savings.
    (5) The agreement must describe how the opportunity to receive 
shared savings or other financial arrangements will encourage the ACO 
provider/supplier to adhere to the quality assurance and improvement 
program and evidence-based medicine guidelines established by the ACO.
    (6) The agreement must require the ACO provider/supplier to--
    (i) Update its enrollment information on a timely basis in 
accordance with Medicare program requirements; and
    (ii) Notify the ACO of any such changes within 30 days after the 
change.
    (7) The agreement must permit the ACO to take remedial action 
including the following against the ACO provider/supplier to address 
noncompliance with the requirements of the Shared Savings Program and 
other program integrity issues, including those identified by CMS:
    (i) Imposition of a corrective action plan.
    (ii) Denial of incentive payments.
    (iii) Termination of the ACO participant agreement.
    (c) Submission of agreements. The ACO must submit an executed ACO 
participant agreement in accordance with CMS guidance for each ACO 
participant at the time of its initial application, participation 
agreement renewal process, and when adding to its list of ACO 
participants in accordance with Sec.  425.118. The agreements may be 
submitted in the form and manner set forth in Sec.  425.204(c)(6).
0
12. Add new Sec.  425.118 to subpart B to read as follows:

Sec.  425.118  Required reporting of ACO participants and ACO 
providers/suppliers.

    (a) List requirements. (1) The ACO must maintain, update, and 
submit to CMS an accurate and complete list identifying each ACO 
participant (including its Medicare-enrolled TIN) and each ACO 
provider/supplier (including its NPI or other identifier) in accordance 
with this section.
    (2) Before the start of an agreement period, before each 
performance year thereafter, and at such other times as specified by 
CMS, the ACO must submit to CMS an ACO participant list and an ACO 
provider/supplier list.
    (3) The ACO must certify the submitted lists in accordance with 
Sec.  425.302(a)(2).
    (4) All Medicare enrolled individuals and entities that have 
reassigned their right to receive Medicare payment to the TIN of the 
ACO participant must be included on the ACO provider/supplier list and 
must agree to participate in the ACO and comply with the requirements 
of the Shared Savings Program before the ACO submits the ACO 
participant list and the ACO provider/supplier list.
    (b) Changes to the ACO participant list. (1) Additions. (i) An ACO 
must submit to CMS a request to add an entity and its Medicare enrolled 
TIN to its ACO participant list. This request must be submitted at such 
time and in the form and manner specified by CMS.
    (ii) If CMS approves the request, the entity and its Medicare 
enrolled TIN is added to the ACO participant list effective January 1 
of the following performance year.
    (iii) CMS may deny the request on the basis that the entity is not 
eligible to be an ACO participant or on the basis of the results of the 
screening performed under Sec.  425.304(b).
    (2) Deletions. (i) An ACO must notify CMS no later than 30 days 
after the termination of an ACO participant agreement. Such notice must 
be submitted in the form and manner specified by CMS and must include 
the termination date of the ACO participant agreement.
    (ii) The entity is deleted from the ACO participant list as of the 
termination date of the ACO participant agreement.
    (3) Adjustments. (i) CMS annually adjusts an ACO's assignment, 
historical benchmark, the quality reporting sample, and the obligation 
of the ACO to report on behalf of ACO providers/suppliers for certain 
CMS quality initiatives to reflect the addition or deletion of entities 
from the list of ACO participants that is submitted to CMS before the 
start of a performance year in accordance with paragraph (a) of this 
section.
    (ii) Absent unusual circumstances, CMS does not make adjustments 
during the performance year to the ACO's assignment, historical 
benchmark, performance year financial calculations, the quality 
reporting sample, or the obligation of the ACO to report on

[[Page 72865]]

behalf of ACO providers/suppliers for certain CMS quality initiatives 
to reflect the addition or deletion of entities from the ACO 
participant list that become effective during the performance year. CMS 
has sole discretion to determine whether unusual circumstances exist 
that would warrant such adjustments.
    (c) Changes to the ACO provider/supplier list. (1) Additions. (i) 
An ACO must notify CMS within 30 days after an individual or entity 
becomes a Medicare-enrolled provider or supplier that bills for items 
and services it furnishes to Medicare fee-for-service beneficiaries 
under a billing number assigned to the TIN of an ACO participant. The 
notice must be submitted in the form and manner specified by CMS.
    (ii) If the ACO timely submits notice to CMS, the addition of an 
individual or entity to the ACO provider/supplier list is effective on 
the date specified in the notice furnished to CMS, but no earlier than 
30 days before the date of the notice. If the ACO fails to submit 
timely notice to CMS, the addition of an individual or entity to the 
ACO provider/supplier list is effective on the date of the notice.
    (2) Deletions. (i) An ACO must notify CMS no later than 30 days 
after an individual or entity ceases to be a Medicare-enrolled provider 
or supplier that bills for items and services it furnishes to Medicare 
fee-for-service beneficiaries under a billing number assigned to the 
TIN of an ACO participant. The notice must be submitted in the form and 
manner specified by CMS.
    (ii) The deletion of an ACO provider/supplier from the ACO 
provider/supplier list is effective on the date the individual or 
entity ceased to be a Medicare-enrolled provider or supplier that bills 
for items and services it furnishes to Medicare fee-for-service 
beneficiaries under a billing number assigned to the TIN of an ACO 
participant.
    (d) Update of Medicare enrollment information. The ACO must ensure 
that all changes to enrollment information for ACO participants and ACO 
providers/suppliers, including changes to reassignment of the right to 
receive Medicare payment, are reported to CMS consistent with Sec.  
424.516.
0
13. Amend Sec.  425.200 as follows:
0
A. By revising the section heading.
0
B. In paragraph (a), by removing the term ``three'' and adding in its 
place the figure ``3''.
0
C. In the heading of paragraph (b), and paragraphs (b)(1) introductory 
text, (b)(1)(i), (b)(1)(ii), (b)(2)(ii), and (c)(1) by removing the 
term ``agreement'' each time it appears and adding in its place the 
terms ``participation agreement''.
    The revision reads as follows:

Sec.  425.200  Participation agreement with CMS.

* * * * *
0
14. Amend Sec.  425.202 by revising paragraphs (b) and (c) to read as 
follows:

Sec.  425.202  Application procedures.

* * * * *
    (b) Condensed application form. (1) PGP demonstration sites 
applying to participate in the Shared Savings Program will have an 
opportunity to complete a condensed application form.
    (2) A Pioneer ACO may use a condensed application form to apply for 
participation in the Shared Savings Program if it satisfies all of the 
following criteria:
    (i) The applicant is the same legal entity as the Pioneer ACO.
    (ii) ACO participant list does not contain any ACO participant TINs 
that did not appear on the ``Confirmed Annual TIN/NPI List'' (as 
defined in the Pioneer ACO Model Innovation Agreement with CMS) for the 
applicant ACO's last full performance year in the Pioneer ACO Model.
    (iii) The applicant is not applying to participate in the one-sided 
model.
    (c) Application review. CMS reviews applications in accordance with 
Sec.  425.206.
0
15. Amend Sec.  425.204 as follows:
0
A. In paragraph (b)(2) by removing the terms ``ACO agreement'' and 
adding in its place the terms ``participation agreement''.
0
B. In paragraph (b)(3) by removing the term ``agreement'' and adding in 
its place the terms ``participation agreement''.
0
C. By revising paragraphs (c)(1) introductory text and (c)(1)(i), 
(iii), and (iv).
0
D. In paragraph (c)(1)(vi) by removing the terms ``ACO's agreement'' 
and adding in its place the terms ``participation agreement''.
0
E. By revising paragraph (c)(3).
0
F. In paragraph (c)(4)(ii), by removing the phrase '' among multiple, 
independent ACO participants'' and adding in its place the phrase 
``among two or more ACO participants''.
0
G. By revising paragraph (c)(5)(i).
0
H. By adding paragraph (c)(6).
0
I. In paragraph (e)(1), removing the phrase ``an ACO must specify 
whether it is applying to participate in Track 1 or Track 2'' and 
adding in its place the phrase ``an ACO must specify the Track for 
which it is applying''
0
J. By revising paragraph (f).
0
K. By adding paragraph (g).
    The revisions and additions read as follows:

Sec.  425.204  Content of the application.

* * * * *
    (c) * * *
    (1) As part of its application, and upon request thereafter, an ACO 
must submit to CMS the following supporting materials to demonstrate 
that the ACO satisfies the requirements set forth in this part:
    (i) Documents (for example, ACO participant agreements, agreements 
with ACO providers/suppliers, employment contracts, and operating 
policies) sufficient to describe the ACO participants' and ACO 
providers'/suppliers' rights and obligations in and representation by 
the ACO, and how the opportunity to receive shared savings or other 
financial arrangements will encourage ACO participants and ACO 
providers/suppliers to adhere to the quality assurance and improvement 
program and evidence-based clinical guidelines.
* * * * *
    (iii) Materials documenting the ACO's organization and management 
structure, including an organizational chart, a list of committees 
(including names of committee members) and their structures, and job 
descriptions for senior administrative and clinical leaders 
specifically noted in Sec.  425.108 and Sec.  425.112(a)(2).
    (iv) Evidence that the governing body--
    (A) Is an identifiable body;
    (B) Represents a mechanism for shared governance for ACO 
participants;
    (C) Is composed of representatives of its ACO participants; and
    (D) Is at least 75 percent controlled by its ACO participants.
* * * * *
    (3) If an ACO requests an exception to the governing body 
requirement in Sec.  425.106(c)(2), the ACO must describe--
    (i) Why it seeks to differ from this requirement; and
    (ii) How the ACO will provide meaningful representation in ACO 
governance by Medicare beneficiaries.
* * * * *
    (5) * * *
    (i) The ACO must submit a list of all ACO participants and ACO 
providers/suppliers in accordance with Sec.  425.118.
* * * * *
    (6) As part of the application process and upon request by CMS, the 
ACO must submit documents demonstrating that its ACO participants, ACO 
providers/suppliers, and other individuals or entities performing

[[Page 72866]]

functions or services related to ACO activities are required to comply 
with the requirements of the Shared Savings Program. The evidence to be 
submitted must include, without limitation, sample or form agreements 
and, in the case of ACO participant agreements, the first and signature 
page(s) of each executed ACO participant agreement. CMS may request all 
pages of an executed ACO participant agreement to confirm that it 
conforms to the sample form agreement submitted by the ACO. The ACO 
must certify that all of its ACO participant agreements comply with the 
requirements of this part.
* * * * *
    (f) Assurance of ability to repay. (1) An ACO must have the ability 
to repay all shared losses for which it may be liable under a two-sided 
model.
    (i) As part of the application or participation agreement renewal 
process, an ACO that is seeking to participate under a two-sided model 
of the Shared Savings Program must submit for CMS approval 
documentation that it is capable of repaying shared losses that it may 
incur during the agreement period.
    (ii) The documentation specified in paragraph (f)(1)(i) of this 
section must include details supporting the adequacy of the mechanism 
for repaying shared losses equal to at least 1 percent of the ACO's 
total per capita Medicare parts A and B fee-for-service expenditures 
for its assigned beneficiaries based on expenditures used to calculate 
the benchmark for the applicable agreement period, as estimated by CMS 
at the time of application or participation agreement renewal.
    (2) An ACO may demonstrate its ability to repay shared losses by 
placing funds in escrow, obtaining a surety bond, establishing a line 
of credit (as evidenced by a letter of credit that the Medicare program 
can draw upon), or establishing a combination of such repayment 
mechanisms, that will ensure its ability to repay the Medicare program.
    (3) An ACO participating under a two-sided model must demonstrate 
the adequacy of this repayment mechanism prior to the start of each 
agreement period in which it takes risk, and upon request thereafter. 
After the repayment mechanism has been used to repay any portion of 
shared losses owed to CMS, the ACO must replenish the amount of funds 
available through the repayment mechanism within 60 days.
    (4) The repayment mechanism must be in effect for a sufficient 
period of time after the conclusion of the agreement period to permit 
CMS to calculate the amount of shared losses owed and to collect this 
amount from the ACO.
    (g) Consideration of claims billed under merged and acquired 
Medicare-enrolled TINs. An ACO may request that CMS consider, for 
purposes of beneficiary assignment and establishing the ACO's benchmark 
under Sec.  425.602, claims billed by Medicare-enrolled entities' TINs 
that have been acquired through sale or merger by an ACO participant.
    (1) The ACO may include an acquired Medicare-enrolled entity's TIN 
on its ACO participant list under the following circumstances:
    (i) The ACO participant has subsumed the acquired entity's TIN in 
its entirety, including all of the providers and suppliers that 
reassigned their right to receive Medicare payment to the acquired 
entity's Medicare-enrolled TIN.
    (ii) Each provider or supplier that previously reassigned his or 
her right to receive Medicare payment to the acquired entity's TIN has 
reassigned his or her right to receive Medicare payment to the TIN of 
the acquiring ACO participant and has been added to the ACO provider/
supplier list under paragraph (c)(5) of the section.
    (iii) The acquired entity's TIN is no longer used to bill Medicare.
    (2) The ACO must submit the following supporting documentation in 
the form and manner specified by CMS.
    (i) An attestation that--
    (A) Identifies by Medicare-enrolled TIN both the acquired entity 
and the ACO participant that acquired it;
    (B) Specifies that all the providers and suppliers that previously 
reassigned their right to receive Medicare payment to the acquired 
entity's TIN have reassigned such right to the TIN of the identified 
ACO participant and have been added to the ACO provider/supplier list 
under paragraph (c)(5) of this section; and
    (C) Specifies that the acquired entity's TIN is no longer used to 
bill Medicare.
    (ii) Documentation sufficient to demonstrate that the acquired 
entity's TIN was merged with or purchased by the ACO participant.
0
16. Amend Sec.  425.206 by revising paragraph (a) to read as follows:

Sec.  425.206  Evaluation procedures for applications.

    (a) Basis for evaluation and determination. (1) CMS evaluates an 
ACO's application to determine whether an applicant satisfies the 
requirements of this part and is qualified to participate in the Shared 
Savings Program. Applications are approved or denied on the basis of 
the following:
    (i) Information contained in and submitted with the application by 
a deadline specified by CMS.
    (ii) Supplemental information that was submitted by a deadline 
specified by CMS in response to CMS' request for information.
    (iii) Other information available to CMS.
    (2) CMS notifies an ACO applicant when supplemental information is 
required for CMS to make such determination and provides an opportunity 
for the ACO to submit the information.
    (3) CMS may deny an application if an ACO applicant fails to submit 
information by the deadlines established by CMS.
* * * * *
0
17. Amend Sec.  425.212 by revising the section heading and paragraph 
(a) to read as follows:

Sec.  425.212  Changes to program requirements during the agreement 
period.

    (a) An ACO is subject to all regulatory changes that become 
effective during the agreement period, with the exception of the 
following program areas, unless otherwise required by statute:
    (1) Eligibility requirements concerning the structure and 
governance of ACOs.
    (2) Calculation of sharing rate.
* * * * *
0
18. Amend Sec.  425.214 as follows:
0
A. By revising the section heading.
0
B. By removing paragraph (a).
0
C. By redesignating paragraphs (b) and (c) as paragraphs (a) and (b), 
respectively.
0
D. By revising newly redesignated paragraph (a).
0
E. In newly redesignated paragraph (b) introductory text, removing the 
phrase ``Upon receiving'' and adding in its place the phrase ``Upon 
becoming aware of a significant change or receiving''.
0
F. In newly redesignated paragraphs (b)(2) and (4) by removing the term 
``agreement'' and adding in its place the terms ``participation 
agreement''.
    The revisions read as follows:

Sec.  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.
    (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

[[Page 72867]]

    (ii) The number or identity of the ACO participants on the ACO's 
list of ACO participants has changed by 50 percent or more.
* * * * *

Sec.  425.216  [Amended]

0
19. Amend Sec.  425.216 in paragraph (b) by removing the term ``ACO's 
agreement'' and adding in its place the terms ``participation 
agreement''.
0
20. Amend Sec.  425.218 by revising the section heading and adding 
paragraphs (b)(4) and (5) to read as follows:

Sec.  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.
* * * * *

Sec.  425.220  [Amended]

0
21. Amend Sec.  425.220 by removing and reserving paragraph (b).
0
22. Add Sec.  425.221 to read as follows:

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

    (a) Close-out procedures. (1) An ACO whose participation agreement 
has expired or is terminated by CMS under Sec.  425.218 or by the ACO 
under Sec.  425.220 must implement close-out procedures regarding the 
following in a form and manner and by a deadline specified by CMS:
    (i) Notice to ACO participants of termination.
    (ii) Record retention.
    (iii) Data sharing.
    (iv) Quality reporting.
    (v) Beneficiary continuity of care
    (vi) Other relevant operational matters established through 
guidance.
    (2) ACOs that fail to complete close-out procedures in the form and 
manner and by the deadline specified by CMS will not be eligible to 
share in savings.
    (b) Payment consequences of early termination. (1) An ACO whose 
participation agreement is terminated by the ACO under Sec.  425.220 is 
eligible to receive shared savings for the performance year during 
which the termination becomes effective only if--
    (i) CMS designates or approves an effective date of termination of 
December 31st of such performance year;
    (ii) The ACO has completed all close-out procedures by the deadline 
specified by CMS; and
    (iii) The ACO has satisfied the criteria for sharing in savings for 
the performance year.
    (2) An ACO that terminates its participation agreement under Sec.  
425.220 before December 31 of a performance year or whose participation 
agreement is terminated by CMS under Sec.  425.218 at any time is not 
eligible to receive shared savings for the performance year during 
which the termination becomes effective.
0
23. Amend Sec.  425.222 by revising paragraph (c) to read as follows:

Sec.  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 one-sided 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 one-sided model or a two-sided model. 
If the ACO reenters the program under the one-sided model, the ACO will 
be considered to be in its second agreement period under the one-sided 
model.
    (3) Regardless of the date of termination, an ACO that was 
previously under a two-sided model may only reapply for participation 
in a two-sided model.
0
24. Add Sec.  425.224 to subpart C to read as follows:

Sec.  425.224  Renewal of participation agreements.

    (a) General rules. An ACO may request renewal of its participation 
agreement for a second or subsequent agreement period.
    (1) In order to obtain a determination regarding whether it meets 
the requirements for renewal of its participation agreement, the ACO 
must submit a complete renewal request in the form and manner and by 
the deadline specified by CMS.
    (2) An ACO executive who has the authority to legally bind the ACO 
must certify to the best of his or her knowledge, information, and 
belief that the information contained in the renewal request is 
accurate, complete, and truthful.
    (3) An ACO that seeks renewal of its participation agreement and 
was newly formed after March 23, 2010, as defined in the Antitrust 
Policy Statement, must agree that CMS can share a copy of its renewal 
request with the Antitrust Agencies.
    (b) Review of renewal request. (1) CMS determines whether to renew 
a participation agreement based on an evaluation of all of the 
following factors:
    (i) Whether the ACO satisfies the criteria for operating under the 
selected risk track.
    (ii) The ACO's history of compliance with the requirements of the 
Shared Savings Program.
    (iii) Whether the ACO has established that it is in compliance with 
the eligibility and other requirements of the Shared Savings Program, 
including the ability to repay losses, if applicable.
    (iv) Whether the ACO met the quality performance standard during at 
least one of the first 2 years of the previous agreement period.
    (v) For ACOs under a two-sided model, whether the ACO has repaid 
losses owed to the program that it generated during the first 2 years 
of the previous agreement period.
    (vi) The results of a program integrity screening of the ACO, its 
ACO participants, and its ACO providers/suppliers (conducted in 
accordance with Sec.  425.304(b)).
    (2) Renewal requests are approved or denied on the basis of the 
following information:
    (i) Information contained in and submitted with the renewal request 
by a deadline specified by CMS.
    (ii) Supplemental information that was submitted by a deadline 
specified by CMS in response to CMS' request for information.
    (iii) Other information available to CMS.
    (3) CMS notifies the ACO when supplemental information is required 
for CMS to make such a determination and provides an opportunity for 
the ACO to submit the information.
    (c) Notice of determination. (1) CMS notifies in writing each ACO 
of its determination to approve or deny the ACO's renewal request.
    (2) If CMS denies the renewal request, the notice of 
determination--
    (i) Specifies the reasons for the denial; and
    (ii) Informs the ACO of its right to request reconsideration review 
in accordance with the procedures specified in subpart I of this part.

Sec.  425.304  [Amended]

0
25. Amend Sec.  425.304 by removing paragraph (d).

[[Page 72868]]

0
26. Revise Sec.  425.306 to read as follows:

Sec.  425.306  Participant agreement and exclusivity of ACO 
participants.

    (a) Each ACO participant must commit to the term of the 
participation agreement and sign an ACO participant agreement that 
complies with the requirements of this part.
    (b)(1) Except as specified in paragraph (b)(2) of this section, ACO 
participants are not required to be exclusive to one Shared Savings 
Program ACO.
    (2) Each ACO participant that submits claims for primary care 
services used to determine the ACO's assigned population under subpart 
E of this part must be exclusive to one Shared Savings Program ACO.
0
27. Revise Sec.  425.308 to read as follows:

Sec.  425.308  Public reporting and transparency.

    (a) ACO public reporting Web page. Each ACO must create and 
maintain a dedicated Web page on which it publicly reports the 
information set forth in paragraph (b) of this section. The ACO must 
report the address of such Web page to CMS in a form and manner 
specified by CMS and must notify CMS of changes to the Web address in 
the form and manner specified by CMS.
    (b) Information to be reported. The ACO must report the following 
information in a standardized format specified by CMS:
    (1) Name and location.
    (2) Primary contact.
    (3) Organizational information, including all of the following:
    (i) Identification of ACO participants.
    (ii) Identification of participants in joint ventures between ACO 
professionals and hospitals.
    (iii) Identification of the members of its governing body.
    (iv) Identification of key clinical and administrative leadership.
    (v) Identification of associated committees and committee 
leadership.
    (vi) Identification of the types of ACO participants or 
combinations of ACO participants (as listed in Sec.  425.102(a)) that 
formed the ACO.
    (4) Shared savings and losses information, including the following:
    (i) Amount of any payment of shared savings received by the ACO or 
shared losses owed to CMS.
    (ii) Total proportion of shared savings invested in infrastructure, 
redesigned care processes and other resources required to support the 
three-part aim goals of better health for populations, better care for 
individuals and lower growth in expenditures, including the proportion 
distributed among ACO participants.
    (5) The ACO's performance on all quality measures.
    (c) Approval of public reporting information. Information reported 
on an ACO's public reporting Web page in compliance with the 
requirements of the standardized format specified by CMS is not subject 
to marketing review and approval under Sec.  425.310.
    (d) Public reporting by CMS. CMS may publicly report ACO-specific 
information, including but not limited to the ACO public reporting Web 
page address and the information required to be publicly reported under 
paragraph (b) of this section.
0
28. Amend Sec.  425.312 by removing and reserving paragraph (b) and 
revising paragraph (a) to read as follows:

Sec.  425.312  Notification to beneficiaries of participation in the 
shared savings program.

    (a) ACO participants must notify beneficiaries at the point of care 
that their ACO providers/suppliers are participating in the Shared 
Savings Program and of the opportunity to decline claims data sharing 
under Sec.  425.708.
    (1) Notification is carried out when an ACO participant posts signs 
in its facilities and, in settings in which beneficiaries receive 
primary care services, by making standardized written notices available 
upon request.
    (2) The ACO must use template language developed by CMS for 
notifications described in paragraph (a)(1) of this section.
* * * * *

Sec.  425.314  [Amended]

0
29. Amend Sec.  425.314 in paragraph (c) by removing the word 
``agreement'' and adding in its place the words ``participation 
agreement''.

Sec.  425.316  [Amended]

0
30. Amend Sec.  425.316 as follows:
0
A. By removing paragraphs (c)(3) and (4).
0
B. By redesignating paragraph (c)(5) as (c)(3).
0
C. In newly redesignated paragraph (c)(3) by removing the phrase 
``fully and completely'' and adding in its place the phrase 
``accurately, completely, and timely''.
0
31. Amend Sec.  425.400 as follows:
0
A. By adding paragraph (a)(1) introductory text.
0
B. By revising paragraph (a)(1)(i).
0
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''.
0
D. By adding a subject heading to paragraph (a)(2).
0
E. By adding paragraph (a)(3).
    The additions read as follows:

Sec.  425.400  General.

    (a)(1) General. (i) A Medicare fee-for-service beneficiary is 
assigned to an ACO for a performance year if the--
    (A) Beneficiary meets the eligibility criteria under Sec.  
425.401(a); and
    (B) Beneficiary's utilization of primary care services meets the 
criteria established under the assignment methodology described in 
Sec.  425.402 and Sec.  425.404.
* * * * *
    (2) Assignment under Tracks 1 and 2.
* * * * *
    (3) Prospective assignment under Track 3. (i) Medicare fee-for-
service beneficiaries are prospectively assigned to an ACO under Track 
3 at the beginning of each performance year based on the beneficiary's 
use of primary care services in the most recent 12 months for which 
data are available, using the assignment methodology described in Sec.  
425.402 and Sec.  425.404.
    (ii) Beneficiaries that are prospectively assigned to an ACO under 
paragraph (a)(3)(i) of this section will remain assigned to the ACO at 
the end of the performance year unless they meet any of the exclusion 
criteria under Sec.  425.401(b).
* * * * *
0
32. Add Sec.  425.401 to read as follows:

Sec.  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 Sec. Sec.  425.402 and 425.404, for a performance or 
benchmark year, if the beneficiary meets all of the following criteria 
during the assignment window:
    (1)(i) Has at least 1 month of Part A and Part B enrollment; and
    (ii) Does not have any months of Part A only or Part B only 
enrollment.
    (2) Does not have any months of Medicare group (private) health 
plan enrollment.
    (3) Is not assigned to any other Medicare shared savings 
initiative.
    (4) Lives in the United States or U.S. territories and possessions, 
based on the most recent available data in our beneficiary records 
regarding the beneficiary's residence at the end of the assignment 
window.
    (b) A beneficiary will be excluded from the prospective assignment 
list of

[[Page 72869]]

an ACO participating under Track 3 at the end of a performance or 
benchmark year, if the beneficiary meets any of the following criteria 
during the performance or benchmark year:
    (1)(i) Does not have at least 1 month of Part A and Part B 
enrollment; and
    (ii) Has any months of Part A only or Part B only enrollment.
    (2) Has any months of Medicare group (private) health plan 
enrollment.
    (3) Did not live in the United States or U.S. territories and 
possessions, based on the most recent available data in our beneficiary 
records regarding the beneficiary's residency at the end of the year.
0
33. Revise Sec.  425.402 to read as follows:

Sec.  425.402  Basic assignment methodology.

    (a) For purposes of benchmarking, preliminary prospective 
assignment (including quarterly updates) and retrospective 
reconciliation, and prospective assignment, CMS employs the following 
step-wise methodology to assign Medicare fee-for-service beneficiaries 
to an ACO:
    (1) Identify all beneficiaries that had at least one primary care 
service with a physician who is an ACO professional in the ACO and who 
is a primary care physician as defined under Sec.  425.20 or who has 
one of the primary specialty designations included in paragraph (b) of 
this section.
    (2) Identify all primary care services furnished to beneficiaries 
identified in paragraph (a)(1) by ACO professionals of that ACO who are 
primary care physicians as defined under Sec.  425.20, non-physician 
ACO professionals, and physicians with specialty designations included 
in paragraph (b) of this section during the applicable assignment 
window.
    (3) Under the first step, a beneficiary identified in paragraph 
(a)(1) of this section is assigned to an ACO if the allowed charges for 
primary care services furnished to the beneficiary by primary care 
physicians who are ACO professionals and non-physician ACO 
professionals in the ACO are greater than the allowed charges for 
primary care services furnished by primary care physicians, nurse 
practitioners, physician assistants, and clinical nurse specialists who 
are--
    (i) ACO professionals in any other ACO; or
    (ii) Not affiliated with any ACO and identified by a Medicare-
enrolled billing TIN.
    (4) The second step considers the remainder of the beneficiaries 
identified in paragraph (a)(1) of this section who have not had a 
primary care service rendered by any primary care physician, nurse 
practitioner, physician assistant, or clinical nurse specialist, either 
inside the ACO or outside the ACO. The beneficiary will be assigned to 
an ACO if the allowed charges for primary care services furnished to 
the beneficiary by physicians who are ACO professionals with specialty 
designations as specified in paragraph (b) of this section are greater 
than the allowed charges for primary care services furnished by 
physicians with specialty designations as specified in paragraph (b) of 
this section--
    (i) Who are ACO professionals in any other ACO; or
    (ii) Who are unaffiliated with an ACO and are identified by a 
Medicare-enrolled billing TIN.
    (b) ACO professionals considered in the second step of the 
assignment methodology in paragraph (a)(4) of this section include 
physicians who have one of the following primary specialty 
designations:
    (1) Allergy/immunology.
    (2) Cardiology.
    (3) Gastroenterology.
    (4) Neurology.
    (5) Obstetrics/gynecology.
    (6) Hospice and palliative care.
    (7) Sports medicine.
    (8) Physical medicine and rehabilitation.
    (9) Pulmonary disease.
    (10) Pediatric medicine.
    (11) Nephrology.
    (12) Infectious disease.
    (13) Endocrinology.
    (14) Rheumatology.
    (15) Multispecialty clinic or group practice.
    (16) Hematology.
    (17) Hematology/oncology.
    (18) Preventive medicine.
    (19) Medical oncology.
    (20) Gynecology/oncology.
    (c) When considering services furnished by ACO professionals in 
teaching hospitals that have elected under Sec.  415.160 to receive 
payment on a reasonable cost basis for the direct medical and surgical 
services of their physicians in the assignment methodology under 
paragraph (a) of this section, CMS uses the amount payable under the 
physician fee schedule for the specified HCPCS code as a proxy for the 
amount of the allowed charges for the service.
0
34. Amend Sec.  425.404 by revising paragraph (b) to read as follows:

Sec.  425.404  Special assignment conditions for ACOs including FQHCs 
and RHCs.

* * * * *
    (b) Under the assignment methodology in Sec.  425.402, CMS treats a 
service reported on an FQHC/RHC claim as--
    (1) A primary care service if the claim includes a HCPCS or revenue 
center code that meets the definition of primary care services under 
Sec.  425.20;
    (2) A primary care service performed by a primary care physician if 
the NPI of a physician identified in the attestation provided under 
paragraph (a) of this section is reported on the claim for a primary 
care service (as described in paragraph (b)(1) of this section) as the 
attending provider; and
    (3) A primary care service performed by a non-physician ACO 
professional if the NPI reported on the claim for a primary care 
service (as described in paragraph (b)(1) of this section) as the 
attending provider is an ACO professional but is not identified in the 
attestation provided under paragraph (a) of this section.
0
36. Amend Sec.  425.600 as follows:
0
A. In paragraph (a)(2), by removing the phrase ``under the two-sided 
model'' and adding in its place the phrase ``under a two-sided model''.
0
B. By adding paragraph (a)(3).
0
C. By revising paragraph (b).
    The addition and revision read as follows:

Sec.  425.600  Selection of risk model.

    (a) * * *
    (3) Track 3. Under Track 3, the ACO operates under a two-sided 
model (as described under Sec.  425.610), sharing both savings and 
losses with the Medicare program for the agreement period.
    (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;
    (2) The ACO did not generate losses in excess of its negative MSR 
in both of the first 2 performance years of the previous agreement 
period; and
    (3) The ACO meets the criteria established for ACOs seeking to 
renew their agreements under Sec.  425.224(b).
* * * * *

Sec.  425.602  [Amended]

0
37. Amend Sec.  425.602 (a)(8), by removing the phrase ``The ACO's 
benchmark may be adjusted'' and adding in its place the phrase ``The 
ACO's benchmark will be adjusted in accordance with Sec.  425.118(b)''.
0
38. Amend Sec.  425.604 as follows:
0
A. By redesignating the text of paragraph (d) as paragraph (d)(1).
0
B. In newly redesignated paragraph (d)(1), removing the phrase ``under 
the one-sided model'' and adding in its place the phrase ``during a 
performance year in its first agreement period under the one-sided 
model''.

[[Page 72870]]

0
D. By adding a paragraph (d)(2).
    The addition reads as follows:

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

* * * * *
    (d) * * *
    (2) An ACO that meets all the requirements for receiving shared 
savings payments during a performance year in its second agreement 
period under the one-sided model will receive a shared savings payment 
of up to 40 percent of all savings under the updated benchmark, as 
determined on the basis of its quality performance under Sec.  425.502 
(up to the performance payment limit described in paragraph (e)(2) of 
this section).
* * * * *
0
39. Amend Sec.  425.606 as follows:
0
A. By revising the section heading.
0
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,''.
0
C. By revising paragraph (b).
0
D. In paragraph (d), by removing the phrase ``under the two-sided 
model'' and adding in its place the phrase ``under Track 2''.
0
E. In paragraph (e)(2), by removing the phrase ``under the two-sided 
model'' and adding in its place the phrase ``under Track 2''.
0
F. In paragraph (g)(1), by removing the phrase ``in a two-sided model'' 
and adding in its place the phrase ``in Track 2''.
    The revisions read as follows:

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

* * * * *
    (b) Minimum savings or loss rate. CMS uses a sliding scale, based 
on the number of beneficiaries assigned to the ACO under subpart E of 
this part, to establish the MSR and MLR for an ACO participating under 
Track 2. The MSR under Track 2 is the same as the MSR that would apply 
in the one-sided model under Sec.  425.604(b) and is based on the 
number of assigned beneficiaries. The MLR under Track 2 is equal to the 
negative MSR.
    (1) To qualify for shared savings under Track 2, an ACO's average 
per capita Medicare expenditures for the performance year must be below 
its updated benchmark costs for the year by at least the MSR 
established for the ACO.
    (2) To be responsible for sharing losses with the Medicare program, 
an ACO's average per capita Medicare expenditures for the performance 
year must be above its updated benchmark costs for the year by at least 
the MLR established for the ACO.
* * * * *
0
40. Add Sec.  425.610 to subpart G to read as follows:

Sec.  425.610  Calculation of shared savings and losses under Track 3.

    (a) General rule. For each performance year, CMS determines whether 
the estimated average per capita Medicare expenditures under the ACO 
for Medicare fee-for-service beneficiaries for Parts A and B services 
are above or below the updated benchmark determined under Sec.  
425.602. In order to qualify for a shared savings payment under Track 
3, or to be responsible for sharing losses with CMS, an ACO's average 
per capita Medicare expenditures under the ACO for Medicare fee-for-
service beneficiaries for Parts A and B services for the performance 
year must be below or above the updated benchmark, respectively, by at 
least the minimum savings or loss rate under paragraph (b) of this 
section.
    (1) Newly assigned beneficiaries. CMS uses an ACO's HCC prospective 
risk score to adjust for changes in severity and case mix in this 
population.
    (2) Continuously assigned beneficiaries. (i) CMS uses demographic 
factors to adjust for changes in the continuously assigned beneficiary 
population.
    (ii) If the prospective HCC risk score is lower in the performance 
year for this population, CMS adjusts for changes in severity and case 
mix for this population using this lower prospective HCC risk score.
    (3) Assigned beneficiary changes in demographics and health status 
are used to adjust benchmark expenditures as described in Sec.  
425.602(a). In adjusting for health status and demographic changes CMS 
makes separate adjustments for each of the following populations of 
beneficiaries:
    (i) ESRD.
    (ii) Disabled.
    (iii) Aged/dual eligible Medicare and Medicaid beneficiaries.
    (iv) Aged/non-dual eligible Medicare and Medicaid beneficiaries.
    (4) To minimize variation from catastrophically large claims, CMS 
truncates an assigned beneficiary's total annual Parts A and B fee-for-
service per capita expenditures at the 99th percentile of national 
Medicare fee-for-service expenditures as determined for each 
performance year.
    (5) CMS uses a 3-month claims run out with a completion factor to 
calculate an ACO's per capita expenditures for each performance year.
    (6) Calculations of the ACO's expenditures will include the payment 
amounts included in Part A and B fee-for-service claims.
    (i) These calculations will exclude indirect medical education 
(IME) and disproportionate share hospital (DSH) payments.
    (ii) These calculations will take into consideration individually 
beneficiary identifiable payments made under a demonstration, pilot or 
time limited program.
    (7) In order to qualify for a shared savings payment, the ACO's 
average per capita Medicare expenditures for the performance year must 
be below the applicable updated benchmark by at least the minimum 
savings rate established for the ACO under paragraph (b) of this 
section.
    (b) Minimum savings or loss rate. (1) To qualify for shared savings 
under Track 3 an ACO's average per capita Medicare expenditures for the 
performance year must be below its updated benchmark costs for the year 
by at least 2 percent.
    (2) To be responsible for sharing losses with the Medicare program 
under Track 3, an ACO's average per capita Medicare expenditures for 
the performance year must be at least 2 percent above its updated 
benchmark costs for the year.
    (c) Qualification for shared savings payment. To qualify for shared 
savings, an ACO must meet the minimum savings rate requirement 
established under paragraph (b) of this section, meet the minimum 
quality performance standards established under Sec.  425.502, and 
otherwise maintain its eligibility to participate in the Shared Savings 
Program under this part.
    (d) Final sharing rate. An ACO that meets all the requirements for 
receiving shared savings payments under Track 3 will receive a shared 
savings payment of up to 75 percent of all the savings under the 
updated benchmark, as determined on the basis of its quality 
performance under Sec.  425.502 (up to the performance payment limit 
described in paragraph (e)(2) of this section).
    (e) Performance payment. (1) If an ACO qualifies for savings by 
meeting or exceeding the MSR, the final sharing rate will apply to an 
ACO's savings on a first dollar basis.
    (2) The amount of shared savings an eligible ACO receives under 
Track 3 may not exceed 20 percent of its updated benchmark.
    (f) Shared loss rate. The shared loss rate--
    (1) For an ACO that is required to share losses with the Medicare 
program for expenditures over the updated

[[Page 72871]]

benchmark, the amount of shared losses is determined based on the 
inverse of its final sharing rate described in Sec.  425.610(d) (that 
is, 1 minus the final shared savings rate determined under Sec.  
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 Sec.  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.
0
41. Amend Sec.  425.702 by revising paragraph (c)(1) to read as 
follows:

Sec.  425.702  Aggregate reports.

* * * * *
    (c) * * *
    (1) At the beginning of the agreement period, during each quarter 
(and in conjunction with the annual reconciliation), and at the 
beginning of each performance year, CMS, upon the ACO's request for the 
data for purposes of population-based activities relating to improving 
health or reducing growth in health care costs, process development, 
care management, and care coordination, will provide the ACO with 
information about its fee-for-service population.
    (i) Under Tracks 1 and 2, the following information is made 
available regarding preliminarily prospectively assigned beneficiaries 
and beneficiaries that received a primary care service during the 
previous 12 months from one of the ACO participants that submits claims 
for primary care services used to determine the ACO's assigned 
population under subpart E of this part:
    (A) Beneficiary name.
    (B) Date of birth.
    (C) Health Insurance Claim Number (HICN).
    (D) Sex.
    (ii) Under Tracks 1 and 2, information in the following categories, 
which represents the minimum data necessary for ACOs to conduct health 
care operations work is made available regarding preliminarily 
prospectively assigned beneficiaries:
    (A) Demographic data such as enrollment status.
    (B) Health status information such as risk profile and chronic 
condition subgroup.
    (C) Utilization rates of Medicare services such as the use of 
evaluation and management, hospital, emergency, and post-acute 
services, including the dates and place of service.
    (D) Expenditure information related to utilization of services.
    (iii) The information under paragraphs (c)(1)(i) and (c)(1)(ii) of 
this section will be made available to ACOs in Track 3, but will be 
limited to the ACO's prospectively assigned beneficiaries.
* * * * *
0
42. Amend Sec.  425.704 as follows:
0
A. By revising the section heading.
0
B. In the introductory text, by removing the phrase ``claims data for 
preliminary prospectively assigned beneficiaries'' and adding in its 
place the phrase ``claims data for preliminarily prospectively and 
prospectively assigned beneficiaries''.
0
C. In the introductory text, by removing the phrase ``upon whom 
assignment is based during the agreement period'' and adding in its 
place the phrase ``that submits claims for primary care services used 
to determine the ACO's assigned population under subpart E of this part 
during the performance year''.
0
D. In paragraph (a) by removing the phrase ``ACOs may request data as 
often'' and adding in its place ``ACOs may access requested data as 
often''.
0
E. By revising paragraph (d)(1).
0
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 Sec.  425.708 that the ACO has 
requested access to''.
    The revisions read as follows:

Sec.  425.704  Beneficiary-identifiable claims data.

* * * * *
    (d) * * *
    (1) For an ACO participating--
    (i) In Track 1 or 2, the beneficiary's name appears on the 
preliminary prospective assignment list provided to the ACO at the 
beginning of the performance year, during each quarter (and in 
conjunction with the annual reconciliation) or the beneficiary has 
received a primary care service from an ACO participant upon whom 
assignment is based (under subpart E of this part) during the most 
recent 12-month period.
    (ii) In Track 3, the beneficiary's name appears on the prospective 
assignment list provided to the ACO at the beginning of the performance 
year.
* * * * *
0
43. Amend Sec.  425.708 as follows:
0
A. Revising the section heading and paragraph (a).
0
B. Removing paragraphs (b) and (c).
0
C. Redesignating paragraphs (d) through (f) as paragraphs (b) through 
(d), respectively.
0
D. Revising newly redesignated paragraphs (b) and (c).
    The revisions read as follows:

Sec.  425.708  Beneficiaries may decline claims data sharing.

    (a) Beneficiaries must receive notification about the Shared 
Savings Program and the opportunity to decline claims data sharing and 
instructions on how to inform CMS directly of their preference.
    (1) FFS beneficiaries are notified about the opportunity to decline 
claims data sharing through CMS materials such as the Medicare & You 
Handbook and through the notifications required under Sec.  425.312.
    (2) The notifications provided under Sec.  425.312 must state that 
the ACO may have requested beneficiary identifiable claims data about 
the beneficiary for purposes of its care coordination and quality 
improvement work, and inform the beneficiary how to decline having his 
or her claims information shared with the ACO in the form and manner 
specified by CMS.
    (3) Beneficiary requests to decline claims data sharing will remain 
in effect unless and until a beneficiary subsequently contacts CMS to 
amend that request to permit claims data sharing with ACOs.
    (b) The opportunity to decline having claims data shared with an 
ACO under paragraph (a) of this section does not apply to the 
information that CMS provides to ACOs under Sec.  425.702(c).
    (c) In accordance with 42 U.S.C. 290dd-2 and the implementing 
regulations at 42 CFR part 2, CMS does not share beneficiary 
identifiable claims data relating to the diagnosis and treatment of 
alcohol and substance abuse without the explicit written consent of the 
beneficiary.
* * * * *
0
44. Amend Sec.  425.802 by revising paragraph (a)(2) to read as 
follows:

Sec.  425.802  Request for review.

    (a) * * *
    (2) The reconsideration review must be held on the record (review 
of submitted documentation).
* * * * *
0
45. Amend Sec.  425.804 as follows:
0
A. By revising paragraph (a)(3).

[[Page 72872]]

0
B. By removing paragraph (d).
0
C. Redesignating paragraphs (e) and (f) as paragraphs (d) and (e), 
respectively.
    The revision reads as follows:

Sec.  425.804  Reconsideration review process.

    (a) * * *
    (3) A briefing schedule that permits each party to submit only one 
written brief, including any evidence, for consideration by the 
reconsideration official in support of the party's position.
* * * * *

    Dated: November 20, 2014.
Marilyn Tavenner,
Administrator, Centers for Medicare & Medicaid Services.
    Dated: November 21, 2014.
Sylvia M. Burwell,
Secretary, Department of Health and Human Services.
[FR Doc. 2014-28388 Filed 12-1-14; 4:15 pm]
BILLING CODE 4120-01-P
```