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[Federal Register Volume 76, Number 67 (Thursday, April 7, 2011)]
[Proposed Rules]
[Pages 19528-19654]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-7880]

[[Page 19527]]

Vol. 76

Thursday,

No. 67

April 7, 2011

Part II

Department of Health and Human Services

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Centers for Medicare & Medicaid Services

Office of the Inspector General

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42 CFR Part 425

Medicare Program; Medicare Shared Savings Program: Accountable Care 
Organizations and Medicare Program: Waiver Designs in Connection With 
the Medicare Shared Savings Program and the Innovation Center; Proposed 
Rule and Notice

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

[[Page 19528]]

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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Part 425

[CMS-1345-P]
RIN 0938-AQ22

Medicare Program; Medicare Shared Savings Program: Accountable 
Care Organizations

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

ACTION: Proposed rule.

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SUMMARY: This proposed rule would implement section 3022 of the 
Affordable Care Act which contains provisions relating to Medicare 
payments to providers of services and suppliers participating in 
Accountable Care Organizations (ACOs). Under these provisions, 
providers of services and suppliers can continue to receive traditional 
Medicare fee-for-service payments under Parts A and B, and be eligible 
for additional payments based on meeting specified quality and savings 
requirements.

DATES: To be assured consideration, comments must be received at one of 
the addresses provided below, no later than 5 p.m. on June 6, 2011.

ADDRESSES: In commenting, please refer to file code CMS-1345-P. Because 
of staff and resource limitations, we cannot accept comments by 
facsimile (FAX) transmission.
    You may submit comments in one of four ways (please choose only one 
of the ways listed):
    1. Electronically. You may submit electronic comments on this 
regulation to http://www.regulations.gov. Follow the ``Submit a 
comment'' instructions.
    2. By regular mail. You may mail written comments to the following 
address ONLY: Centers for Medicare & Medicaid Services, Department of 
Health and Human Services, Attention: CMS-1345-P, P.O. Box 8013, 
Baltimore, MD 21244-8013.
    Please allow sufficient time for mailed comments to be received 
before the close of the comment period.
    3. By express or overnight mail. You may send written comments to 
the following address only: Centers for Medicare & Medicaid Services, 
Department of Health and Human Services, Attention: CMS-1345-P, Mail 
Stop C4-26-05, 7500 Security Boulevard, Baltimore, MD 21244-1850.
    4. By hand or courier. If you prefer, you may deliver (by hand or 
courier) your written comments before the close of the comment period 
to either of the following addresses: a. For delivery in Washington, 
DC--Centers for Medicare & Medicaid Services, Department of Health and 
Human Services, Room 445-G, Hubert H. Humphrey Building, 200 
Independence Avenue, SW., Washington, DC 20201.
    (Because access to the interior of the Hubert H. Humphrey Building 
is not readily available to persons without Federal government 
identification, commenters are encouraged to leave their comments in 
the CMS drop slots located in the main lobby of the building. A stamp-
in clock is available for persons wishing to retain a proof of filing 
by stamping in and retaining an extra copy of the comments being 
filed.)
    b. For delivery in Baltimore, MD--Centers for Medicare & Medicaid 
Services, Department of Health and Human Services, 7500 Security 
Boulevard, Baltimore, MD 21244-1850.
    If you intend to deliver your comments to the Baltimore address, 
please call telephone number (410) 786-7195 in advance to schedule your 
arrival with one of our staff members.
    Comments mailed to the addresses indicated as appropriate for hand 
or courier delivery may be delayed and received after the comment 
period.
    Submission of comments on paperwork requirements. You may submit 
comments on this document's paperwork requirements by following the 
instructions at the end of the ``Collection of Information 
Requirements'' section in this document.
    For information on viewing public comments, see the beginning of 
the SUPPLEMENTARY INFORMATION section.

FOR FURTHER INFORMATION CONTACT: Dr. Terri Postma (410)786-8084.

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

Table of Contents

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

I. Background
    A. Introduction and Overview of Value-Based Purchasing
    B. Statutory Basis for the Medicare Shared Savings Program
    C. Overview and Intent of the Medicare Shared Savings Program
    D. Related Affordable Care Act Provisions
    1. Establishment of Center for Medicare and Medicaid Innovation 
(Innovation Center)
    2. Independence at Home Medical Practices
    3. State Option To Provide Health Homes
    4. Community Health Teams
    E. Related Ongoing CMS Efforts
    1. Physician Group Practice Demonstration
    2. Medicare Health Care Quality Demonstration
II. Provisions of the Proposed Rule
    A. Organizations of the Proposed Rule
    B. Eligibility and Governance
    1. Eligible Entities
    2. Legal Structure and Governance
    a. Legal Entity
    b. Governance
    c. Composition of the Governing Body
    3. Leadership and Management Structure
    4. Accountability for Beneficiaries
    5. Agreement Requirement
    6. Distribution of Savings
    7. Sufficient Number of Primary Care Providers and Beneficiaries
    8. Required Reporting on Participating ACO Professionals
    9. Processes To Promote Evidence-Based Medicine, Patient 
Engagement, Reporting, and Coordination of Care
    a. Processes To Promote Evidence-Based Medicine
    b. Processes To Promote Patient Engagement
    c. Processes To Report on Quality and Cost Measures
    d. Processes To Promote Coordination of Care
    10. Patient Centeredness Criteria
    a. Beneficiary Experience of Care Survey
    b. Patient Involvement in Governance
    c. Evaluation of Population Health Needs and Consideration of 
Diversity
    d. Implementation of Individualize Care Plans and Integration of 
Community Resources
    11. ACO Marketing Guidelines
    12. Program Integrity Requirements
    a. Compliance Plans
    b. Compliance With Program Requirements
    c. Conflicts of Interest
    d. Screening of ACO Applicants
    e. Prohibition on Certain Required Referrals and Cost Shifting
    C. Establishing the 3-YearAgreement With the Secretary

[[Page 19529]]

    1. Options for Start Date of the Performance Year
    2. Timing and Process for Evaluating Shared Savings
    3. Data Sharing
    4. Sharing Aggregate Data
    5. Identification of Historically Assigned Beneficiaries
    6. Sharing Beneficiary Identifiable Claims Data
    a. Legal Authority To Provide Beneficiary Identifiable Data to 
ACOs
    (1) Sharing Data Related to Medicare Parts A and B
    (2) Sharing Data Related to Medicare Part D
    b. Beneficiary Opportunity To Opt Out of Claims Data Sharing
    7. New Program Standards Established During 3-Year Agreement 
Period
    8. Managing Significant Changes to the ACO During the Agreement 
Period
    9. Future Participation of Previously Terminated Program 
Participants
    D. Assignment of Medicare Fee-For-Service Beneficiaries
    1. Operational Identification of an ACO
    2. Definition of Primary Care Services
    3. Prospective vs. Retrospective Beneficiary Assignment to 
Calculate Eligibility for Shared Savings
    4. Majority vs. Plurality Rule for Beneficiary Assignment
    5. Beneficiary Information and Notification
    E. Quality and Other Reporting Requirements
    1. Introduction
    2. Proposed Measures To Assess the Quality of Care Furnished by 
an ACO
    a. General
    b. Considerations in Selecting Measures
    1. Use of Measures
    2. Scoring Methodology
    c. Proposed Quality Measures for Use in Establishing Quality 
Performance Standards that ACOs Must Meet for Shared Savings
    3. Requirements for Quality Measures Data Submission by ACOs
    a. General
    b. GPRO Tool
    c. Certified EHR Technology
    4. Quality Performance Standards
    a. General
    b. Option 1--Performance Scoring
    (1) Measure Domains and Measures Included in the Domains
    (2) Methodology for Calculating a Performance Score for Each 
Measure Within a Domain
    (3) Methodology for Calculating a Performance Score for Each 
Domain
    (4) The Quality Performance Standard Level
    c. Option 2--Quality Threshold
    (1) Minimum Quality Threshold
    (2) Considerations in Establishing a Quality Threshold
    5. Incorporation of Other Reporting Requirements Related to the 
Physician Quality Reporting System and Electronic Health Records 
Technology Under Section 1848 of the Act
    6. Public Reporting
    7. Aligning ACO Quality Measures with other Laws and Regulations
    F. Shared Savings Determination
    1. Background
    2. Overview of Shared Savings Determination
    3. Establishing an Expenditure Benchmark
    a. Background
    b. Option 1
    c. Option 2
    d. Summary
    4. Adjusting the Benchmark and Average Per Capita Expenditures 
for Beneficiary Characteristics
    5. Technical Adjustments to the Benchmark Impact of IME and DSH
    6. Technical Adjustments to the Benchmark Impact of Geographic 
Payment Adjustments on the Calculation of the Benchmark
    7. Technical Adjustments to the Benchmark Impact of Bonus 
Payments and Penalties on the Calculation of the Benchmark and 
Actual Expenditures
    8. Trending Forward Prior Years' Experience To Obtain an Initial 
Benchmark
    a. Flat Dollar vs Growth Rate as a Benchmark Trending Factor
    b. National vs Local Growth Rate as a Benchmark Trending Factor
    9. Updating the Benchmark During the Agreement Period
    10. Minimum Savings Rate (MSR) and Sharing Rate
    11. Net Sharing Rate
    12. Additional Shared Savings Payments
    13. Withholding Performance Payments To Offset Future Losses
    14. Performance Payment Limit
    G. Two-Sided Model
    1. Risk-Based Payment Models
    2. Two Tracks Provide Incremental Approach to Incorporating Risk
    3. Elements of the Two-Sided Model
    a. Beneficiary Notification and Protections
    b. Eligibility Requirements
    c. Quality Performance Measurement and Scoring
    d. Shared Savings Methodology
    (1) Minimum Savings Rate
    (2) Additional Shared Savings Payments
    (3) Net Sharing Rate
    (4) Calculating Sharing in Losses
    (5) Maximum Shared Savings and Shared Loss Caps
    e. Ensuring ACO Repayment of Shared Losses
    f. Future Participation of Under-performing Organizations
    g. Public Reporting
    h. Impact on States
    4. Verification of Savings and Losses
    H. Monitoring and Termination of ACOs
    1. Monitoring Avoidance of At Risk Beneficiaries
    2. Monitoring Compliance with Quality Performance Standards
    3. Terminating an ACO Agreement
    4. Reconsideration Review Process
    I. Coordination With Other Agencies
    1. Waivers of CMP, Anti Kickback, and Physician Self Referral 
Laws
    2. IRS Guidance Relating to Tax Exempt Organization
    3. Antitrust Policy Statement
    4. Prohibition Against the Shared Savings Program Participation 
by ACOs With Market Power
    a. Coordinating the Shared Savings Program Application With the 
Antitrust Agencies
    b. Competition and Quality of Care
    c. Competition, Price, and Access to Care
    J. Overlap With Other CMS Shared Savings Initiatives
    1. Duplication in Participation in Medicare Shared Savings 
Programs
    2. Transition of the Physician Group Practice (PGP) 
Demonstration Sites Into the Shared Savings Program
    3. Overlap With the Center for Medicare & Medicaid Innovation 
(Innovation Center Shared Savings Models
III. Collection of Information Requirements
IV. Response to Comments
V. Regulatory Impact Analysis
    A. Introduction
    B. Statement of Need
    C. Anticipated Effects
    1. Effects on the Medicare Program
    a. Assumptions and Uncertainties
    b. Detailed Stochastic Modeling Results
    c. Further Considerations
    2. Impact on Beneficiaries
    3. Impact on Providers and Suppliers
    D. Alternatives Considered
    E. Accounting Statement and Table
    F. Conclusion

Acronyms

ACO Accountable Care Organizations
AHRQ Agency for Healthcare Research and Quality
BCBSMA Blue Cross Blue Shield of Massachusetts
BIPA Benefits Improvement and Protection Act
BQI Better Quality Information
CAD Coronary Artery Disease
CAHPS Consumer Assessment of Health Providers and Systems
CAHs Critical Access Hospitals
CAM Complementary and Alternative Services
CBIC Competitive Bidding Implementation Contractor
CCNC Community Care of North Carolina
CHCs Community Health Centers
CHIP Children's Health Insurance Program
CMMI Center for Medicare and Medicaid Innovation
CMP Civil Monetary Penalties
CMS Centers for Medicare and Medicaid Services
CNM Certified Nurse Midwife
CMS-HCC CMS Hierarchal Condition Category
COPD Chronic Obstructive Pulmonary Disease
CP Certified Psychologist
CSW Clinical Social Worker
CVE Chartered Value Exchange
CWF Common Working File
DHHS Department of Health and Human Services
DM Diabetes Mellitus
DOJ Department of Justice
DRA Deficit Reduction Act of 2005(Pub. L. 109-171)
DSH Disproportionate Share Hospital
DUA Data use Agreement
E&M Evaluation and Management
EDB Enrollment Database
EHR Electronic Health Record

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ESRD End Stage Renal Disease
eRx Electronic Prescribing Incentive Program
FFS Fee For Service
FQHCs Federally Qualified Health Centers
FTC Federal Trade Commission
GAO Government Accountability Office
GPCI Geographic Practice Cost Index
GPRO Group Practice Reporting Option
HAC Hospital Acquired Conditions
HCAHPS Health Care Providers Systems and Surveys
HCC Hierarchal Condition Category
HCO Health Care Organizations
HCPCS Health Care Procedural Coding System
HHA Home Health Agencies
HICN Health Insurance Claim Number
HIPAA Heath Insurance Portability and Accountability Act of 1996
HIE Health Information Exchange
HIT Health Information Technology
HITECH Health Information Technology for Economic and Clinical 
Health
HMO Health Maintenance Organization
HRSA Health Resources Services Administration
HVBP Hospital Value Based Purchasing
IHIE Indiana Health Information Exchange
IME Indirect Medical Education
INPC Indiana Network for Patient Care
IOM Institute of Medicine
IPPS Inpatient Prospective Payment System
IQR Inpatient Quality Reporting
IRS Internal Revenue Services
LTCHs Long-Term Acute Care Hospitals
MA Medicare Advantage
MAeHC Massachusetts eHealth Collaborative
MDCs Major Diagnostic Categories
MedPAC Medicare Payment Advisory Commission
MHCQ Medicare Health Care Quality
MMA Medicare Prescription Drug, Improvement, and Modernization Act
MPFS Medicare Physician Fee Schedule
MS-DRGs Medicare Severity-Diagnosis Related Groups
MSP Minimum Savings Percentage
MSR Minimum Savings Rate
NC-CCN North Carolina Community Care Networks
NCH National Claims History
NCQA National Committee for Quality Assurance
NP Nurse Practitioner
NPI National Provider Identifier
NQF National Quality Forum
NYCLIX The New York Clinical Information Exchange
OIG Office of Inspector General
OMB Office of Management and Budget
PA Physician Assistant
PACE Program of All Inclusive Care for the Elderly
PACFs Post-Acute Care Facilities
PCMH Patient Centered Medical Home
PFS Physician Fee Schedule
PGP Physician Group Practice
PHI Protected health information
POS Point of Service
PPO Preferred provider organization
PPS Prospective Payment System
PQRI Physician Quality Reporting Initiative
PQRS Physician Quality Reporting System
PRA Paperwork Reduction Act
PSA Primary Service Areas
RFI Request for Information
RHCs Rural Health Centers
RHQDAPU Reporting Hospital Quality Data for Annual Payment Update
RIA Regulatory Impact Analysis
SNFs Skilled Nursing Facilities
SOR Privacy Act Systems of Record
SSA Social Security Administration
SSN Social Security Number
TIN Tax Identification Number

I. Background

A. Introduction and Overview of Value-Based Purchasing

    On March 23, 2010, the Patient Protection and Affordable Care Act 
(Pub. L. 111-148) was enacted. Following the enactment of Public Law 
111-148, the Health Care and Education Reconciliation Act of 2010 (Pub. 
L. 111-152) (enacted on March 30, 2010), amended certain provisions of 
Public Law 111-148. These public laws are collectively known as the 
Affordable Care Act. The Affordable Care Act includes a number of 
provisions designed to improve the quality of Medicare services, 
support innovation and the establishment of new payment models in the 
program, better align Medicare payments with provider costs, strengthen 
program integrity within Medicare, and put Medicare on a firmer 
financial footing.
    With respect to quality improvement, the Affordable Care Act 
includes provisions to expand value-based purchasing, broaden quality 
reporting, improve the level of performance feedback available to 
suppliers, create incentives to enhance quality, improve beneficiary 
outcomes, and increase the value of care.
    Value-based purchasing is a concept that links payment directly to 
the quality of care provided and is a strategy that can help transform 
the current payment system by rewarding providers for delivering high 
quality, efficient clinical care. We have significant experience in 
developing, refining, and expanding health care quality performance 
measures through our experience with value-based demonstration efforts, 
noting some of these efforts later in the document, and various 
Medicare payment systems. For example, since 2005, we have applied the 
Hospital Inpatient Quality Reporting (IQR) Program under the hospital 
inpatient prospective payment system. Hospital IQR provides 
differential payments to hospitals that meet certain requirements, 
including publicly reporting their performance on a defined set of 
inpatient care performance measures. Beginning in 2007, under the 
physician fee schedule, we have provided for quality measure reporting 
through the Physician Quality Reporting System, which includes 
incentive payments for eligible professionals who satisfactorily report 
data on quality measures for covered professional services furnished to 
Medicare beneficiaries. In 2009, Congress passed the Health Information 
and Technology for Economic and Clinical Health (HITECH) Act. As part 
of the Electronic Health Records (EHR) Incentive Program under HITECH, 
we have defined measures for the meaningful use of certified electronic 
health records technology and have developed incentive payment programs 
for both Medicare and Medicaid providers. We have extended similar 
efforts to additional payment systems, including the hospital 
outpatient prospective payment system and various post-acute care 
systems.
    In addition to improving quality, value-based purchasing 
initiatives seek to reduce growth in health care expenditures. It is 
widely recognized that the trajectory for the nation's health care 
spending is unsustainable. Medicare beneficiaries share in the burden 
of rising costs, as they pay higher premiums, and larger cost-sharing 
obligations and out-of-pocket expenses. The Affordable Care Act 
includes a series of reforms expected to significantly slow growth in 
the Medicare spending rate while simultaneously strengthening the care 
provided to Medicare beneficiaries. These reforms build upon existing 
value-based purchasing efforts currently underway within CMS to find 
ways to better coordinate care and reduce unnecessary services to lower 
the growth in Medicare spending while improving the quality of care 
received by beneficiaries.
    We view value-based purchasing as an important step to revamping 
how care and services are paid for, moving increasingly toward 
rewarding better value, outcomes, and innovations instead of merely 
volume. In implementing these value-based purchasing initiatives, we 
seek to meet certain common goals, as follows:
     Improving quality.
    ++ Value-based payment systems and public reporting should rely on 
a mix of standards, processes, outcomes, and patient experience 
measures, including measures of care transitions and changes in patient 
functional status. Across all programs, we seek to move as quickly as 
possible to the use of outcome and patient experience measures. To the 
extent practicable and appropriate, these outcome and patient 
experience measures should be adjusted

[[Page 19531]]

for risk or other appropriate patient, population, or provider 
characteristics.
    ++ To the extent possible, and recognizing differences in payment 
system readiness and statutory authorities, measures should be aligned 
across Medicare and Medicaid's public reporting and payment systems. We 
seek to evolve a focused core-set of measures appropriate to each 
specific provider category that reflects the level of care and the most 
important areas of service and measures for that provider.
    ++ The collection of information should minimize the burden on 
providers to the extent possible. As part of that effort, we will 
continuously seek to align our measures with the adoption of meaningful 
use standards for health information technology (HIT), so the 
collection of performance information is part of care delivery.
    ++ To the extent practicable, the measures used by the Shared 
Savings Program should be nationally endorsed by a multistakeholder 
organization. We should align measures with best practices among other 
payers and the needs of the end users of the measures.
     Lowering growth in expenditures.
    ++ Providers should be accountable for the cost of care, and be 
rewarded for reducing unnecessary expenditures and be responsible for 
excess expenditures.
    ++ In reducing excess expenditures, providers should continually 
improve the quality of care they deliver and must honor their 
commitment to do no harm to beneficiaries.
    ++ To the extent possible, and recognizing differences in payers' 
value-based purchasing initiatives, providers should apply cost 
reducing and quality improving redesigned care processes to their 
entire patient population.
    As noted previously, the Affordable Care Act includes provisions to 
expand value-based purchasing, broaden quality reporting, improve the 
level of performance feedback available to suppliers, create incentives 
to enhance quality, improve beneficiary outcomes, and increase the 
value of care. Among these provisions, section 3022 of the Affordable 
Care Act requires the Secretary to establish the Medicare Shared 
Savings Program (Shared Savings Program), intended to encourage the 
development of Accountable Care Organizations (ACOs) in Medicare. The 
Affordable Care Act intends the Medicare Shared Saving Program to be a 
program ``that promotes accountability for a patient population and 
coordinates items and services under parts A and B, and encourages 
investment in infrastructure and redesigned care processes for high 
quality and efficient service delivery.'' The Shared Savings Program is 
a key Medicare delivery system reform initiatives that will be 
implemented under the Affordable Care Act and is a new approach to the 
delivery of health care aimed at: (1) Better care for individuals; (2) 
better health for populations; and (3) lower growth in expenditures. We 
refer to this approach throughout the document as the three-part aim.

B. Statutory Basis for the Medicare Shared Savings Program

    Section 3022 of the Affordable Care Act amended Title XVIII of the 
Social Security Act (the Act) (42 U.S.C. 1395 et seq.) by adding new 
section 1899 to the Act to establish a Shared Savings Program that 
promotes accountability for a patient population, coordinates items and 
services under Parts A and B, and encourages investment in 
infrastructure and redesigned care processes for high quality and 
efficient service delivery. Section 1899(a)(1) of the Act requires the 
Secretary to establish this program no later than January 1, 2012. 
Section 1899(a)(1)(A) of the Act further provides that, ``groups of 
providers of services and suppliers meeting criteria specified by the 
Secretary may work together to manage and coordinate care for Medicare 
fee-for-service beneficiaries through an [ACO]''. Section 1899(a)(1)(B) 
of the Act also provides that ACOs that meet quality performance 
standards established by the Secretary are eligible to receive payments 
for ``shared savings''.
    Section 1899(b)(1) of the Act establishes the types of groups of 
providers of services and suppliers, with established mechanisms for 
shared governance, that are eligible to participate as ACOs under the 
program, subject to the succeeding provisions of section 1899 of the 
Act, as determined appropriate by the Secretary. Specifically, sections 
1899(b)(1)(A) through (E) of the Act provide, respectively, that the 
following groups of providers of services and suppliers are eligible to 
participate:
     ACO professionals in group practice arrangements.
     Networks of individual practices of ACO professionals.
     Partnerships or joint venture arrangements between 
hospitals and ACO professionals.
     Hospitals employing ACO professionals.
     Such other groups of providers of services and suppliers 
as the Secretary determines appropriate.
    Section 1899(b)(2) of the Act establishes the requirements that 
such eligible groups must meet in order to participate in the program. 
Specifically, sections 1899(b)(2)(A) through (H) of the Act provide, 
respectively, that eligible groups of providers of services and 
suppliers must meet the following requirements to participate in the 
program as ACOs:
     The ACO shall be willing to become accountable for the 
quality, cost, and overall care of the Medicare fee-for-service (FFS) 
beneficiaries assigned to it.
     The ACO shall enter into an agreement with the Secretary 
to participate in the program for not less than a 3-year period.
     The ACO shall have a formal legal structure that would 
allow the organization to receive and distribute payments for shared 
savings to participating providers of services and suppliers.
     The ACO shall include primary care ACO professionals that 
are sufficient for the number of Medicare FFS beneficiaries assigned to 
the ACO. At a minimum, the ACO shall have at least 5,000 such 
beneficiaries assigned to it in order to be eligible to participate in 
the Shared Savings Program.
     The ACO shall provide the Secretary with such information 
regarding ACO professionals participating in the ACO as the Secretary 
determines necessary to support the assignment of Medicare fee-for-
service beneficiaries to an ACO, the implementation of quality and 
other reporting requirements, and the determination of payments for 
shared savings.
     The ACO shall have in place a leadership and management 
structure that includes clinical and administrative systems.
     The ACO shall define processes to promote evidence-based 
medicine and patient engagement, report on quality and cost measures, 
and coordinate care, such as through the use of telehealth, remote 
patient monitoring, and other such enabling technologies.
     The ACO shall demonstrate to the Secretary that it meets 
patient-centeredness criteria specified by the Secretary, such as the 
use of patient and caregiver assessments or the use of individualized 
care plans.
    Section 1899(b)(3) of the Act establishes the quality and other 
reporting requirements for the Shared Savings Program. For purposes of 
quality reporting, section 1899(b)(3)(A) of the Act provides that the 
Secretary shall determine appropriate measures to assess the quality of 
care furnished by the ACO, such as measures of clinical processes and 
outcomes, patient and,

[[Page 19532]]

where practicable, caregiver experience of care, and utilization (such 
as rates of hospital admissions for ambulatory care sensitive 
conditions). Section 1899(b)(3)(B) of the Act requires an ACO to submit 
data in a form and manner specified by the Secretary on measures the 
Secretary determines necessary for the ACO to report in order to 
evaluate the quality of care furnished by the ACO. This provision 
further states that such data may include care transitions across 
health care settings, including hospital discharge planning and post-
hospital discharge follow-up by ACO professionals, as determined to be 
appropriate by the Secretary. Section 1899(b)(3)(C) of the Act requires 
the Secretary to establish quality performance standards to assess the 
quality of care furnished by ACOs. That section also requires that the 
Secretary shall seek to improve the quality of care furnished by ACOs 
over time by specifying higher standards, new measures, or both for 
purposes of assessing such quality of care. Finally, section 
1899(b)(3)(D) of the Act provides that the Secretary may, as the 
Secretary determines appropriate, incorporate reporting requirements 
and incentive payments related to the Physician Quality Reporting 
System under section 1848 of the Act, including such requirements and 
such payments related to electronic prescribing, electronic health 
records, and other similar initiatives under section 1848 of the Act, 
and may use alternative criteria than would otherwise apply under such 
section for determining whether to make such payments. CMS should not 
take the incentive payments described in the preceding sentence into 
consideration when calculating any payments otherwise made under of 
section 1899(d) the Act.
    Section 1899(b)(4) of the Act prohibits duplication in 
participation in other shared savings programs by participants in the 
Shared Savings Program. Specifically, a provider of services or 
supplier that participates in any of the following is not eligible to 
participate in an ACO under the Shared Savings Program: A model tested 
or expanded under section 1115A of the Act that involves shared savings 
under this title, any other program or demonstration project that 
involves such shared savings, or the Independence at Home Demonstration 
under section 1866E of the Act.
    Section 1899(c) of the Act provides the Secretary with discretion 
to determine an appropriate method to assign Medicare FFS beneficiaries 
to an ACO participating in the Shared Savings Program. This discretion 
is limited, however, by the fact that under the Act, assignment must be 
based on beneficiaries' utilization of primary care services provided 
under Medicare by an ACO professional who is a physician as defined in 
section 1861(r)(1) of the Act.
    Section 1899(d) of the Act establishes the principles and 
requirements for payments and treatment of savings under the Shared 
Savings Program. Specifically, section 1899(d)(1)(A) of the Act 
provides that, subject to the requirements concerning monitoring 
avoidance of at-risk patients, payments shall continue to be made to 
providers of services and suppliers participating in an ACO under the 
original Medicare FFS program under Parts A and B in the same manner as 
they would otherwise be made, except that a participating ACO is 
eligible to receive payment for shared savings if the following occur:
     The ACO meets quality performance standards established by 
the Secretary; and
     The ACO meets the requirements for realizing savings.
    Section 1899(d)(1)(B) of the Act establishes the savings 
requirements and the method for establishing and updating the benchmark 
against which any savings would be determined. Specifically, section 
1899(d)(1)(B)(i) of the Act establishes that, in each year of the 
agreement period, an ACO shall be eligible to receive payment for 
shared savings only if the estimated average per capita Medicare 
expenditures under the ACO for Medicare FFS beneficiaries for Parts A 
and B services, adjusted for beneficiary characteristics, is at least 
the percent specified by the Secretary below the applicable benchmark. 
The Secretary shall determine the appropriate percent of shared savings 
to account for normal variation in Medicare expenditures, based upon 
the number of Medicare FFS beneficiaries assigned to an ACO. Section 
1899(d)(1)(B)(ii) of the Act, in turn, requires the Secretary to 
estimate a benchmark for each agreement period for each ACO using the 
most recent available 3 years of per beneficiary expenditures for Parts 
A and B services for Medicare FFS beneficiaries assigned to the ACO. 
This benchmark must be adjusted for beneficiary characteristics and 
such other factors as the Secretary determines appropriate and updated 
by the projected absolute amount of growth in national per capita 
expenditures for Parts A and B services under the original Medicare FFS 
program, as estimated by the Secretary. Furthermore, the benchmark must 
be reset at the start of each new agreement period.
    Section 1899(d)(2) of the Act provides for the actual payments for 
shared savings under the Shared Savings Program. Specifically, if an 
ACO meets the quality performance standards established by the 
Secretary, and meets the savings requirements, a percent (as determined 
appropriate by the Secretary) of the difference between the estimated 
average per capita Medicare expenditures in the year, adjusted for 
beneficiary characteristics, and the benchmark for the ACO may be paid 
to the ACO as shared savings and the remainder of the difference shall 
be retained by the Medicare program. The Secretary is required to 
establish limits on the total amount of shared savings paid to an ACO.
    Section 1899(d)(3) of the Act requires the Secretary to monitor 
ACOs for avoidance of at-risk patients. Specifically, if the Secretary 
determines that an ACO has taken steps to avoid patients at risk in 
order to reduce the likelihood of increasing costs to the ACO, the 
Secretary may impose an appropriate sanction on the ACO, including 
termination from the program. Section 1899(d)(4) of the Act, in turn, 
provides that the Secretary may terminate an agreement with an ACO if 
it does not meet the quality performance standards established by the 
Secretary. Section 1899(e) of the Act provides that chapter 35 of title 
44 of the U.S. Code, which includes such provisions as the Paperwork 
Reduction Act (PRA), shall not apply to the Shared Savings Program. 
Section 1899(f) of the Act further provides the Secretary with the 
authority to waive such requirements of sections 1128A and 1128B of the 
Act and title XVIII of the Act as may be necessary to carry out the 
Shared Savings Program. Section 1899(g) of the Act establishes 
limitations on judicial and administrative review of the Shared Savings 
Program. This section provides that there shall be no administrative or 
judicial review under section 1869 of the Act, section 1878 of the Act, 
or otherwise of the following:
     The specification of criteria under 1899(a)(1)(B) of the 
Act.
     The assessment of the quality of care furnished by an ACO 
and the establishment of performance standards under 1899(b)(3) of the 
Act.
     The assignment of Medicare FFS beneficiaries to an ACO 
under 1899(c) of the Act.
     The determination of whether an ACO is eligible for shared 
savings under 1899(d)(2) of the Act and the amount of such shared 
savings, including the determination of the estimated average per 
capita Medicare expenditures under the ACO for Medicare FFS 
beneficiaries

[[Page 19533]]

assigned to the ACO and the average benchmark for the ACO under 
1899(d)(1)(B) of the Act.
     The percent of shared savings specified by the Secretary 
under 1899(d)(2) of the Act and any limit on the total amount of shared 
savings established by the Secretary under such subsection.
     The termination of an ACO under 1899(d)(4) of the Act for 
failure to meet the quality performance standards.
    Section 1899(h) of the Act defines some basic terminology that 
applies to the Shared Savings Program. Specifically, section 1899(h)(1) 
of the Act defines the term ``ACO professional'' as a physician (as 
defined in section 1861(r)(1) of the Act) or a practitioner described 
in section 1842(b)(18)(C)(i) of the Act (that is, a physician 
assistant, nurse practitioner or clinical nurse specialist (as defined 
in section 1861(aa)(5) of the Act)). Section 1899(h)(2) of the Act 
defines the term ``hospital'' as a hospital (as defined in section 
1886(d)(1)(B) of the Act.'' (A ``subsection (d) hospital'' is a 
hospital located in one of the fifty States or the District of 
Columbia, excluding hospitals and hospital units that are not paid 
under the inpatient prospective payment system under section 
1886(d)(1)(B) of the Act, such as psychiatric, rehabilitation, long 
term care, children's, and cancer hospitals.) Section 1899(h)(3) of the 
Act defines the term ``Medicare fee-for-service beneficiary'' as an 
individual who is enrolled in the original Medicare FFS program under 
Medicare Parts A and B and is not enrolled in a Medicare Advantage (MA) 
plan under Medicare Part C, an eligible organization under section 1876 
of the Act, or a Program of All-Inclusive Care for the Elderly (PACE) 
under section 1894 of the Act.
    Section 1899(i) of the Act provides that the Secretary may use 
either a partial capitation model or other payment model, rather than 
the payment model described in section 1899(d) of the Act, for making 
payments under the Shared Savings Program. Sections 1899(i)(2)(B) and 
1899(i)(3)(B) of the Act require that any such model maintain budget 
neutrality. Specifically, these sections require that any such model 
adopted by the Secretary, ``does not result in spending more for such 
ACO for such beneficiaries than would otherwise be expended for such 
ACO for such beneficiaries for such year if the model were not 
implemented, as estimated by the Secretary.''
    Finally, section 1899(k) of the Act provides for an extension to 
the Physician Group Practice (PGP) demonstration: ``During the period 
beginning on the date of the enactment of this section and ending on 
the date the program is established, the Secretary may enter into an 
agreement with an ACO under the demonstration under section 1866A, 
subject to rebasing and other modifications deemed appropriate by the 
Secretary.''

C. Overview and Intent of the Medicare Shared Savings Program

    The intent of the Shared Savings Program is to promote 
accountability for a population of Medicare beneficiaries, improve the 
coordination of FFS items and services, encourage investment in 
infrastructure and redesigned care processes for high quality and 
efficient service delivery, and incent higher value care. As an 
incentive to ACOs that successfully meet quality and savings 
requirements, the Medicare Program can share a percentage of the 
achieved savings with the ACO. In order to meet the intent of the 
Shared Savings Program as established by the Affordable Care Act, we 
will focus on achieving, as our highest-level goal, the three-part aim, 
which consists of the following:
     Better care for individuals--as described by all six 
dimensions of quality in the Institute of Medicine report: Safety, 
effectiveness, patient-centeredness, timeliness, efficiency, and 
equity;
     Better health for populations with respect to educating 
beneficiaries about the upstream causes of ill health--like poor 
nutrition, physical inactivity, substance abuse, economic disparities--
as well as the importance of preventive services such as annual 
physicals and flu shots; and
     Lower growth in expenditures by eliminating waste and 
inefficiencies while not withholding any needed care that helps 
beneficiaries.
    Under the Shared Savings Program, ACOs will only share in savings 
if they first generate shareable savings and then meet the quality 
standards. In the spirit of the three-part aim and the vision of always 
keeping the beneficiary in the forefront of all decisions, we believe 
that an ACO should embrace the following goals:
     An ACO will put the beneficiary and family at the center 
of all its activities. It will honor individual preferences, values, 
backgrounds, resources, and skills, and it will thoroughly engage 
people in shared decision-making about diagnostic and therapeutic 
options.
     An ACO will ensure coordination of care for beneficiaries 
regardless of its time or place. In an ACO, people will find that they 
no longer carry the burden of ensuring that everyone caring for them 
has the information they need. Beneficiaries will see that 
organizational teamwork improves their health care.
     An ACO will attend carefully to care transitions, 
especially as beneficiaries journey from one part of the care system to 
another.
     An ACO will manage resources carefully and respectfully. 
It will ensure continual waste reduction, and that every step in care 
adds value to the beneficiary. An ACO will be able to make investments 
where investments count, and move resources to meet beneficiaries' 
needs. Because of its capabilities with respect to prevention and 
anticipation, especially for chronically ill people, an ACO will be 
able to continually reduce its dependence on inpatient care. Instead, 
its patients will more likely be able to be home, where they often want 
to be, and, during a hospital admission, they receive assurance that 
their discharges will be well coordinated, and that they will not 
return due to avoidable complications.
     An ACO will be proactive by reaching out to patients with 
reminders and advice that can help them stay healthy and let them know 
when it is time for a checkup or a test.
     An ACO will collect, evaluate, and use data on health care 
processes and outcomes sufficiently to measure what it achieves for 
beneficiaries and communities over time and use such data to improve 
care delivery and patient outcomes.
     An ACO will be innovative in the service of the three-part 
aim of better care for individuals, better health for populations, and 
lower growth in expenditures. It will draw upon the best, most advanced 
models of care, using modern technologies, including telehealth and 
electronic health records, and other tools to continually reinvent care 
in the modern age. It will monitor and compare its performance to other 
ACOs, identify and examine new processes for care improvement, and 
adopt those approaches that are demonstrated to be effective.
     An ACO will continually invest in the development and 
pride of its own workforce, including affiliated clinicians. It will 
maintain and execute plans for helping build skill, knowledge, and 
teamwork.
    As proposed in this notice of proposed rulemaking (NPRM), the 
Shared Savings Program encourages providers of services and suppliers 
to form ACOs that seek to achieve a three-part aim of better care for 
individuals, better health for populations, and lower growth in 
expenditures. The proposed

[[Page 19534]]

rule establishes the requirements for ACOs to take responsibility for 
improving the quality of care they deliver to a group of Medicare FFS 
beneficiaries, while lowering the growth in costs, in return for a 
share of the resulting savings. In addition to establishing a shared 
savings model for rewarding quality and financial performance, the 
program also holds ACOs accountable for excess expenditures by 
establishing, as an option, a two-sided risk model which requires 
repayment of losses to us. This represents a new approach for the 
Medicare FFS program, under which providers have traditionally had 
little or no financial incentive to coordinate the care for their 
patients or to be accountable for the total costs and quality of the 
care provided.
    Since there is little comparative experience with implementing a 
Shared Savings Program and alternative payment models at the national 
level, we sought input on the impact of this proposed program from a 
wide range of external experts, including credentialed actuaries, 
clinical managers, and academic researchers on the potential impact of 
the program through, for example, the White House meeting, multiple 
listening sessions, Special Open Door Forum on ACOs, Workshop Regarding 
ACOs with CMS, OIG, and the Antitrust Agencies, and a Request For 
Information. Incorporating their input, we estimate that up to 5 
million Medicare beneficiaries will receive care from providers 
participating in ACOs, many of which are located in higher cost areas, 
and that the program can have a significant impact on lowering Medicare 
expenditure growth. Furthermore, projections on the initial impact of 
the program by the Congressional Budget Office also suggest the Shared 
Savings Program could result in significant savings to the Medicare 
program.
    We also believe that the Shared Savings Program should provide an 
entry point for all willing organizations who wish to move in a 
direction of providing value-driven healthcare. Consequently, in 
accordance with the authority granted to the Secretary under section 
1899(i) of the Act, we are proposing for comment creating and 
implementing both a shared savings model (one-sided model) and a shared 
savings/losses model (two-sided model). Under this proposal, balanced 
maximum sharing rates under the two options to provide greater reward 
for ACOs accepting risk while maintaining an incentive to encourage 
ACOs not immediately ready to accept risk to participate in the one-
sided model. This approach provides an entry point for organizations 
with less experience managing care and accepting financial risk, such 
as physician-driven organizations or smaller ACOs, to gain experience 
with population management in the FFS setting before transitioning to 
more risk.
    We believe that ACOs electing to initially enter the one-sided 
model automatically transition to a two-sided risk model during the 
final year of their initial agreement. We also believe that a two-sided 
model that builds off a one-sided model could be offered as an option 
at the beginning of the program. We would immediately reward ACOs 
electing to enter the two-sided model with higher sharing rates 
available under that model. This approach provides an opportunity for 
more experienced ACOs that are ready to accept risk to enter a sharing 
arrangement that provides greater reward for greater responsibility. 
For more detail on the two-sided risk model refer to section II.G. of 
this proposed rule.
    In addition to the opportunity to implement alternative payment 
models such as partial capitation under 1899(i) of the Act, the Center 
for Medicare and Medicaid Innovation (Innovation Center), created by 
the Affordable Care Act also has authority to test innovative payment 
models. As we gain experience with the shared savings model and 
alternative payment models, we will continue to refine and improve the 
program over time to make it increasingly effective in achieving our 
three-part aim of better care for individuals, better health for 
populations, and lower growth in expenditures. Finally, in developing 
the Shared Savings Program, and in response to stakeholder suggestions, 
we have worked very closely with agencies across the Federal government 
to develop policies to encourage participation and to ensure a 
coordinated and aligned inter- and intra-agency effort in the 
implementation of the program. The result of this effort is the release 
of several notices with which potential participants are strongly 
encouraged to become familiar. Detailed descriptions of these notices 
appear in section II.I of this proposed rule, and include: (1) A joint 
CMS and DHHS OIG Medicare Program; Waiver Designs in Connection with 
the Medicare Shared Savings Program and the Innovation Center; (2) an 
Internal Revenue Service (IRS) notice soliciting comments regarding the 
need for additional tax guidance for tax-exempt organizations, 
including tax-exempt hospitals, participating in the Shared Savings 
Program; and (3) a proposed Antitrust Policy Statement issued by the 
FTC and DOJ (collectively, the Antitrust Agencies).

D. Related Affordable Care Act Provisions

    The Affordable Care Act intends to improve quality and make health 
care more affordable through the Shared Savings Program as well as 
through other provisions. There are four programs authorized by the 
Affordable Care Act discussed later in the document which may affect 
Shared Savings Program policy or help to guide future Shared Savings 
Program policy, or may intersect with the Shared Savings Program in 
other ways.
1. Establishment of Center for Medicare and Medicaid Innovation 
(Innovation Center)
    Section 1115A of the Act, as added by section 3021 of the 
Affordable Care Act, required the establishment of the new Innovation 
Center not later than January 1, 2011 to test innovative payment and 
service delivery models to reduce program expenditures under Medicare, 
Medicaid, and the Children's Health Insurance Program (CHIP) while 
preserving or enhancing the quality of care furnished to beneficiaries 
under these programs. In selecting such models for testing, the statute 
requires the Secretary to give preference to models that also improve 
the coordination, quality, and efficiency of health care services 
furnished under Medicare, Medicaid, and CHIP.
    Section 1115A authorizes the Secretary to expand the duration and 
scope of a model being tested through rulemaking (including 
implementation on a nationwide basis) to the extent the Secretary--
     Determines expected expansion to reduce spending under the 
applicable title without reducing the quality of care or improve the 
quality of patient care without increasing spending;
     Obtains a certification from our Chief Actuary that such 
expansion would reduce (or would not result in any increase in) net 
program spending under applicable titles; and
     Determines that such expansion would not deny or limit the 
coverage or provision of benefits under Medicare, Medicaid, or CHIP.
    Through the Innovation Center, we plan to explore alternative 
payment models for the Shared Savings Program. As we test and refine 
these models, gain operational experience, and put the necessary 
infrastructure in place to support program wide implementation, 
including critical monitoring and

[[Page 19535]]

patient protection infrastructure, we plan to make these options 
available under the Shared Savings Program in future rulemaking. Our 
intent is to move participants of the demonstration models that have a 
demonstrated track record of realizing shared savings and high quality 
performance into the Shared Savings Program in future agreement 
periods.
2. Independence at Home Medical Practices
    Section 1866E of the Act, as added by section 3024 of the 
Affordable Care Act authorizes the Secretary to conduct a demonstration 
program to test a payment incentive and service delivery model that 
utilizes Independence at Home Medical Practices, which are comprised of 
physician and nurse practitioner directed home-based primary care 
teams, to provide services designed to reduce expenditures and improve 
health outcomes for certain Medicare beneficiaries.
    Subject to performance on quality measures established for the 
demonstration, participating practices may be eligible to receive an 
incentive payment in the form of shared savings. In determining whether 
savings were generated, the Secretary shall establish an estimated 
annual spending target, for the amount the Secretary estimates would 
have been spent in absence of the demonstration, for items and services 
covered under Parts A and B furnished to applicable beneficiaries for 
each qualifying Independence at Home medical practice. A practice is 
eligible to receive an incentive payment if actual expenditures for the 
year for the applicable beneficiaries it enrolls are less than the 
estimated spending target established for the year. An incentive 
payment for each year shall be equal to a portion of the amount by 
which actual expenditures for applicable beneficiaries under Parts A 
and B for the year are estimated to be less than 5 percent less than 
the estimated spending target for the year.
3. State Option To Provide Health Homes
    Section 1945 of the Act, as added by section 2703 of the Affordable 
Care Act authorizes a State option under Medicaid to provide a health 
home for individuals with chronic conditions. The definition of the 
term ``health home'' is defined as a designated provider (including a 
provider that operates in coordination with a team of health care 
professionals) or a health team selected by an eligible individual with 
chronic conditions to provide health home services. Health home 
services are defined as comprehensive and timely high-quality services, 
including comprehensive care management; care coordination and health 
promotion; comprehensive transitional care, including appropriate 
follow-up, from inpatient to other settings; patient and family support 
(including authorized representatives); referral to community and 
social support services, if relevant; and use of health information 
technology to link services, as feasible and appropriate.
    Under section 1945 of the Act, States pay the designated provider, 
team of health care professionals operating with such a provider, or 
health team for the provision of health home services to each eligible 
individual with chronic conditions that selects them as their health 
home. A State specifies in their State plan amendment the methodology 
it will use to determine payment for health home services. The 
methodology may be tiered to reflect, with respect to each eligible 
individual with chronic conditions, the severity or number of such 
individual's chronic conditions or the specific capabilities of the 
provider, team of health care professionals, or health team. A time-
limited higher Federal Medicaid matching payment is available for 
health home services.
4. Community Health Teams
    Section 3502 of the Affordable Care Act requires the Secretary to 
establish a program to provide grants to or enter into contracts with 
eligible entities to establish community based interdisciplinary, 
inter-professional teams (referred to in the statute as ``health 
teams'') to support primary care practices, including obstetrics and 
gynecology practices, within the hospital service areas served by the 
eligible entities. These grants or contracts shall be used to establish 
health teams to provide support services to primary care providers and 
provide capitated payments to primary care providers as determined by 
the Secretary. For purposes of this section, primary care is the 
provision of integrated, accessible health care services by clinicians 
who are accountable for addressing a large majority of personal health 
care needs, developing a sustained partnership with patients, and 
practicing in the context of the family and community.
    A health team established under a grant or contract must establish 
contractual agreements with primary care providers to provide support 
services. The team must support patient-centered medical homes, defined 
as a mode of care that includes--(1) Personal physicians; (2) whole 
person orientation; (3) coordinated and integrated care; (4) safe and 
high-quality care through evidence-informed medicine, appropriate use 
of health information technology, and continuous quality improvements; 
(5) expanded access to care; and (6) payment that recognizes added 
value from additional components of patient centered care.
    Health teams must also collaborate with local primary care 
providers and existing State and community-based resources to 
coordinate--(1) disease prevention; (2) chronic disease management; (3) 
transitioning between health care providers and settings; and (4) case 
management for patients, including children, with priority given to 
those amenable to prevention and with chronic diseases or conditions 
identified by the Secretary. In collaboration with local health care 
providers, a health team must develop and implement interdisciplinary, 
interprofessional care plans that integrate clinical and community 
preventive and health promotion services for patients, including 
children, with a priority given to those amenable to prevention and 
with chronic diseases or conditions identified by the Secretary.

E. Related Ongoing CMS Efforts

1. Physician Group Practice Demonstration
    We have previous experience developing and implementing shared 
savings models through demonstrations. First, under section 412 of the 
Medicare, Medicaid, and CHIP Benefits Improvement and Protection Act of 
2000 (BIPA), we implemented the Physician Group Practice (PGP) 
Demonstration in April of 2005--our first attempt at establishing a 
Shared Savings ACO model. The PGP Demonstration offered a unique 
payment model by which PGP providers received their normal Parts A and 
B FFS payments for services rendered and offered an additional 
performance payment for demonstrating ``value.'' The performance 
payments were tied directly to achieving targets for process and 
outcome quality measures as well as cost savings. The PGP Demonstration 
showed that physician-driven organizations are willing to engage in 
efforts to improve the overall quality and cost efficiency of care for 
the patient population they serve. Under the demonstration, the PGPs 
were accountable for a patient population to whom they provided the 
plurality of office-based evaluation and

[[Page 19536]]

management care. The assignment of patients to the PGP at the end of 
each performance year and data has shown that assigned patients had on 
average four or five visits at the PGP during the year. This provided 
the opportunity for the organizations to better coordinate services and 
improve the quality and efficiency of care provided to Medicare FFS 
patients. Medicare patients retained their entitlement to see any 
Medicare provider they chose and were not enrolled or required to only 
see PGP physicians under the demonstration.
    Based on their experience with the PGP demonstration, participants 
identified several factors as critical to improving quality and the 
opportunity to share savings:
     An integrated organization with an environment that 
supports expending resources on multiple programs and initiatives to 
improve quality and reduce unnecessary services.
     Dedicated physician leadership with a proven ability to 
motivate physicians to participate in the development and 
implementation of quality improvement and other clinical programs and 
initiatives.
     Health information technology that facilitates the 
aggregation and analysis of data, allows patient-level feedback, and 
provides alerts and reminders at the point of care.
     Experience with non-Medicare payer initiatives, 
particularly through a managed care affiliate, to improve quality and 
reduce expenditure growth.
    Under the demonstration, at the end of the third performance year, 
all 10 of the PGPs continued to improve the quality of care for 
patients with chronic illness or who required preventive care by 
achieving benchmark or target performance on at least 28 out of 32 
quality markers for patients with diabetes, coronary artery disease, 
congestive heart failure, hypertension, and for cancer screening. Two 
of the PGPs achieved benchmark quality performance on all 32 quality 
measures. Over the course of the first three years, 6 of the 10 groups 
shared in approximately $46 million in savings.
2. Medicare Health Care Quality Demonstration
    We have begun testing models under the Medicare Health Care Quality 
(MHCQ) Demonstration, created by the Medicare Prescription Drug, 
Improvement, and Modernization Act of 2003 (MMA) (Pub. L. 108-173). 
Section 1866C(b) of the Act, as added by section 646 of the MMA, 
required the Secretary to establish a 5-year demonstration program 
under which the Secretary was required to approve demonstration 
projects that examine health delivery factors that encourage the 
delivery of improved quality in patient care. Section 3021(c) of the 
Affordable Care Act amended section 1866C of the Act to allow the 
Secretary to expand, through rulemaking, the duration and scope of a 
demonstration the Secretary is conducting under that section to the 
extent determined appropriate by the Secretary if the demonstration 
meets certain criteria. The MHCQ Demonstration Projects design examine 
the extent to which major, multi-faceted changes to traditional 
Medicare's health delivery and financing systems lead to improvements 
in the quality of care provided to Medicare beneficiaries, without 
increasing total program expenditures. We approved one such program, 
the Indiana Health Information Exchange (IHIE).
    Beginning July 1, 2009, we began the first MHQC project, the IHIE's 
implementation of a regional, multi-payer, pay-for-performance and 
quality reporting program, based (by-and-large) on a common set of 
quality measures. The expectation is such that the IHIE's interventions 
provide important empirical evidence on the effectiveness of pay-for-
performance, health IT, and multipayer initiatives in improving the 
quality and efficiency of care provided to Medicare beneficiaries.
    IHIE aggregates our claims and administrative data in the 
demonstration with other data processed in conjunction with its 
regional health information exchange (HIE). Data used from the various 
sources generate patient-level and provider level quality reports, 
alerts, and reminders for participating providers. By incorporating our 
data into IHIE's HIE and producing these quality reports, IHIE can 
provide participating physicians with a more complete picture of the 
care that is or is not being provided to their Medicare patients and 
give physicians the information they need to positively impact the 
quality and cost of care being provided.
    During the demonstration, we review cost and quality data for 
Medicare FFS beneficiaries that have at least one office or other 
outpatient evaluation and management (E&M) visit with an IHIE 
participating physician. It is expected that an estimated 100,000 
Medicare beneficiaries residing in the Indianapolis metropolitan area 
will meet this criterion in each year of the demonstration.
    Quality of care is measured at the population-level (that is, 
performance measurement will focus on whether or not the site has 
achieved improvements in quality when looking at the entire group of 
treated patients) using a set of Medicare specific quality measures. 
Improvements in the quality of care provided to Medicare beneficiaries 
are determined on the extent to which IHIE participating physicians are 
able to reduce the gap between the maximum attainable level for a 
quality measure and the baseline performance for the quality measure. 
We used approximately 14 ambulatory care quality measures in the first 
year, growing to approximately 30 in the fifth year.
    Quality-contingent shared savings are available with our 
calculating savings in the intervention population by comparing actual 
costs to expected costs for treated beneficiaries. Expected costs for 
the intervention group are projected using adjusted utilization trends 
from a comparison group. In general, calculated Medicare savings are 
the difference between the expected costs and actual costs for 
beneficiaries in the intervention group. At least 50 percent of shared 
savings that are available to be paid for payment to the site are 
contingent on quality of care results for the year. Only after quality 
of care performance results for a year are determined can the final 
amount of shared savings to be paid to the site be determined.

II. Provisions of the Proposed Rule

A. Organization of the Proposed Rule

    The remainder of this document is organized as follows: In section 
II.A. of this proposed rule, we propose an operational definition of an 
ACO for purposes of the shared savings program. In section II.B. of 
this proposed rule, we put forth proposed eligibility requirements for 
an ACO to participate in this program. In section II.C. of this 
proposed rule, we propose requirements for an ACO to commit to a 3-year 
participation agreement under this program and present a proposal for 
data sharing with ACOs. In section II.D. of this proposed rule, we 
discuss our proposed methodology for assigning beneficiaries to an ACO. 
In section II.E. of this proposed rule, we present our proposals 
regarding quality measures and the methodology for measuring ACO 
performance under this program. In section II.F. of this proposed rule, 
we discuss our proposed shared savings payment methodology, including 
the establishment of an expenditure benchmark, performance target, 
minimum savings percentage, sharing rate, performance cap. In section 
II.G. of this proposed rule, we discuss our proposal for introducing 
risk into the

[[Page 19537]]

shared savings program, the two-sided model and differences from the 
one-sided model. In section II.H. of this proposed rule, we discuss our 
proposal for monitoring ACO performance and we propose grounds and 
procedures for terminating agreements. In section II.I. of this 
proposed rule, we discuss our efforts to coordinate the development of 
this proposed rule with other Federal agencies to ensure a coordinated 
and aligned inter- and intra-agency effort in the implementation of the 
program. In section II.J. of this proposed rule, we discuss overlap in 
Medicare programs and how this might affect Shared Savings Program 
participants. Finally, in section V. of this proposed rule, we present 
our Regulatory Impact Analysis, which sets forth an analysis of the 
impact of these proposals on affected entities and beneficiaries.
    For purposes of this proposed rule, we propose definitions for the 
following terms:
     Accountable care organization (ACO) means a legal entity 
that is recognized and authorized under applicable State law, as 
identified by a Taxpayer Identification Number (TIN), and comprised of 
an eligible group (as discussed in section II.B. of this proposed rule) 
of ACO participants that work together to manage and coordinate care 
for Medicare FFS beneficiaries and have established a mechanism for 
shared governance that provides all ACO participants with an 
appropriate proportionate control over the ACO's decision making 
process,
     ACO participant means a Medicare-enrolled provider of 
services and/or a supplier (as discussed in section II.B. of this 
proposed rule, as identified by a TIN).
     ACO provider/supplier means a provider of services and/or 
a supplier (as discussed in section II.B. of this proposed rule) that 
bills for items and services it furnishes to Medicare beneficiaries 
under a Medicare billing number assigned to the TIN of an ACO 
participant in accordance with applicable Medicare rules and 
regulations.

B. Eligibility and Governance

1. Eligible Entities
    Section 1899(b) of the Act establishes eligibility requirements for 
ACOs participating in the Shared Savings Program. Section 1899(b)(1) of 
the Act allows several designated groups of providers of services and 
suppliers to participate as an ACO under this program, ``as determined 
appropriate by the Secretary,'' and under the condition that they have 
``established a mechanism for shared governance.'' The statute lists 
the following groups of providers of services and suppliers as eligible 
to participate as an ACO:
     ACO professionals in group practice arrangements.
     Networks of individual practices of ACO professionals.
     Partnerships or joint venture arrangements between 
hospitals and ACO professionals.
     Hospitals employing ACO professionals.
     Such other groups of providers of services and suppliers 
as the Secretary determines appropriate.
    Section 1899(h)(1) of the Act defines an ``ACO professional'' as a 
physician (as defined in section 1861(r)(1) of the Act, which refers to 
a doctor of medicine or osteopathy), or a practitioner (as defined in 
section 1842(b)(18)(C)(i) of the Act, which includes physician 
assistants, nurse practitioners, and clinical nurse specialists). 
Section 1899(h)(2) of the Act also provides that, for purposes of the 
Shared Savings Program, the term ``hospital'' means a subsection (d) 
hospital as defined in section 1886(d)(1)(B) of the Act, thus limiting 
the definition to include only acute care hospitals paid under the 
hospital inpatient prospective payment system (IPPS). Other providers 
of services and suppliers that play a critical role in the nation's 
health care delivery system, such as Federally qualified health centers 
(FQHCs), rural health centers (RHCs), skilled nursing facilities 
(SNFs), nursing homes, long-term care hospitals (LTCHs) and critical 
access hospitals (CAHs), among others, are not specifically designated 
as eligible participants in the Shared Savings Program under section 
1899(b)(1) of the Act. We note, however, that the statutorily defined 
groups of providers and suppliers that are eligible to participate in 
the Shared Savings Program as ACOs, would also have to meet the 
eligibility criteria discussed in detail later in this proposed rule in 
order to qualify for participation in the program. While the statute 
enumerates certain kinds of provider and supplier groups that are 
eligible to participate in this program, it also provides the Secretary 
with discretion to tailor eligibility in a way that narrows or expands 
the statutory list of eligible ACO participants. Therefore, we have 
considered whether it would be advisable, at least in the initial stage 
of the Shared Savings Program, to--(1) Permit participation in the 
program by only those ACO participants that are specifically identified 
in the statute; (2) restrict eligibility to those ACO participants that 
would most effectively advance the goals of the program; or (3) employ 
the discretion provided to the Secretary under section 1899(b)(1)(E) of 
the Act to expand the list of eligible groups to include other types of 
Medicare-enrolled providers and suppliers identified in the Act.
    Some have argued that ACOs would be most effective if they include 
certain entities as ACO participants. For example, the Medicare Payment 
Advisory Commission (MedPAC) has noted that provider groups with 
hospitals in their systems may be most effective in generating savings. 
The MedPAC notes that hospitals working with physician teams can 
prevent further hospitalizations after discharge and provide ongoing 
services to keep the patient as healthy as possible. Also, the savings 
generated by ACOs, in many cases, are expected to result from reduced 
inpatient admissions. As a result, provider groups with hospitals may 
have a greater incentive to coordinate care to ensure that a portion of 
the revenue lost from decreased admissions is made up through shared 
savings. (To view the MedPAC discussion referenced previously go to: 
http://www.medpac.gov/documents/jun09_entirereport.pdf.)
    Another option for limiting eligibility would be to restrict 
eligibility to only those ACO professionals providing primary care 
services. Primary care professionals may have the best opportunity to 
reduce unnecessary costs by ensuring care coordination for 
beneficiaries with multiple chronic conditions. By coordinating with 
specialists to whom the beneficiary has been referred, primary care 
providers can reduce unnecessary repetition of laboratory testing or 
imaging. By ensuring timely access to the outpatient services, primary 
care providers can also reduce the number of avoidable admissions. 
Limiting eligibility for the Shared Savings Program to primary care 
providers, therefore, may be desirable to emphasize the important role 
played by these professionals and ensure a primary care focus for the 
program. Adopting either of these approaches would require a narrower 
eligibility definition than is permitted (although not required) under 
the statute.
    However, the benefits of limiting eligibility need to be balanced 
against the prospect that such limitations could compromise potential 
innovations and forfeit the opportunity to assess new models that could 
potentially transform health care in ways that improve quality and 
beneficiary satisfaction while better controlling costs. More 
importantly, defining eligibility narrowly also has the potential to 
impede development of

[[Page 19538]]

ACOs that include other provider and supplier types, especially those 
that provide services in rural and other underserved areas. For 
example, while section 1899(b)(1) of the Act does not mention certain 
entities such as critical access hospital (CAHs), federally qualified 
health centers (FQHCs), or rural health clinics (RHCs) in its listing 
of entities eligible to form an ACO under the Shared Savings Program 
these entities play a critical role in the nation's health care 
delivery system, serving as safety net providers of primary care and 
other health care and social services in rural and other underserved 
areas and for low-income beneficiaries, including those dually eligible 
for Medicare and Medicaid. Permitting participation by these groups of 
providers and suppliers has the potential to improve coordination and 
quality of care for a greater number of beneficiaries in more 
communities, while better controlling costs in more varied settings and 
across a broader array of providers and suppliers.
    Since the statute requires that beneficiary assignment be 
determined on the basis of utilization of primary care services 
provided by ACO professionals that are physicians, we considered 
whether expansion of eligibility would allow additional Medicare 
enrolled providers and suppliers to form an ACO to participate in 
addition to the four groups specified in section 1899(b)(1)(A)-(D) of 
the Act. Specifically, we considered whether it would be feasible for 
CAHs, FQHCs, and RHCs to form an ACO or whether it would be necessary 
for these entities to join with the four groups specified in section 
1899(b)(1)(A)-(D) of the Act in order to meet statutory criteria. We 
have especially considered the circumstances of CAHs, FQHCs, and RHCs 
because these entities play a critical role in the nation's health care 
delivery system, serving as safety net providers of primary care and 
other health care and social services. At the same time, the specific 
payment methodologies, claims billing systems, and data reporting 
requirements that apply to these entities pose some challenges in 
relation to their independent participation in the Shared Savings 
Program. In order for an entity to be able to form an ACO, it is 
necessary that we obtain sufficient data in order to carry out the 
necessary functions of the program, including assignment of 
beneficiaries, establishment and updating of benchmarks, and 
determination of shared savings, if any. As we discuss in section II.D 
of this proposed rule, consistent with section 1899(c) of the Act, 
which provides that beneficiaries shall be assigned to an ACO based on 
their utilization of primary care services furnished by an ACO 
professional who is a physician, our proposed methodology for 
assignment of beneficiaries is to assign beneficiaries to an ACO on the 
basis of receiving a plurality of their primary care services as 
described in section II.D. of this proposed rule from a physician, as 
defined in section 1861(r)(1) of the Act, with a specialty designation 
of general practice, family practice, internal medicine and geriatric 
medicine. Thus, as required by the statute, the assignment methodology 
requires data that identify the precise services rendered (that is, 
primary care HCPCS codes), type of practitioner providing the service 
(that is, a MD/DO as opposed to NP, PA, or clinical nurse specialist), 
and the physician specialty in order to be able to assign beneficiaries 
to ACOs.
    At this time, FQHC claims for services furnished prior to January 
1, 2011 do not include HCPCS codes that identify the specific service 
provided. Thus, although the claims do contain information concerning 
the attending physician and the rendering health professional (for 
example, physician, physician assistant, nurse practitioner), who 
actually provided the service, they do not currently provide for 
associating the rendering provider with the specific services furnished 
to the beneficiary.
    RHCs predominantly provide primary care services to their 
populations. Most RHC services are provided by non-physician 
practitioners such as PAs and NPs. RHCs submit claims for each 
encounter with a beneficiary and receive payment based on an interim 
all-inclusive rate for the RHC. As in the case of FQHCs, RHC claims 
distinguish general classes of services (for example, clinic visit, 
home visit by RHC practitioner, mental health services) by revenue 
code, the beneficiary to whom the service was provided, and other 
information relevant to determining whether the all-inclusive rate can 
be paid for the service. These claims do not include HCPCS codes that 
identify the specific service provided. The claims also contain limited 
information concerning the individual practitioner, or even the type of 
health professional (for example, physician, PA, NP), who provided the 
service.
    For FQHCs and RHCs, therefore, we currently lack the requisite data 
elements (service code, physician, physician specialty, and specific 
attribution of services to the rendering health care professionals) in 
the claims and payment systems to enable us to determine (1) 
beneficiary assignment during the performance year under section 
1899(c) of the Act, which requires that assignment to an ACO be based 
on utilization of primary care services furnished by a physician; and 
(2) expenditures during the 3-year benchmark. In the case of FQHCs, we 
recently finalized regulations requiring the collection of HCPCS codes 
for services beginning in 2011, in preparation for the development of 
the FQHC PPS. However, there is no statutory requirement for collecting 
from FQHCs the other data elements, such as the direct link between 
provider and service, which would be required for beneficiary 
assignment under the Shared Savings Program. Moreover, there is neither 
the statutory requirement for collection of HCPCS codes from RHCs nor 
any plan to expand this data collection effort to RHCs. In both the 
case of FQHCs and RHCs, reporting the information necessary to 
participate in the Shared Savings Program would be a significant change 
in operations that we are reluctant to impose through regulation 
without either a statutory requirement or clear support for such a 
regulatory change from the FQHC and RHC community at large that they 
would be willing to have all RHC/FQHCs provide this information 
uniformly, solely to enable independent formation of an ACO for 
purposes of participation in the Shared Savings Program by the subset 
of those FQHC/RHCs that choose to do so.
    Therefore, in the absence of the data elements required for 
assignment of beneficiaries, it is not possible for FQHCs and RHCs to 
participate in the Shared Savings Program by forming their own ACOs. It 
is, however, possible for them to join as an ACO participant in an ACO 
containing one or more of the statutory organizations eligible to form 
an ACO (as specified in section 1899(b)(1)(A)-(D) of the Act) and upon 
which assignment can be made consistent with the statute and the 
assignment methodology proposed in section II.D. of this proposed rule. 
However, we note that even in this case, for the reasons stated 
previously, we would not have the data necessary to consider FQHC or 
RHC patients in the assignment process. Thus, assignment of 
beneficiaries to ACOs in which FQHCs and RHCs are participating would 
have to be based solely on data from the other eligible ACO 
participants upon whom assignment can be based. As the Shared Savings 
Program develops, we will continue to assess the possibilities for 
collecting the requisite data from FQHCs and RHCs, and in light of any 
such developments we will consider

[[Page 19539]]

whether it is possible at some future date for Medicare beneficiaries 
to be assigned to an ACO on the basis of services furnished by an FQHC 
or RHC, thereby allowing these entities to have their Medicare 
beneficiaries included in the ACO's assigned population.
    The situation is somewhat more complicated with regard to CAHs. 
Section 1834(g) of the Act provides for two payment methods for 
outpatient CAH services.
    Under the method specified in section 1834(g)(1) of the Act 
(referred to as the standard method), facility services are paid at 101 
percent of reasonable costs to the CAH through the Medicare fiscal 
intermediary or the Medicare Part A/B MAC, while payments for physician 
and other professional services are made separately to the physician or 
other practitioner under the MPFS through Medicare carriers. 
Accordingly, CAHs that bill under the standard method would not submit 
claims with information on individual practitioners, or the type of 
health professional (for example, physician, PA, NP), that provided a 
specific service.
    Under the method specified in section 1834(g)(2) of the Act 
(referred to as method II), a CAH submits bills for both the facility 
and the professional services to its Medicare fiscal intermediary or 
its Medicare Part A/B MAC. If a CAH chooses this method for outpatient 
services, the physician or other practitioner must reassign his or her 
right to bill the Medicare program for those services to the CAH. Under 
method II, the CAH receives--(1) 101 percent of the reasonable cost 
payment for its facility costs; and (2) 115 percent of the amount 
otherwise paid under the MPFS for professional services under Medicare.
    Thus, current Medicare payment and billing policies could generally 
support the formation of an ACO by a CAH billing under method II.
    In summary, in this proposed rule, we considered three options for 
defining the range of potentially eligible providers and suppliers that 
would be eligible to form an ACO. One option that we considered would 
be to limit eligibility initially to the groups specifically identified 
in the statute. Under this option, only the four groups specified in 
section 1899(b)(1)(A)-(D) of the Act would be eligible to form an ACO 
and participate in the program.
    A second option would be to narrowly define which groups of 
providers of services and suppliers are eligible to form an ACO and 
participate in the Shared Savings Program. The approach noted by MedPAC 
is one example of this option. This option would require the 
participation of a hospital in the ACO so that only partnerships or 
joint venture arrangements between hospitals and ACO professionals or 
hospitals employing ACO professionals (groups specified in 
1899(b)(1)(C)-(D) of the Act) would be eligible to participate in the 
program. Another example of this option would be limiting participation 
to only those entities comprised of primary care professionals so that 
only ACO professionals in group practice arrangements or networks of 
individual practices of ACO professionals (groups specified in 
1899(b)(1)(A)-(B) of the Act) would be eligible to form an ACO and 
participate in the program. This approach would be grounded in the 
premise that ACOs should be primary care-focused and that primary care 
professionals are in the best position to both reduce the fragmentation 
of services and improve the overall quality of care delivered to 
Medicare beneficiaries.
    Under the third option, the four groups specified in section 
1899(b)(1)(A)-(D) of the Act would be eligible to form an ACO and 
participate in the program, but in addition, we would employ the 
discretion provided to the Secretary under section 1899(b)(1)(E) of the 
Act to allow other Medicare enrolled entities, such as CAHs billing 
under method II to form an ACO. Additionally, employing Secretarial 
discretion to expand the definition of eligible providers or suppliers 
would allow other Medicare enrolled entities such as FQHCs and RHCs, to 
become ACO participants, if the ACO that is formed is able to meet the 
other qualifications to participate in the program.
    After evaluating the three options for defining the range of 
potentially eligible providers and suppliers, we have decided to 
propose the third option. Under this proposal, the four groups 
specifically identified in section 1899(b)(1)(A)-(D) of the Act, and 
CAHs billing under method II, would have the opportunity to form ACOs 
independently. In addition, the four statutorily indentified groups, as 
well as CAHs billing under method II, could establish an ACO with 
broader collaborations by including additional Medicare enrolled 
entities such as FQHCs and RHCs and other Medicare-enrolled providers 
and suppliers as defined in the Act as ACO participants. While this 
proposal potentially increases the administrative complexity of 
implementing the program and could also require stronger measures to 
oversee the varied kinds of ACO arrangements that might evolve, we 
believe this approach best serves the goals of the program by allowing 
greater opportunities for broadly transforming the health care delivery 
system and increasing access to high quality and lower cost care under 
the Shared Savings Program for Medicare beneficiaries regardless of 
where they live. Specifically, this option allows for a wide variety of 
ACO configurations that incorporate a broad range of health care 
providers and suppliers, including safety net providers, post-acute 
care facilities, FQHCs, RHCs, and CAHs, which we believe will enable 
ACOs to offer more comprehensive care and better serve the needs of 
rural communities. The proposal also offers greater opportunity for 
innovation by ACOs in determining the most effective organizational 
structure to meet the needs of their respective populations.
    In addition to requesting comment on this proposal generally, we 
are soliciting comment on the following: (1) The kinds of providers and 
suppliers that should or should not be included as potential ACO 
participants; (2) the potential benefits or concerns regarding 
including or not including certain provider or supplier types; (3) the 
administrative measures that would be needed to effectively implement 
and monitor particular partnerships; (4) other ways in which we could 
employ the discretion provided to the Secretary to allow the 
independent participation of providers and suppliers not specifically 
mentioned in the statute, for example, through an ACO formed by a group 
of FQHCs and RHCs; and (5) any operational issues associated with our 
proposal. We will consider whether it would be appropriate to expand 
the list of entities eligible to participate in the Shared Savings 
Program, either in the final rule or in future rulemaking, if we 
determine that it is feasible and consistent with the requirements of 
the program for more entities to participate as ACOs. In the interim, 
and until such time as FQHCs and RHCs would be eligible to form ACOs or 
have their patients assigned to an ACO, we are also proposing to 
provide an incentive for ACOs to include RHCs and FQHCs as ACO 
participants, by allowing ACOs that include such entities to receive a 
higher percentage of any shared savings under the program. We believe 
that this proposal to encourage participation by RHCs and FQHCs in ACOs 
is appropriate in light of the special role that these entities play in 
the health care delivery system, especially in providing care to 
otherwise underserved and vulnerable populations. We discuss how this 
proposal affects the determination

[[Page 19540]]

of shared savings under the program in section II.F. of this proposed 
rule.
2. Legal Structure and Governance
    Section 1899(b)(2)(C) of the Act requires an ACO to ``have a formal 
legal structure that would allow the organization to receive and 
distribute payments for shared savings'' to ``participating providers 
of services and suppliers.'' As previously noted, section 1899(b)(1) of 
the Act also requires ACO participants to have a ``mechanism for shared 
governance'' in order to participate in the program. Operationally, an 
ACO's legal structure must provide both the basis for its shared 
governance as well as the mechanism for it to receive and distribute 
shared savings payments to ACO participants and providers/suppliers.
a. Legal Entity
    The ACO's legal entity may be structured in a variety of ways, 
including as a corporation, partnership, limited liability company, 
foundation, or other entity permitted by State law. As discussed 
previously in section II. B. of this proposed rule, and consistent with 
section 1899(b)(1)(A)-(D) of the Act, certain specified groups of 
providers of services and suppliers who have a mechanism of shared 
governance may be eligible to participate as ACOs in the Shared Savings 
Program. In addition to the groups specifically identified in the 
statute, we are proposing to use the Secretary's discretion under 
section 1899(b)(1)(E) of the Act to expand the list of eligible groups 
of providers and suppliers that may participate in the Shared Savings 
rogram. Specifically, we are proposing that ACOs may incorporate other 
groups of Medicare enrolled providers and suppliers, many of whom would 
not be able to form ACOs and participate in the program independently. 
As described previously, each of the Medicare-enrolled providers and 
suppliers that join together to form an ACO is identified by their 
Medicare-enrolled TIN and is referred to herein as an ACO participant. 
Regardless of whether an ACO participant is able to meet the 
eligibility criteria for participation in the Shared Savings Program 
independently or must join with others in order to meet criteria, we 
propose that the ACO must demonstrate a mechanism of shared governance 
that provides all ACO participants with an appropriate proportionate 
control over the ACO's decision making process.
    In response to the request for information (RFI) that appeared in 
the November 17, 2010 Federal Register (75 FR 70165), we received 
comments regarding the need for us to remain flexible when defining the 
required legal structure to allow for a variety of structural options. 
For example, commenters noted that we should permit existing 
organizations to participate in the Shared Savings Program instead of 
requiring the formation of a new legal entity in order to avoid 
additional costs and duplication of organizational competencies. 
Commenters also recommended that the legal structure requirements 
should not disadvantage solo and small groups of physicians with fewer 
resources relative to larger hospital and physician groups by requiring 
the use of specific structures that may result in increased costs, 
implementation delays, and cumbersome operational requirements for 
these smaller entities. Moreover, our intent is to encourage 
participation by not-for-profit, community-based organizations.
    When considering options for the legal structure of ACOs, we sought 
to balance the need for an organization to be recognized by the State 
with the need for flexibility to permit the participants to select the 
appropriate organizational structure for their ACO. We also considered 
the importance of minimizing costs related to organizing as a specific 
legal entity. In order to implement the statutory requirements that 
ACOs have a shared governance mechanism and a formal legal structure 
for receiving and distributing shared payments, we believe that it is 
necessary for each ACO to be constituted as a legal entity 
appropriately recognized and authorized to conduct its business under 
applicable State law in order to best achieve the objectives of the 
Shared Savings Program and that it must have a TIN. Therefore, we are 
proposing to require an ACO to be an organization that is recognized 
and authorized to conduct its business under applicable State law and 
is capable of--(1) Receiving and distributing shared savings; (2) 
repaying shared losses; (3) establishing, reporting, and ensuring ACO 
participant and ACO provider/supplier compliance with program 
requirements, including the quality performance standards; and (4) 
performing the other ACO functions identified in the statute.
    We note that by proposing that the ACO be required to have a TIN, 
we are not proposing to require that the ACO itself be enrolled in the 
Medicare program, in contrast to this requirement for each ACO 
participant.
    Also, by proposing that each ACO must be constituted as a legal 
entity appropriately recognized and authorized under applicable State 
law, we are not proposing to require that existing legal entities 
appropriately recognized under State law must form a separate new 
entity for the purpose of participating in the Shared Savings Program. 
If the existing legal entity meets the eligibility requirements to be 
an ACO, as described in this proposed rule, it may operate as an ACO, 
as long as it is recognized under applicable State law and is capable 
of receiving and distributing shared savings, repaying shared losses, 
and performing the other ACO functions identified in the statute and 
regulations, including the requirement for shared governance for ACO 
participants.
    For example, a hospital employing ACO professionals, which is one 
of the entities identified in section 1899(b)(1) of the Act, may be 
eligible to participate in the Shared Savings Program as an ACO with 
its current legal structure, as recognized under applicable State law, 
and would not be required to develop a separate new entity. We 
recognize, however, that the absence of a separate legal entity to 
operate the ACO may make it more difficult for us to audit and 
otherwise assess ACO performance. We solicit comment on whether we 
should require all ACOs participating in the Shared Savings Program to 
be formed as a distinct legal entity appropriately recognized and 
authorized to conduct its business under applicable State law or 
whether an existing legal entity could be permitted to participate in 
the Shared Savings Program as an ACO, including entities that have 
similar arrangements with other payors. However, we propose that if an 
existing entity, such as a hospital employing ACO professionals would 
like to include as ACO participants other providers of services and 
suppliers who are not already part of its existing legal structure, a 
separate entity would have to be established in order to provide all 
ACO participants a mechanism for shared governance and decision making.
    We propose that each ACO would certify that it is recognized as a 
legal entity under State law and authorized by the State to conduct its 
business. In addition, an ACO with operations in multiple States would 
have to certify that it is recognized as a legal entity in the State in 
which it was established and that it is authorized to conduct business 
in each State in which it operates. An ACO must provide in its 
application evidence that it is recognized as a legal entity in the 
State in which it was established and that it is authorized to conduct 
business in

[[Page 19541]]

each State in which it operates. We solicit comment on our proposal for 
the required legal structure and seek input on other suitable legal 
structure requirements that we should consider adding in the final rule 
or through subsequent rulemaking. Moreover, our intent is to encourage 
not-for-profit, community-based organizations to participate in the 
Shared Savings Program. We request comment on whether requirements for 
the creation of a separate entity would create disincentives for the 
formation of ACOs and whether there is an alternative requirement that 
could be used to achieve the aims of shared governance and decision 
making and the ability to receive and distribute payments for shared 
savings.
b. Governance
    Although section 1899(b)(1) of the Act requires that an ACO have a 
``mechanism for shared governance'' and section 1899(b)(2)(F) of the 
Act further requires that an ``ACO shall have in place a leadership and 
management structure that includes clinical and administrative 
systems,'' the statute does not specify the elements that this shared 
governance mechanism or the accompanying leadership and management 
structures must possess. We believe that such a governance mechanism 
should allow for appropriate proportionate control for ACO 
participants, giving each ACO participant a voice in the ACO's decision 
making process, and be sufficient to meet the statutory requirements 
regarding clinical and administrative systems. We envision a mechanism 
that is transparent, accountable to the affected beneficiary community, 
and also accountable and responsive to the ACO participants and the ACO 
providers/suppliers they represent. Further, we would anticipate that 
the leadership and management structures would provide for adequate 
authority to enable the ACO to execute its core functions of enhancing 
the quality, efficiency, and patient-centeredness of the health care 
services furnished to assigned beneficiaries.
    Commonly used mechanisms for establishing shared governance are a 
board of directors, board of managers, or other similar governing 
bodies that provide a mechanism for representation and control in 
shared decision-making for all ACO participants. Accordingly, we are 
proposing that an ACO must establish and maintain a governing body with 
adequate authority to execute the statutory functions of an ACO, as 
defined by the shared governance criterion described in more detail 
later in this proposed rule. The governing body may be a board of 
directors, board of managers, or any other governing body that provides 
a mechanism for shared governance and decision-making for all ACO 
participants, and that has the authority to execute the statutory 
functions of an ACO, including for example, to ``define processes to 
promote evidence-based medicine and patient engagement, report on 
quality and cost measures, and coordinate care,'' as required under 
section 1899(b)(1)(G) of the Act. As discussed in more detail later in 
the document, this governing body would be comprised of the ACO 
participants or their designated representatives, include Medicare 
beneficiaries served by the ACO, and possess broad responsibility for 
the ACO's administrative, fiduciary, and clinical operations. While the 
representatives on the governing body could be serving in a similar or 
complementary manner for an ACO participant within the ACO, this body 
must be separate and unique to the ACO when the ACO participants are 
not already represented by an existing legal entity appropriately 
recognized and authorized to conduct its business under applicable 
State law. In those instances where the ACO is comprised of a self-
contained financially and clinically integrated entity that has a pre-
existing board of directors or other governing body, such as a hospital 
that employs ACO professionals, we are also proposing that the ACO 
would not need to form a separate governing body, as long as that 
governing body is able to meet all other criteria required for ACO 
governing bodies. In this case, the integrated entity's governing body 
would be the governing body of the ACO, and the ACO would be required 
to provide in its application evidence that its pre-existing board of 
directors or other governing body, meets all other criteria required 
for ACO governing bodies. Although we wish to provide potential ACOs 
with some flexibility on corporate governance and ACO formation, we are 
concerned that allowing existing entities to be ACOs would complicate 
our monitoring and auditing of the ACO. We solicit comment on this 
issue.
    Moreover, our intent is to encourage not-for-profit, community-
based organizations to participate in the Shared Savings Program. We 
request comment on whether requirements for the creation of a governing 
body as a mechanism for shared governance would create disincentives 
for the formation of ACOs and whether there is an alternative 
requirement that could be used to achieve the aims of shared governance 
and decision making.
c. Composition of the Governing Body
    For purposes of the Shared Savings Program, the ACO is, by 
definition, comprised of groups of Medicare-enrolled providers and 
suppliers (ACO participants) that agree to work together to manage and 
coordinate care for beneficiaries, and have established a mechanism for 
shared governance--as opposed to an outside entity directing their day-
to-day operations. Therefore, we believe that the ACO should be 
operated and directed by Medicare-enrolled entities that directly 
provide health care services to beneficiaries. Stakeholders have 
indicated to us that in the private sector, entrepreneurial management 
companies and health plans have expressed interest in forming or 
participating in ACOs. Often, small groups of providers lack both the 
capital and infrastructure necessary to form an ACO and to administer 
the programmatic requirements of the Shared Savings Program and could 
benefit from partnerships with non-Medicare-enrolled entities. For this 
reason, we propose that in order to be eligible for participation in 
the Shared Savings Program, the ACO participants must have at least 75 
percent control of the ACO's governing body. In addition, each of the 
ACO participants must choose an appropriate representative from within 
its organization to represent them on the governing body. This proposal 
ensures that ACOs remain provider-driven, but also leaves room for both 
non-providers and small provider groups to participate in the program.
    We are requesting comment on this proposal for whether more or less 
than 75 percent control of the governing body being held by the ACO 
participants is an appropriate percentage. We are also requesting 
comment on whether the appropriate representative should be held by 
persons employed by and representing Medicare-enrolled TINs.
    As discussed in more detail later in the document, we believe a 
process for integrating community resources is an essential part of 
patient centeredness.
    We are proposing that ACOs be required to describe how they will 
partner with community stakeholders as part of their application. ACOs 
that have a community stakeholder organization serving on their 
governing body would be deemed to have satisfied that application 
criterion.
    Additionally, as discussed in more detail later in the document, we 
are proposing a requirement that ACOs provide for beneficiary 
involvement in

[[Page 19542]]

their governing processes. Specifically, we are proposing that ACOs 
will be required to demonstrate a partnership with Medicare FFS 
beneficiaries by having beneficiary representation in the ACO governing 
body.
3. Leadership and Management Structure
    Section 1899(b)(2)(F) of the Act requires an eligible ACO to ``have 
in place a leadership and management structure that includes clinical 
and administrative systems.'' We believe this structure should align 
with and support the goals of the Shared Savings Program and the three-
part aim of better care for individuals, better health for populations, 
and lower growth in expenditures. Based on their experience with the 
PGP demonstration, participants identified several factors as critical 
to improving quality and the opportunity to share savings:
     An integrated organization with an environment that 
supports expending resources on multiple programs and initiatives to 
improve quality and reduce unnecessary services.
     Dedicated physician leadership with a proven ability to 
motivate physicians to participate in the development and 
implementation of quality improvement and other clinical programs and 
initiatives.
     Health information technology that facilitates the 
aggregation and analysis of data, allows patient-level feedback, and 
provides alerts and reminders at the point of care.
     Experience with non-Medicare payer initiatives, 
particularly through a managed care affiliate, to improve quality and 
reduce expenditure growth.
    In addition, another important factor that must be considered is 
whether the leadership and management structure of the ACO should 
include appropriate safeguards to ensure the ACO's integration and 
likelihood of achieving quality improvements and cost efficiencies. The 
Antitrust Agencies have developed criteria to assess whether 
collaborations of otherwise competing health care providers should be 
condemned as per se illegal under antitrust law or subject to a more 
thorough evaluation under the ``Rule of Reason,'' which would examine 
likely procompetitive or anticompetitive effects.\1\ To avoid per se 
condemnation as ``shams'' that facilitate price fixing or other per se 
illegal activities, collaborations of competing health care providers 
must show that they are integrated ventures that are likely to, or do, 
enable their participants jointly to achieve cost efficiencies and 
quality improvements in providing services. The efficiency-enhancing 
integration ``must likely generate procompetitive benefits that enhance 
the participants' ability or incentives to compete, and thus offset any 
anticompetitive tendencies of the arrangement.'' \2\
---------------------------------------------------------------------------

    \1\ Arizona v. Maricopa County Medical Society, 457 U.S. 332 
(1982).
    \2\ Letter from Jeffrey Brennan, Assistant Director, Bureau of 
Competition, Federal Trade Commission to John J. Miles, Ober, Kaler, 
Grimes & Shriver (February 19, 2002), available at http://www.ftc.gov/bc/adops/medsouth.shtm.
---------------------------------------------------------------------------

    Accordingly, the antitrust perspective focuses on how 
collaboration, including coordinated care, can lower costs and improve 
quality, just as the intent of the Shared Savings Program under section 
1899 of the Act is to promote accountability for Medicare 
beneficiaries, improve the coordination of FFS items and services, and 
encourage investment in infrastructure and redesigned care processes 
for high quality and efficient service delivery. For antitrust 
purposes, collaborations of competing health care providers may use 
either financial or clinical integration, or both, as means to achieve 
cost efficiencies and quality improvements.\3\ To demonstrate financial 
integration, participants in collaboration must share substantial 
financial risk, so they have the incentive to cooperate in controlling 
costs and improving quality by managing the provision of services.\4\ 
To demonstrate clinical integration, participants must show a degree of 
interaction and interdependence among providers in their provision of 
medical services that enables them to jointly achieve cost efficiencies 
and quality improvements.\5\ The Federal Antitrust Agencies have 
concluded that successfully achieving clinical integration requires the 
establishment and operation of active and ongoing processes and 
mechanisms to facilitate, encourage, and assure the necessary 
cooperative interaction.\6\
---------------------------------------------------------------------------

    \3\ Department of Justice and Federal Trade Commission, 
Statements of Antitrust Enforcement Policy in Health Care, Statement 
8 (1996), available at http://www.ftc.gov/reports/hlth3s.pdf.
    \4\ Id.
    \5\ See, for example, Letter from Markus Meier to John J. Miles, 
Ober, Kaler, Grimes & Shriver 7 (June 18, 2007), available at http://www.ftc.gov/bc/adops/070618mewdsouth.pdf.
    \6\ Id.
---------------------------------------------------------------------------

    We believe that these criteria also provide insight into the 
leadership and management structures, including clinical and 
administrative systems, necessary for ACOs to achieve the three-part 
aim of better care for individuals, better health for populations, and 
lower growth in expenditures. We also note that these criteria are very 
similar to the factors identified previously by participants in the PGP 
demonstration as critical to improving quality and controlling the cost 
of health care. Similarly, antitrust analyses have examined whether 
participants in such a collaboration are committed to the collective 
development and implementation of evidence-based protocols and 
benchmarks, to individual and group accountability for adherence to 
those protocols and benchmarks, to the development of technology to 
facilitate providers' compliance, to the measurement of compliance with 
those protocols, and to improved performance with respect to 
benchmarks, among other things.\7\
---------------------------------------------------------------------------

    \7\ See, for example, Letter from Markus H. Meier, Assistant 
Director, Bureau of Competition, Federal Trade Commission to Christi 
J. Braun, Ober, Kaler, Grimes & Shriver 8 (April 13, 2009), 
available at http://www.ftc.gov/os/closings/staff/090413tristateaoletter.pdf; Letter from Markus H. Meier, Assistant 
Director, Bureau of Competition, Federal Trade Commission to Christi 
J. Braun & John J. Miles, Ober, Kaler, Grimes & Shriver 7 (Sept. 17, 
2007), available at http://www.ftc.gov/bc/adops/gripa.pdf; Letter 
from Jeffrey Brennan, Assistant Director, Bureau of Competition, 
Federal Trade Commission to John J. Miles, Ober, Kaler, Grimes & 
Shriver (Feb. 19, 2002), available at http://www.ftc.gov/bc/adops/medsouth.shtm.
---------------------------------------------------------------------------

    It is in the public interest to harmonize the eligibility criteria 
for ACOs that wish to participate in the Shared Savings Program with 
the similar antitrust criteria on clinical integration. As discussed in 
more detail in section II. I. of this proposed rule, competition 
between ACOs is expected to have significant benefits for Medicare 
beneficiaries, by improving the quality of care they receive, 
protecting their access to a variety of providers, and helping to 
sustain the Medicare program by controlling costs. Furthermore, because 
ACOs that operate in the Shared Savings Program are likely to use the 
same organizational structure and clinical care practices to serve both 
Medicare beneficiaries and consumers covered by commercial insurance, 
the certainty created by harmonizing our eligibility criteria with 
antitrust requirements will help to ensure that an ACO organization 
participating in the Shared Savings Program will not subsequently face 
an antitrust challenge that its conduct is per se illegal, which could 
prevent the ACO from fulfilling the 3-year term of its agreement under 
the Shared Savings Program.
    Accordingly, we believe an ACO, the ACO participants, and ACO 
providers/suppliers should demonstrate an organizational commitment to 
the Shared Savings Program and the terms of the 3-year agreement, both 
as a group and individually, as well as the leadership and management 
capabilities

[[Page 19543]]

necessary to achieve the three-part aim by managing and coordinating 
the care of assigned Medicare beneficiaries. We note that the statute 
permits ACO participants that form an ACO to use a variety of 
collaborative organizational structures, including collaborations short 
of merger, to evidence the required organizational commitment and 
leadership and management capabilities.
    Thus, consistent with the requirement in section 1899(b)(2)(F) of 
the Act that an ACO have a leadership and management structure that 
includes clinical and administrative systems, we are proposing that 
ACOs meet the following criteria:
     The ACO's operations would be managed by an executive, 
officer, manager, or general partner, whose appointment and removal are 
under control of the organization's governing body and whose leadership 
team has demonstrated the ability to influence or direct clinical 
practice to improve efficiency processes and outcomes.
     Clinical management and oversight would be managed by a 
senior-level medical director who is a board-certified physician, 
licensed in the State in which the ACO operates, and physically present 
in that State.
     ACO participants and ACO providers/suppliers would have a 
meaningful commitment to the ACO's clinical integration program to 
ensure its likely success. Meaningful commitment may include, for 
example, a meaningful financial investment in the ACO, or a meaningful 
human investment (for example, time and effort) in the ongoing 
operations of the ACO such that the potential loss or recoupment of the 
investment is likely to motivate the participant to make the clinical 
integration program succeed.
     The ACO would have a physician-directed quality assurance 
and process improvement committee that would oversee an ongoing quality 
assurance and improvement program. The quality assurance program would 
establish internal performance standards for quality of care and 
services, cost effectiveness, and process and outcome improvements, and 
hold ACO providers/suppliers accountable for meeting the performance 
standards. The program would also have processes and procedures in 
place to identify and correct poor compliance with such standards and 
to promote continuous quality improvement.
     The ACO would develop and implement evidence-based medical 
practice or clinical guidelines and processes for delivering care 
consistent with the goals of better care for individuals, better health 
for populations, lower growth in expenditures. The guidelines and care 
delivery processes would cover diagnoses with significant potential for 
the ACO to achieve quality and cost improvements, taking into account 
the circumstances of the individual beneficiary, and could be 
accomplished, for example, through an integrated electronic health 
record with clinical decision support. ACO participants and ACO 
providers/suppliers would have to agree to comply with these guidelines 
and processes and to be subject to performance evaluations and 
potential remedial actions.
     The ACO would have an infrastructure, such as information 
technology, that enables the ACO to collect and evaluate data and 
provide feedback to the ACO providers/suppliers across the entire 
organization, including providing information to influence care at the 
point of care via, for example, shared clinical decision support, 
feedback from patient experience of care surveys or other internal or 
external quality and utilization assessments.
    As discussed later in the document, and in section II. C. of this 
proposed rule, it is our expectation that ACO participants and ACO 
providers/suppliers participating in the ACO would make a commitment to 
participate in the ACO for not less than 3 years. However, we recognize 
it will be necessary for the ACO to include a remedial process for ACO 
participants that fail to comply with the ACO's internal procedures and 
performance standards, including the possibility of expulsion of 
significant outliers. We caution that expulsion cannot be used as a 
mechanism to avoid at-risk beneficiaries.
    In order to determine an ACO's compliance with these requirements, 
as part of the application process, we are proposing that an ACO would 
submit all of the following:
     ACO documents (for example, participation agreements, 
employment contracts, and operating policies) that describe the ACO 
participants' and ACO providers/suppliers' rights and obligations in 
the ACO, the shared savings that will encourage ACO participants and 
ACO providers/suppliers to adhere to the quality assurance and 
improvement program and the evidenced-based clinical guidelines;
     Documents that describe the scope and scale of the quality 
assurance and clinical integration program, including documents that 
describe all relevant clinical integration program systems and 
processes, such as the internal performance standards and the processes 
for monitoring and evaluating performance;
     Supporting materials documenting the ACO's organization 
and management structure, including an organizational chart, a list of 
committees (including names of committee members) and their structures, 
and job descriptions for senior administrative and clinical leaders; 
and
     Evidence that the ACO has a board-certified physician as 
its medical director who is licensed in the State in which the ACO 
resides and that a principal CMS liaison is identified in its 
leadership structure.
     Evidence that the governing body includes persons who 
represent the ACO participants, and that these ACO participants hold at 
least 75 percent control of the governing body.
    Additionally, upon request, the ACO would also be required to 
provide copies of the following documents:
     Documents effectuating the ACO's formation and operation, 
including charters, by-laws, articles of incorporation, and 
partnership, joint venture, management, or asset purchase agreements.
     Descriptions of the remedial processes that will apply 
when ACO participants and ACO providers/suppliers fail to comply with 
the ACO's internal procedures and performance standards, including 
corrective action plans and the circumstances under which expulsion 
could occur.
    In an effort to allow flexibility and innovation, we are proposing 
that ACOs with innovative leadership and management structures have the 
opportunity to describe an alternative mechanism for how their 
leadership and management structure would conduct the activities noted 
previously in order to achieve the same goals so that they may be given 
consideration in the application process. That is, an organization that 
does not have one or more of the following: An executive, officer, 
manager, or general partner; senior-level medical director; or 
physician-directed quality assurance and process improvement committee, 
would be required in its application to describe how the ACO will 
perform these functions without such leadership. For example, if an ACO 
does not have a physician-directed quality assurance and process 
improvement committee, the ACO would need to describe how it plans to 
oversee an ongoing quality assurance and improvement program as 
described previously. Additionally, we seek comment on the requirement 
for

[[Page 19544]]

submission of certain documents as noted previously and whether an 
alternative method could be used to verify compliance with 
requirements. We request comment on the proposed leadership and 
management structure and whether the compliance burden associated with 
these requirements will discourage participation, hinder innovative 
organizational structures, or whether there are other or alternative 
leadership and management requirements that would enable these 
organizations in meeting the three-part aim.
4. Accountability for Beneficiaries
    Section 1899(b)(2)(A) of the Act requires participating ACOs to 
``be willing to become accountable for the quality, cost, and overall 
care of the Medicare fee-for-service beneficiaries assigned to it.'' To 
satisfy this requirement, we are proposing that an ACO executive who 
has the authority to bind the ACO must certify to the best of his or 
her knowledge, information, and belief that the ACO participants are 
willing to become accountable for, and to report to us on, the quality, 
cost, and overall care of the Medicare FFS beneficiaries assigned to 
the ACO. The certification would be included as part of the ACO's 
application and 3-year participation agreement.
5. Agreement Requirement
    Section 1899(b)(2)(B) of the Act requires participating ACOs to 
``enter into an agreement with the Secretary to participate in the 
program for not less than a 3-year period * * *.'' For the first round 
of the Shared Savings Program, we are proposing to limit participation 
agreements to a 3-year period. We are seeking comments on this proposal 
and whether a longer agreement period should be considered initially.
    If the ACO is approved for participation, we propose that an 
authorized representative--specifically, an executive who has the 
ability to bind the ACO, must certify to the best of his or her 
knowledge, information, and belief that the ACO participants agree to 
the requirements set forth in the 3-year agreement between the ACO and 
us--sign a 3-year participation agreement and submit the signed 
agreement to us. This participation agreement would include an 
acknowledgment that the ACO agrees to comply with all of the 
requirements for participation in the Shared Savings Program and that 
all contracts or arrangements between or among the ACO, ACO 
participants, ACO providers/suppliers, and other entities furnishing 
services related to ACO activities must require compliance with the 
ACO's obligations under the 3-year agreement. The participation 
agreement would be signed by an authorized representative of the ACO 
after it has been approved for participation. The ACO would be 
responsible for providing a copy of the agreement to its ACO 
participants and ACO providers/suppliers. We are soliciting comment on 
this proposal, including any additional measures or alternative means 
that we should consider to fulfill this requirement.
    We also recognize that, while having signed a 3-year participation 
agreement with us in good faith and with the intention to participate 
in the program for the full 3-year agreement period, there may be 
instances where an ACO might need to discontinue its participation in 
the Shared Savings Program prior to the end of the agreement period. As 
described in section II. H. Monitoring and Termination of ACOs of this 
proposed rule, we propose to require an ACO to give us 60 days advance 
written notice of its intention to terminate its agreement to 
participate in the Shared Savings Program and the effective date of its 
termination. As described in more detail in section II. F of this 
proposed rule, we propose the ACO will be subject to a 25 percent 
withhold of shared savings in order to offset any future losses under 
the two-sided model. We propose that if an ACO completes its 3-year 
agreement successfully, we will refund in full any portion of shared 
savings withheld during the course of the 3-year agreement period that 
is not needed to offset losses. We further propose that in the event an 
ACO's 3-year agreement is terminated before the completion of the 3 
years, we will retain any portion of shared savings withheld.
    Finally, it is our intention that all ACOs, ACO participants, and 
ACO providers/suppliers with direct or indirect obligations under the 
Shared Savings Program be subject to the requirements of the agreement 
between the ACO and CMS and that all certifications submitted on behalf 
of the ACO in connection with the Shared Savings Program application, 
agreement, shared savings distribution, as discussed in section II. F. 
or otherwise extend to all parties with obligations to which the 
particular certification applies.
    We are considering the best way to achieve this end and solicit 
public comments on this issue.
6. Distribution of Savings
    As discussed previously, an ACO must be a legal entity 
appropriately recognized and authorized to conduct its business under 
State law, and would be identified by a TIN. We propose to make any 
shared savings payments directly to the ACO as identified by its TIN. 
The TIN associated with the ACO's legal entity may, or may not, be 
enrolled in the Medicare program, unlike the ACO participant TINs that 
are Medicare-enrolled groups of providers of services and suppliers. 
Therefore, because the statute contemplates payment directly to the 
ACO, we are proposing to pay the ACO TIN directly. We acknowledge that 
this proposal could raise program integrity concerns, because allowing 
shared savings payments to be made directly to a non-Medicare-enrolled 
entity would likely impede the program's ability to recoup overpayments 
as there would be no regular payments that could be offset. This is 
part of the rationale for the payment withhold described in more detail 
in section II. F, Shared Savings Determination, as well as the other 
safeguards for assuring ACO repayment of shared losses described in 
section II.G.of this proposed rule. We solicit comments on our proposal 
to make shared savings payments directly to the ACO, as identified by 
its TIN. In addition, we are soliciting comment on our proposal to make 
shared savings payments to a non-Medicare-enrolled entity.
    While section 1899(b)(2)(C) of the Act requires an ACO to have a 
formal legal structure that would allow the organization to receive and 
distribute payments for shared savings to participating providers of 
services and suppliers, the statute does not establish any requirements 
for the manner in which shared savings payments are distributed. We 
have considered whether it would be appropriate, under the broad 
discretion granted to the Secretary in implementing the Shared Savings 
Program, to propose criteria for the distribution of shared savings by 
the ACO. Although we do not believe we have the authority to specify 
how shared savings must be distributed (so long as the distribution is 
consistent with all applicable legal requirements), we believe it would 
be consistent with the purpose and intent of the statute to require the 
ACO to indicate as part of its application how it plans to use 
potential shared savings to meet the goals of the program. More 
specifically, ACOs would have to indicate how potential shared savings 
would be used to promote accountability for their Medicare population 
and the coordination of their care as well as how they might be 
invested in infrastructure

[[Page 19545]]

and redesigned care processes for high quality and efficient health 
care service delivery. Therefore, we propose to require ACOs to provide 
a description in their application of the criteria they plan to employ 
for distributing shared savings among ACO participants and ACO 
providers/suppliers, and how any shared savings will be used to align 
with the aims of better care for individuals, better health for 
populations, and lower growth in expenditures. We believe the proposed 
requirement would achieve the most appropriate balance among objectives 
for encouraging participation, innovation, and achievement of program 
while still focusing on the aims of better care for individuals, better 
health for populations, and lower growth in expenditures. Additionally, 
it is the intention of this requirement for ACOs to include this 
description in the application, to both guard against improper 
financial incentives as well as ensure appropriate beneficiary 
protections.
7. Sufficient Number of Primary Care Providers and Beneficiaries
    Section 1899(b)(2)(D) of the Act requires participating ACOs to 
``include primary care ACO professionals that are sufficient for the 
number of Medicare fee-for-service beneficiaries assigned to the ACO * 
* *'' and that at a minimum, ``the ACO shall have at least 5,000 such 
beneficiaries assigned to it * * *'' Physician patient panels can vary 
widely in the number of FFS Medicare beneficiaries served. In section 
II. C. of this proposed rule, we discuss our proposal to assign 
beneficiaries to an ACO on the basis of primary care services rendered 
by physicians with primary care specializations in general practice, 
internal medicine, family practice, and geriatric medicine. We are 
proposing that this algorithm will also be used to assign beneficiaries 
during the baseline years in order to establish a historical per capita 
cost benchmark against which the ACO would be evaluated during each 
year of the agreement period. We believe it is reasonable to assume 
that if by using this algorithm the ACO demonstrates a sufficient 
number of beneficiaries to fulfill this eligibility requirement for 
purposes of establishing a benchmark, then the ACO also contains a 
sufficient number of primary care professionals to provide care to 
these beneficiaries. It is also reasonable to assume the ACO would 
continue to approximate this number in each year of the agreement 
period. Thus, we are proposing that for purposes of eligibility under 
section 1899(b)(2)(D) of the Act, an ACO would be determined to have a 
sufficient number of primary care ACO professionals to serve the number 
of Medicare beneficiaries assigned to it if the number of beneficiaries 
historically assigned over the three-year benchmarking period using the 
ACO participant TINs exceeds the 5,000 threshold for each year. We are 
soliciting comment on this proposal as well as any additional guidance 
that could be considered for meeting these requirements.
    While an ACO could meet the requirements in section 1899(b)(2)(D) 
of the Act when it applies to participate in the Shared Savings 
Program, the number of assigned beneficiaries could fall below the 
5,000 level due to either significant events, such as when an ACO 
professional or group of professionals cease to participate in the ACO, 
or in those instances where the actual number of beneficiaries is close 
to 5,000 as a result of normal fluctuations in patient populations. The 
requirements under section 1899(b)(2)(D) of the Act are important with 
respect both to the sufficiency of the ACO to provide primary care 
services to its assigned beneficiary population and statistical 
stability for purposes of calculating per capita expenditures and 
assessing quality performance. Simply stated, and as described in 
detail in section II.D. of this proposed rule, as the number of 
assigned beneficiaries increases, the minimum savings rate (MSR) gets 
smaller. Conversely, as the number of assigned beneficiaries decreases, 
the MSR expands thus making it significantly more difficult for an ACO 
to obtain shared savings. So, retaining 5,000 assigned beneficiaries is 
important from both the perspective of the capacity of the ACO to 
provide primary care services to its assigned beneficiary population as 
well as the ability of the ACO to realize shared savings by exceeding 
the MSR.
    Thus, we considered what action, if any, should be taken in the 
event the number of beneficiaries falls below 5,000. Specifically, we 
considered whether an ACO's participation in the program should be 
terminated or its eligibility for shared savings be deferred if the 
number of beneficiaries dropped below 5,000. We considered terminating 
the ACO for falling below 5,000 beneficiaries immediately or after 
giving the ACO an opportunity to implement a corrective action plan. We 
have concerns that immediately terminating an ACO or denying it an 
opportunity to share in savings because its population fell slightly 
may discourage participation among smaller ACOs. We believe this would 
be inconsistent with the goals of allowing greater opportunities for 
broadly transforming the health care delivery system and increasing 
access to high quality and lower cost care under the Shared Savings 
Program for Medicare beneficiaries regardless of where they live. 
Another option would be to take no action if the ACO falls below 5,000 
assigned beneficiaries. Taking no action in these instances would be 
inconsistent with the statutory requirement that an ACO have 5,000 
assigned beneficiaries in order to be eligible to participate in the 
Shared Savings Program and would reduce incentives for smaller provider 
organizations to affiliate with other providers and suppliers to be 
successful under the Shared Savings Program. A third option might be to 
adjust, or scale, the shared savings in those instances where the 
number of assigned beneficiaries falls below the floor of 5,000 over 
the course of a performance year. If shared savings are realized, and 
all other requirements of participation are met, an ACO that falls 
below the 5,000 assigned beneficiary floor could realize shared savings 
but at a reduced rate of savings that would parallel the number of 
beneficiaries assigned to the ACO. Thus, the amount of the incentive 
payment would be scaled to the number of beneficiaries in the ACO 
during the performance year. However, since the MSR adjusts with the 
number of assigned beneficiaries, there is a built-in incentive for 
ACOs to increase their beneficiary population.
    We believe a reasonable compromise would balance the statutory 
requirements, program incentives, and recognition of expected variation 
in an ACO's assigned population. Thus, we are proposing that if an 
ACO's assigned population falls below 5,000 during the course of the 
agreement period, we would issue a warning and place the ACO on a 
corrective action plan. The ACO would remain eligible for shared 
savings for the performance year for which the warning was issued. We 
further propose that if the ACO fails to meet the eligibility criterion 
of having more than 5,000 beneficiaries by the completion of the next 
performance year, the ACO's participation agreement will be terminated 
and the ACO will not be eligible to share in savings for that year. 
Thus, for example, if during the first performance year, an ACO's 
assigned population fell below 5,000, we would issue a warning, 
notifying the ACO of the variation in their assigned population. The 
ACO would be placed on a corrective action plan which could include, 
for example, a plan to add more

[[Page 19546]]

primary care providers to the ACO. The ACO would remain eligible to 
share in savings for the first performance year. However, if the ACO's 
assigned population had not returned to at least 5,000 by the end of 
the second performance year, then that ACO's agreement will be 
terminated and the ACO would not be eligible to share in savings for 
the second performance year. We also propose to reserve the right to 
review the status of the ACO while on the corrective action plan and 
terminate the agreement on the basis that the ACO no longer meets 
eligibility requirements. We request comment on this proposal and on 
other potential options for addressing situations where the assigned 
beneficiary population falls below 5,000 during the course of an 
agreement period.
8. Required Reporting on Participating ACO Professionals
    Section 1899(b)(2)(E) of the Act requires ACOs to ``provide the 
Secretary with such information regarding ACO professionals 
participating in the ACO as the Secretary determines necessary to 
support the assignment of Medicare FFS beneficiaries to an ACO, the 
implementation of quality and other reporting requirements * * *, and 
the determination of payments for shared savings * * *.'' As discussed 
in sections II.B. and II.D. of this proposed rule, we are proposing to 
define an ACO operationally as a legal entity that is comprised of a 
group of ACO participants which are in turn defined to mean Medicare-
enrolled providers or suppliers, as identified by their TINs. However, 
TIN level data alone may not be entirely sufficient for a number of 
purposes in the Shared Savings Program such as implementing our 
methodology for beneficiary assignment and calculating the quality 
performance score. Accordingly, to satisfy the requirements under 
section 1899(b)(2)(E) of the Act, we are proposing that entities 
applying to participate in the Shared Savings Program must provide not 
only the TINs of the ACO and the ACO participants, but also a list of 
national provider identifiers (NPIs) associated with the ACO providers/
suppliers, which separately identifies the physicians that provide 
primary care.
    We are also proposing to require an ACO to maintain, update, and 
annually report to us the TINs of its ACO participants and the NPIs 
associated with the ACO providers/suppliers. We believe that requiring 
this information offers the level of transparency needed to implement 
the Shared Savings Program.
9. Processes To Promote Evidence-Based Medicine, Patient Engagement, 
Reporting, and Coordination of Care
    Section 1899(b)(2) of the Act establishes a number of requirements 
which ACOs must satisfy in order to be eligible to participate in the 
Shared Savings Program. Several of these standards deal with how 
patient care is provided by the ACO, with a focus on processes and 
methods to: (1) Promote higher quality of care; (2) better coordinate 
care; and (3) meet the needs and concerns of patients and their 
families, including effectively engaging patients and their families in 
medical decision-making. Specifically, section 1899(b)(2)(G) of the Act 
requires an ACO to ``define processes to promote evidence-based 
medicine and patient engagement, report on quality and cost measures, 
and coordinate care, such as through the use of telehealth, remote 
patient monitoring, and other such enabling technologies.''
    With regard to each of the specific requirements under section 
1899(b)(2)(G) of the Act, we have two options. One option is simply to 
propose to require documentation of an ACO's plans to ``define 
processes to promote evidence-based medicine and patient engagement, 
report on quality and cost measures, and coordinate care, such as 
through the use of telehealth, remote patient monitoring, and other 
such enabling technologies.'' Under this option, we would not establish 
any more specific criteria for these requirements. However, we would 
expect that the required documentation present convincing evidence of 
concrete and effective plans to satisfy these requirements, by 
providing specific processes and criteria that the ACO intends to use 
for promoting, improving, and assessing evidence-based medicine, 
beneficiary engagement, reporting of quality and cost measures, and 
coordination of care. Such processes would have to include provisions 
for internal assessment of cost and quality of care within the ACO, and 
employ these assessments in continuous improvement of the ACO's care 
practices.
    The other option is to identify specific criteria that we would 
propose to require ACOs to meet with regard to each of these 
requirements. For example, with regard to the requirement to promote 
evidence-based medicine, we could provide a detailed description of 
evidence-based guidelines for various conditions and diseases for which 
we would hold ACOs accountable, including specific instructions for how 
an ACO would demonstrate it is following these guidelines and 
monitoring compliance among its ACO participants and ACO providers/
suppliers. We could also specify a number of conditions for which the 
ACO would maintain an evidence-based medicine preventive health 
guidelines program. Similarly, we could identify and require the use of 
specific decision support tools, patient activation measures, or other 
patient support tools in order for an ACO to satisfy the requirement 
for beneficiary engagement.
    However, we have concerns that a prescriptive approach would be 
premature and potentially impede innovation and the goals of this 
program. Thus, for the requirements under section 1899(b)(2)(G) of the 
Act, we are proposing that in order to be eligible to participate in 
the Shared Savings Program, the ACO provide documentation in its 
application describing its plans to: (1) Promote evidence-based 
medicine; (2) promote beneficiary engagement; (3) report internally on 
quality and cost metrics; and (4) coordinate care. We are proposing 
this option in order to allow ACOs the flexibility to choose the tools 
for meeting these requirements that are most appropriate for their 
practitioners and patient populations. Over time, as we learn more 
about successful strategies in these areas, and as we have more 
experience assessing specific critical elements for success, the Shared 
Savings Program eligibility requirements with regard to section 
1899(b)(2)(G) of the Act may be revised. We are also specifically 
soliciting comment on whether more prescriptive criteria may be 
appropriate for meeting some or all of these requirements under section 
1899(b)(2)(G) of the Act for future rulemaking. Later in the document, 
we discuss the concepts of evidence-based medicine, patient engagement, 
internal quality and cost reporting, and coordination of care, and 
describe how Shared Savings Program applicants can establish compliance 
with the requirements of section 1899(b)(2)(G) of the Act.
a. Processes To Promote Evidence-Based Medicine
    As stated previously, section 1899(b)(2)(G) of the Act requires an 
ACO to ``define processes to promote evidence-based medicine * * *.'' 
Evidence-based medicine can be generally defined as the application of 
the best available evidence gained from the scientific method to 
clinical decision-making. It seeks to assess the strength of evidence 
of the risks and benefits of treatments (including lack of treatment) 
and diagnostic tests, and

[[Page 19547]]

applies this evidence to the processes of medical decision-making and 
treatment. In practice, such an approach should involve the 
establishment and implementation of evidence-based guidelines, based on 
the best available evidence concerning the effectiveness of medical 
treatments, at the organizational or institutional level. A genuine 
evidence-based approach would also involve regularly assessing and 
updating such guidelines to promote continuous improvement in the 
quality of care in light of new evidence concerning the effectiveness 
of medical treatments. We propose that as part of the application, the 
ACO would describe the evidence-based guidelines it intends to 
establish, implement, and periodically update.
b. Processes To Promote Patient Engagement
    Section 1899(b)(2)(G) of the Act also requires an ACO to ``define 
processes to promote * * * patient engagement.'' The term ``patient 
engagement'' is the active participation of patients and their families 
in the process of making medical decisions. Patient engagement in 
decision-making requires consideration not only of the best scientific 
evidence concerning medical treatment, but also the opportunity for 
patients and families to assess prospective treatment approaches in the 
light of their own values and convictions. Measures for promoting 
patient engagement may include, but are not limited to, the use of 
decision support tools and shared decision making methods with which 
the patient can assess the merits of various treatment options in the 
context of his or her values and convictions. Patient engagement also 
includes methods for fostering what might be termed ``health literacy'' 
in patients and their families. Health literacy is the possession of 
basic knowledge about maintaining good health, avoiding preventable 
medical conditions, managing existing conditions, as well as knowledge 
about how the care system works (for example, the roles of primary care 
physicians and specialist physicians, the nature and operation of both 
public and private health insurance, etc.).
    We propose that as part of the application, the ACO would describe 
the patient engagement processes it intends to establish, implement, 
and periodically update.
c. Processes To Report on Quality and Cost Measures
    Section 1899(b)(2)(G) of the Act requires an ACO to ``define 
processes to * * * report on quality and cost measures.'' Processes 
that may be used for reporting on quality and cost measures may 
include, but are not limited to, developing a population health data 
management capability, or implementing practice and physician level 
data capabilities with point-of-service (POS) reminder systems to drive 
improvement in quality and cost outcomes. We would expect ACOs to be 
able to monitor both costs and quality internally and make appropriate 
modifications based upon their collection of such information.
    We propose that as part of the application, the ACO would describe 
its process to report internally on quality and cost measures, and how 
it intends to use that process to respond to the needs of its Medicare 
population and to make modifications in its care delivery.
d. Processes To Promote Coordination of Care
    Finally, section 1899(b)(2)(G) of the Act requires an ACO to 
``define processes to * * * coordinate care, such as through the use of 
telehealth, remote patient monitoring, and other such enabling 
technologies.'' Coordination of care involves strategies to promote, 
improve, and assess integration and consistency of care across primary 
care physicians, specialists, and acute and post-acute providers and 
suppliers, including methods to manage care throughout an episode of 
care and during its transitions, such as discharge from a hospital or 
transfer of care from a primary care physician to a specialist. 
Compliance with this requirement may involve a range of strategies 
which may include the following examples:
     A capability to use predictive modeling to anticipate 
likely care needs.
     Utilization of case managers in primary care offices.
     Having a specific transition of care program that includes 
clear guidance and instructions for patients, their families, and their 
caregivers.
     Remote monitoring.
     Telehealth.
     The establishment and use of health information 
technology, including electronic health records and an electronic 
health information exchange to enable the provision of a beneficiary's 
summary of care record during transitions of care both within and 
outside of the ACO.
    The provisions of any free services (telehealth, case managers, 
etc.) between parties in a position to generate Federal health care 
program referrals could trigger evaluation under the relevant fraud and 
abuse laws. Stakeholders interested in this issue may also wish to 
comment on the joint OIG/CMS notice referenced in section II.I of this 
proposed rule.
    The strategies employed by an ACO to optimize care coordination 
should not impede the ability of a beneficiary to seek care from 
providers that are not participating in the ACO, or develop policies to 
place any restrictions that are not legally required on the exchange of 
medical records with providers who are not part of the ACO. We are 
proposing to prohibit the ACO from developing any policies that would 
restrict a beneficiary's freedom to seek care from providers and 
suppliers outside of the ACO.
10. Patient-Centeredness Criteria
    Section 1899(b)(2)(H) of the Act requires an ACO to ``demonstrate 
to the Secretary that it meets patient-centeredness criteria specified 
by the Secretary, such as the use of patient and caregiver assessments 
or the use of individualized care plans.'' A patient-centered, or 
person-centered, orientation could be defined as care that incorporates 
the values (to the extent the informed, individual patient desires it) 
of transparency, individualization, recognition, respect, dignity, and 
choice in all matters, without exception, related to one's person, 
circumstances, and relationships in health care. Patient-centered care 
should extend not only to the patient but to the family and caregivers 
of the patient. Patient-centeredness is one of the Institute of 
Medicine's (IOM's) aims for improvement in health care. In IOM's report 
``Crossing the Quality Chasm: A New Health System for the 21st 
Century,'' providing patient-centered care is defined as ``providing 
care that is respectful of and responsive to individual patient 
preferences, needs, and values, and ensuring that patient values guide 
all clinical decisions.'' (to view IOM's report discussed previously, 
visit http://iom.edu/Reports/2001/Crossing-the-Quality-Chasm-A-New-Health-System-for-the-21st-Century.aspx) The National Partnership for 
Women and Families suggests the following principles for patient-
centered care: (1) Care is comprehensive, coordinated, personalized, 
and planned; (2) patients' experience of care is routinely assessed and 
improved; (3) patients and their caregivers are full partners in their 
care; (4) transitions between settings of care are smooth, safe, 
effective, and efficient; (5) patients can get care when and where they 
need it; (6) care is integrated with the community resources patients 
need to maintain health and wellbeing; and (7) continuous quality 
improvement and elimination of disparities are top

[[Page 19548]]

priorities. (To view the Statement of Debra L. Ness, President, Nat'l 
Partnership for Women & Families, Senate Finance Committee, Roundtable 
on Delivery System Reform April 21, 2009 visit http://www.nationalpartnership.org/site/DocServer/090421_SenateFinanceRoundtableStatement_Ness.pdf?docID=4881)
    The statutory requirement for ``patient-centeredness criteria'' 
clearly implies that one goal of the Shared Savings Program is for ACOs 
to adopt a focus on patient-centeredness that is promoted by the 
governing body and integrated into practice by leadership and 
management working with the organization's health care teams. Drawing 
from the perspectives discussed previously, we believe the following 
list of proposed patient-centeredness principles should inform the care 
provided by an ACO participating in the Shared Savings Program:
     Care should be individualized based on the person's unique 
needs, preferences, values, and priorities.
     Beneficiaries should have access to their own medical 
records and to clinical knowledge so that they may make informed 
choices about their care.
     Beneficiaries (and their caregivers and/or family members 
where applicable) should be encouraged to be partners in care and make 
choices regarding the care they receive, based on both the medical 
record and clinical knowledge (that is, evidence-based medicine) 
provided by their ACO and the beneficiary's individual values.
     Beneficiary and caregiver and/or family experience of care 
should be routinely assessed and the ACO should seek to improve it 
where opportunities for improvement are identified.
     Care should be integrated with the community resources 
beneficiaries require to maintain well-being.
     Transitions in care among providers in the ACO, as well as 
other providers outside the ACO from whom the beneficiaries may also 
seek care, should be supported consistent with the patient-centeredness 
goals of coordinating care and having information follow patients by, 
for example, developing processes for the electronic exchange of 
information.
    In the light of these principles, we believe the following 
processes and actions listed later in the document would be necessary 
to ensure the patient-centered orientation required by section 1899. We 
propose that an ACO would be considered patient-centered if it has all 
of the following:
     A beneficiary experience of care survey in place and a 
description in the ACO application how the ACO will use the results to 
improve care over time. As discussed in more detail later in the 
document, and as proposed in section II.E. of this proposed rule, 
scoring on this survey would help the ACO meet the quality performance 
standard.
     Patient involvement in ACO governance. As discussed in 
more detail later in the document, the ACO would be required to have a 
Medicare beneficiary on the governing board.
     A process for evaluating the health needs of the ACO's 
assigned population, including consideration of diversity in their 
patient populations, and a plan to address the needs of their 
population. As discussed in more detail later in this document, the ACO 
would be required to describe this process as part of the application 
and describe how it would consider diversity in its patient population 
and plans to address its population needs.
     Systems in place to identify high-risk individuals and 
processes to develop individualized care plans for targeted patient 
populations, including integration of community resources to address 
individual needs. This proposal and application requirements are 
discussed in more detail later in this document.
     A mechanism in place for the coordination of care (for 
example, via use of enabling technologies or care coordinators). The 
ACO would be required to describe its mechanism for coordinating care 
for Medicare beneficiaries. In addition, the ACO should have a process 
in place (or clear path to develop such a process) to electronically 
exchange summary of care information when patients transition to 
another provider or setting of care, both within and outside the ACO, 
consistent with meaningful use requirements under the EHR Incentive 
program. The ACO would be required to describe their process or their 
plan to develop a process to electronically exchange summary of care 
information during care transitions. Additionally, in section II.E. of 
this proposed rule, we propose to include care transitions measures as 
part of the assessment of ACO quality.
     A process in place for communicating clinical knowledge/
evidence-based medicine to beneficiaries in a way that is 
understandable to them. This process should allow for beneficiary 
engagement and shared decision-making that takes into account the 
beneficiaries' unique needs, preferences, values, and priorities. The 
ACO would be required to describe its process, as discussed in section 
II.E. of this proposed rule, for communicating clinical knowledge/
evidence-based medicine and describe how the ACO providers/suppliers 
will engage the beneficiary in shared decision-making.
     Written standards in place for beneficiary access and 
communication and a process in place for beneficiaries to access their 
medical record. As part of its application, the ACO would be required 
to submit its written standards for beneficiary access and 
communication. Additionally, the ACO would be required to describe its 
process for beneficiaries to access their medical record.
     Internal processes in place for measuring clinical or 
service performance by physicians across the practices, and using these 
results to improve care and service over time. As described previously, 
the documents submitted to meet leadership and management criteria 
related to quality assurance and clinical integration program would 
satisfy this patient-centeredness criterion.
    We believe that this list provides a comprehensive set of criteria 
for realizing and demonstrating patient-centeredness in the operation 
of an ACO. Accordingly, we are proposing to require that ACOs 
demonstrate patient-centeredness as required by the statute by 
addressing all 8 areas outlined previously. We also considered 
confining the list of mandatory criteria to only those items 
specifically mentioned in section 1899(b)(2)(H) of the Act that is, to 
``the use of patient and caregiver assessments'' and ``the use of 
individualized care plans.'' However, the statute clearly identifies 
these two items only as examples of patient-centeredness, and specifies 
that an ACO must be required to demonstrate that it meets patient-
centeredness criteria ``specified by the Secretary.'' Thus, we believe 
the Secretary is required to define and has discretion to specify 
criteria in addition to the two criteria that are specifically 
mentioned in the statute.
    We note there is substantial overlap and alignment between these 
patient centeredness criteria as defined by the Secretary in accordance 
with section 1899(b)(2)(H) of the Act and the processes ACOs are 
required to define and documents they are required to submit as 
discussed previously to fulfill eligibility as outlined in section 
1899(b)(2)(G) of the Act and 1899(b)(2)(F) of the Act. Therefore, many 
of the ways an ACO defines certain processes required by statute may 
also serve to demonstrate it meets patient centeredness criteria as 
defined by the Secretary, thus reducing the

[[Page 19549]]

burden for the ACO in meeting eligibility requirements.
    We are soliciting comment on whether there are redundancies in the 
list of the 8 criteria or other considerations that might justify 
narrowing the list. We are also interested in whether the patient 
centeredness criteria as defined by the Secretary are sufficient to 
ensure that ACOs participating in the Shared Savings Program meet the 
eligibility requirement to demonstrate patient centeredness or whether 
there are additional patient centeredness criteria that should be added 
to our proposed list in order to meet the goals of improving the 
quality of health care delivery and improving patient satisfaction with 
their care. Additionally, we seek comment on whether these criteria are 
burdensome and whether they might create disincentives to participate 
or make it difficult for small entities to participate in the program.
    Later in the document, we discuss 4 of the 8 criteria in detail and 
solicit comment regarding (a) Implementation of the beneficiary 
experience of care survey; (b) beneficiary involvement in governance; 
(c) identification of population health needs and consideration of 
diversity; and (d) implementation of individualized care plans and 
integration of community resources.
a. Beneficiary Experience of Care Survey
    As discussed previously, we propose that ACOs have a beneficiary 
experience of care survey in place and that the ACO's application 
should describe how the ACO will use the survey results to improve care 
over time. Surveys are important tools for assessing beneficiary 
experience of care and outcomes. As part of the requirement to 
implement a beneficiary experience of care survey, we propose to 
require ACOs to collect and report on measures of beneficiaries' 
experience of care and we expect ACOs to submit their plan on how they 
will promote, assess, and continually improve in weak areas identified 
by the survey.
    Many surveys are being used in both the private and public sectors, 
including the Medicare Health Outcomes Survey used by Medicare 
Advantage (MA) plans, Consumer Assessment of Healthcare Providers and 
Systems (CAHPS) survey tools, and Health Resources Services 
Administration's (HRSA's) Health Center Patient Satisfaction Survey. We 
are proposing that ACOs be required to use a specified survey that 
assesses beneficiary experience of care and functional status. As 
proposed in section II.E. of this proposed rule, scoring on the patient 
experience of care survey would become part of the assessment of the 
ACOs quality performance. Specifically, we are proposing that ACOs be 
required to use the Clinician and Group CAHPS survey. We also propose 
to require adoption of an appropriate functional status survey module 
that may be incorporated into the CAHPS survey. The CAHPS Survey is a 
nationally recognized survey, developed by the Agency for Healthcare 
Research and Quality (AHRQ), which is widely used across the health 
care spectrum. The survey is designed to standardized patient 
questionnaires that can be used to compare results across sponsors and 
over time, which identifies the issues that are salient to consumers 
and influence their decisions. Since the ACO must contain primary care 
ACO professionals but otherwise has flexibility to incorporate other 
types of ACO participants, we believe the Clinician and Group CAHPS 
Survey is an appropriate tool to assess beneficiary experience of care 
and functional status in the ACO. Using this standard and well 
established survey instrument, we can more easily compare outcomes and 
beneficiary satisfaction across ACOs, as well as in certain modules in 
common between ACOs and Medicare FFS and MA plans. It would also help 
to ensure that survey measures are adequate to meet the program's 
purposes and that measures employed in the instrument are valid and 
reliable. However, we recognize that requiring the use of a specific 
survey instrument would increase the administrative burden of the 
Shared Savings Program on ACOs who are not currently using the 
specified instrument. Accordingly, we are soliciting comment on whether 
other existing survey tools would be more appropriate for ACO quality 
assessment.
    We also considered proposing to allow ACOs to continue using the 
survey tools with which they are already familiar or of their own 
choosing at least in the initial stages of the program. Allowing ACOs 
to employ survey tools of their own choosing would provide maximum 
flexibility for ACOs, and would be least disruptive to existing ACO 
initiatives to survey beneficiary experience. However, allowing ACOs to 
employ survey tools of their own choosing would severely impede our 
ability to compare beneficiary experience across ACOs. Moreover, in 
some instances, the instruments selected by ACOs may use measures that 
are insufficient to meet the program's purposes, or measures which are 
not valid and reliable. In other instances, it might be that ACOs using 
more comprehensive survey tools would be unfairly penalized from the 
perspective of the performance standards in comparison to ACOs using 
less extensive surveys.
b. Patient Involvement in Governance
    Another of the proposed patient-centered criteria discussed 
previously is the requirement that ACOs provide for patient involvement 
in their governing processes. We are proposing that, in order to 
satisfy this criterion, ACOs will be required to demonstrate a 
partnership with Medicare FFS beneficiaries by having representation by 
a Medicare beneficiary serviced by the ACO, in the ACO governing body. 
We believe the best way to demonstrate a patient-centered program is 
for Medicare beneficiaries to have a voice in the decision making 
process. Although, there may be concerns or differences in the ability 
of some ACOs to include a beneficiary on the governing board, given 
State laws, we are seeking comment on the inclusion of a Medicare 
beneficiary serviced by the ACO on the governing body. In order to 
safeguard against any conflicts of interest, any patient(s) included in 
an ACO's governing body, or an immediate family member, must not have 
any conflict of interest, and they may not be an ACO provider/supplier 
within the ACO's network.
    We recognize that a requirement for representation by a Medicare 
beneficiary serviced by the ACO, on an ACO's governing body will not 
necessarily guarantee outcomes that are in line with the goals of the 
Shared Savings Program in general or patient-centered criteria in 
particular. Medicare beneficiary representation on an ACO's governing 
body may even be relatively ineffectual if Medicare beneficiaries hold 
relatively few seats on the governing body. Furthermore, such a 
requirement may pose difficulties for ACOs that already have a 
governing body and bylaws that do not require or may even prohibit 
Medicare beneficiary presence, and this requirement may therefore 
reduce the number of ACOs that participate in the Shared Savings 
Program, at least in its initial stages. However, we believe it is 
important to the patient-centered orientation of the Shared Savings 
Program to provide for beneficiaries to have a voice in ACO governance.
    We considered proposing that, instead of requiring direct Medicare 
beneficiary representation on ACO governing bodies, ACOs could 
demonstrate a partnership with Medicare FFS

[[Page 19550]]

beneficiaries by having a Medicare beneficiary advisory committee or 
panel. Such a proposal would also serve to indicate the importance of 
beneficiary engagement in the ACO's activities to improve the quality 
and efficiency of health care services. It would also provide ACOs with 
the opportunity to form committees or panels that represent the voices 
of all of their patient types, including Medicare FFS beneficiaries. In 
addition, a unified advisory committee voice may, under some 
circumstances at least, be more effective than, a single beneficiary 
representative in the ACO governing body in advancing the goal of 
beneficiary participation in ACO governance. Furthermore, it would 
avoid requiring existing ACO governing bodies that do not currently 
have or whose bylaws do not permit Medicare beneficiary representation 
to revise their bylaws or to forego participation in the Shared Savings 
Program. However, a pure advisory committee or panel may be an 
inadequate conduit for Medicare beneficiary participation in ACO 
governance compared to their presence on the actual decision-making 
body of the ACO. Presence on the governing body would provide 
beneficiaries with an active role in the decision-making process and 
thus give beneficiaries more influence over the ACO's activities. In 
contrast, as an advisory committee or panel member, the beneficiary's 
voice provides guidance on the Shared Savings Program ACO's decision-
making without the benefit of more active control over ACO activities.
    Therefore, we are proposing that ACOs be required to demonstrate a 
partnership with Medicare FFS beneficiaries and meet patient 
centeredness criteria by including a Medicare beneficiary serviced by 
the ACO on the ACO governing body. We are soliciting comment on whether 
the requirement for beneficiary participation should include a minimum 
standard for such beneficiary participation on ACO governing bodies 
(for example, a minimum number of beneficiaries, or a minimum 
proportion of control over an ACO's governing body.). In addition, we 
are soliciting comment on the possible role of a Medicare beneficiary 
advisory panel or committee in promoting the goal of engaging patients 
in ACO governance. In particular, we seek comment on whether--(1) a 
Medicare beneficiary advisory panel or committee would be sufficient in 
and of itself in providing for appropriate patient participation in ACO 
governance; and (2) establishing Medicare beneficiary advisory panels 
or committees should be required in addition to requiring patient 
representation on ACO governing bodies.
    We request comment on the proposal to engage in partnership with 
Medicare beneficiaries. We are specifically interested in whether this 
requirement will create disincentives for participation among smaller 
entities.
c. Evaluation of Population Health Needs and Consideration of Diversity
    A third proposed patient-centered criterion on which we are seeking 
comments is the requirement that an ACO has a process for evaluating 
the health needs of the population, including consideration of 
diversity in its patient populations, and a plan to address the needs 
of its populations. Several institutions and associations such as 
National Committee for Quality Assurance (NCQA) and AHRQ have made 
recommendations regarding evaluation of population health and 
diversity. For example, NCQA has developed multicultural health care 
standards and guidelines which include requirements for collecting of 
patient information that help the organization understand the 
composition of the population, providing culturally and linguistically 
appropriate services, and detecting health care disparities. Other 
institutions and associations have developed similar guidelines which 
emphasize promoting cultural sensitivity and addressing disparities 
through provider/management education and the translation of surveys 
and health promoting literature distributed by the provider into 
languages relevant to the provider's population. Establishing 
partnerships with a State or local health department which performs 
community health needs assessments and applying these findings to the 
ACO's population and activities may be another viable option for 
meeting this criterion.
    Accordingly, we propose that, in order to satisfy this patient-
centered criterion, ACOs would be required to describe in their 
application their process for evaluating the health needs of their 
Medicare population, including consideration of diversity, and a plan 
to address the needs of their Medicare population.
d. Implementation of Individualized Care Plans and Integration of 
Community Resources
    Finally, we are proposing that ACOs must have systems in place to 
identify high-risk individuals and processes to develop individualized 
care plans for targeted patient populations. The plan must be tailored 
to--(1) The beneficiary's health and psychosocial needs; (2) account 
for beneficiary preferences and values; and (3) identify community and 
other resources to support the beneficiary in following the plan. This 
plan would be voluntary for the beneficiary, privacy protected, and 
would not be shared with Medicare or the ACO governing body; it would 
solely be used by the patient and ACO providers/suppliers for care 
coordination. If applicable, and the beneficiary consents, the care 
plan should be shared with the caregiver, family, and others involved 
in the beneficiary's care. We propose that an ACO would be required to 
have a process in place for developing, updating, and, as appropriate, 
sharing the beneficiary care plan with others involved in the 
beneficiary's care, and providing it in a format that is actionable by 
the beneficiary.
    We are requesting comments on our proposal that ACOs be required to 
demonstrate use of individualized care plans for targeted beneficiary 
populations in order to be eligible for the Shared Savings Program. In 
order to satisfy this requirement fully, we propose that the 
development of such individualized care plans must grow from adherence 
of a related patient-centeredness criterion, that is, their development 
should be a result of shared decision-making which fully engages 
beneficiaries and their families, taking into account their values and 
preferences in developing a unique plan of care for each individual.
    The individualized care plans should include identification of 
community and other resources to support the beneficiary in following 
the plan. To this end, we believe that a process for integrating 
community resources into the ACO is an important part of patient 
centeredness. A wide variety of organizations, although not necessarily 
ACO participants, may be considered a community resource, including: 
Employers, commercial health plans, local businesses, State/local 
government agencies, local quality improvement organizations or 
collaboratives (such as health information exchanges). Collaboration 
with these types of community resources can be an important part of 
enabling ACOs to take account of the entirety of Medicare beneficiary 
population's needs relative to their environment. Community stakeholder 
engagement in an ACO could be explicitly incorporated via community 
representation on the governing body, by having a community 
representative on an advisory board, or by other innovative mechanisms.

[[Page 19551]]

    Individualized plans of care are not only an integral part of 
providing quality health care to both high-risk patients or patients 
with multiple chronic conditions, but are equally important in 
proactively maintaining the health for any beneficiary. For purposes of 
the application to participate in the Shared Savings Program, we 
propose that an ACO would be required to submit a description of its 
individualized care program, along with a sample care plan, and explain 
how this program is used to promote improved outcomes for, at a 
minimum, their high-risk and multiple chronic condition patients. In 
addition, the ACO should describe additional target populations that 
would benefit from individualized care plans. We also propose that ACOs 
be required to describe how they will partner with community 
stakeholders as part of their application. ACOs that have a stakeholder 
organization serving on their governing body would be deemed to have 
satisfied this requirement. We request comment on these proposals. We 
are specifically interested in whether these requirements will create 
disincentives for participation among smaller entities.
11. ACO Marketing Guidelines
    We believe there is a potential for beneficiaries to be misled 
about Medicare services available from an ACO or about the providers 
and suppliers from whom they can receive those services. We realize 
that care coordination is an important component of the Shared Savings 
Program; however, the potential for shared savings may be an incentive 
for ACOs, ACO participants, or ACO providers/suppliers to engage in 
behavior that may confuse or mislead beneficiaries about the Shared 
Savings Program or their Medicare rights. For example, although it is 
expected that ACO providers/suppliers participating in an ACO will 
refer patients to other ACO providers/suppliers in the ACO, we are 
concerned that beneficiaries may be misled into thinking the ACO is 
similar to a managed care organization, and that they may only receive 
services or only certain services from the other participating ACO 
providers/suppliers.
    Although section 1899 of the Act is silent with regard to marketing 
activities and other forms of beneficiary communications by ACOs, 
section 1899(b)(2)(H) of the Act requires an ACO to demonstrate ``that 
it meets patient-centeredness criteria.'' We believe that in order to 
be truly patient-centered, an ACO must not only provide care 
coordination that is tailored to the needs of the individual 
beneficiary, but also avoid engaging in activities that may prevent its 
assigned beneficiaries from taking advantage of the full range of 
benefits to which they are entitled under the Medicare FFS program, 
including the right to choose between healthcare providers and care 
settings. As a result, issuing beneficiary communications or engaging 
in marketing activities that may be confusing or misleading would not 
be patient-centered because these activities restrict the ability of 
beneficiaries and/or their caregivers to be informed about their health 
care choices and thus limit the opportunity for beneficiaries to be 
properly involved in the management of their own care.
    Accordingly, we think it would be appropriate and consistent with 
the purpose and intent of the statute to limit and monitor the use of 
beneficiary communications specifically related to the ACO operations 
or functions as well as ACO marketing activities and materials by ACOs 
to ensure that such communications and marketing by ACOs are used only 
for appropriate purposes, such as notification that a beneficiary's 
healthcare provider is participating in the ACO, issuance of any CMS 
required notices, notification of provider or ACO terminations. This 
policy will protect Medicare beneficiaries by minimizing the potential 
that they will be misled or confused by ACO marketing. Additionally, 
the policy is consistent with marketing provisions used in other 
Medicare programs such as MA.
    We are proposing that all ACO marketing materials, communications, 
and activities related to the ACO and its participation in the Shared 
Savings Program, such as mailings, telephone calls or community events, 
that are used to educate, solicit, notify, or contact Medicare 
beneficiaries or providers/suppliers regarding the ACO and its 
participation in the Shared Savings Program, be approved by us before 
use to protect beneficiaries and to ensure that they are not confusing 
or misleading. This requirement would also apply to any materials or 
activities used by ACO participants or ACO providers/suppliers on 
behalf of the ACO to communicate about the ACO's participation in the 
Shared Savings Program in any manner to Medicare beneficiaries. In 
addition, we would want to ensure that materials distributed to 
beneficiaries do not misrepresent Shared Savings Program policies or 
suggest that we endorse the ACO, its ACO participants, or its ACO 
providers/suppliers.
    We are further proposing that before any changes can be made to any 
approved materials, the revised materials must be approved by us before 
use. Finally, because the failure to comply with these requirements 
would demonstrate that the ACO does not meet the patient-centeredness 
criteria and therefore may no longer be eligible to participate in the 
program, we propose that an ACO that fails to adhere to these 
requirements may be placed under a corrective action plan or 
terminated, at our discretion.
    For purposes of the Shared Savings Program, we are proposing to 
define ACO marketing materials, communications, and activities as 
including, but not limited to, general audience materials such as 
brochures, advertisements, outreach events, letters to beneficiaries, 
web pages, mailings, or other activities, conducted by or on behalf of 
the ACO, or by ACO participants, or ACO providers/suppliers 
participating in the ACO, or by other individuals on behalf of the ACO 
or its participating providers and suppliers. If these materials or 
activities are used to educate, solicit, notify, or contact Medicare 
beneficiaries or providers and suppliers regarding the ACO and its 
participation in the Shared Savings Program, they must be approved by 
us.
    We do not believe that the following materials and activities would 
be subject to our approval: Beneficiary communications that are 
informational materials, that are customized or limited to a subset of 
beneficiaries; and materials that do not include information about the 
ACO or providers in the ACO; materials that cover beneficiary-specific 
billing and claims issues or other specific individual health related 
issues; and educational information on specific medical conditions, 
(for example, flu shot reminders), or referrals, for example, as 
discussed in section II. C. of this proposed rule, exceptions to the 
definition of ``marketing'' under the HIPAA Privacy Rule.
12. Program Integrity Requirements
    Section 1899(a)(1)(A) of the Act authorizes the Secretary to 
specify criteria that ACO participants must meet in order to work 
together to manage and coordinate care for Medicare FFS beneficiaries 
through an ACO. Using this authority, we propose several program 
integrity criteria to protect the Shared Savings Program from fraud and 
abuse and to ensure that the Shared Savings Program does not become a 
vehicle for, or increase the potential for, fraud and abuse in other 
parts of the

[[Page 19552]]

Medicare program or in other Federal health care programs.
a. Compliance Plans
    We are proposing that an ACO must have a compliance plan that 
addresses how the ACO will comply with applicable legal requirements. 
We recognize that the specific design and structure of an effective 
compliance plan may vary depending on the size and business structure 
of the ACO. We are proposing that the ACO demonstrate that it has a 
compliance plan that includes at least the following elements, which 
are common in the compliance industry: A designated compliance official 
or individual who is not legal counsel to the ACO and who reports 
directly to the ACO's governing body; mechanisms for identifying and 
addressing compliance problems related to the ACO's operations and 
performance; a method for employees or contractors of the ACO or ACO 
providers/suppliers to report suspected problems related to the ACO; 
compliance training of the ACO's employees and contractors; and a 
requirement to report suspected violations of law to an appropriate law 
enforcement agency. Nothing in this rule would prevent an ACO from 
using or building on an existing compliance program, if it has one (or 
if its ACO participants have programs that can be incorporated). To 
achieve an effective compliance program, an ACO may also want to 
consider coordinating its compliance efforts with existing compliance 
efforts of its ACO providers/suppliers. It is not our intention that an 
ACO would need to engage in duplicative efforts to meet the compliance 
program requirement. The goal is for ACOs to have effective compliance 
mechanisms.
b. Compliance With Program Requirements
    We propose that, notwithstanding any relationships that the ACO may 
have with other entities related to ACO activities, the ACO maintains 
ultimate responsibility for compliance with all terms and conditions of 
its agreement with us. We propose to require that all contracts or 
arrangements between or among the ACO, its ACO participants and ACO 
providers/suppliers, and other entities furnishing services related to 
ACO activities require compliance with the obligations under the 3-year 
agreement, including the document retention and access requirements 
discussed in section II.H of this proposed rule. We solicit comments on 
our proposal.
    We must ensure the accuracy, completeness, and truthfulness of 
information submitted to us to determine an organization's eligibility 
to participate in the Shared Savings Program as an ACO, its compliance 
with program requirements, its eligibility for shared savings payments, 
and the amount of any payments owed to or by the ACO. To that end, we 
propose that an authorized representative of the ACO--specifically, an 
executive who has the ability to legally bind the ACO--must certify the 
accuracy, completeness, and truthfulness of information contained in 
its Shared Savings Program application, 3-year agreement, and 
submissions of quality data and other information. The certification 
must be made at the time the application, agreement, and information is 
submitted.
    We further propose that, as a condition of receiving a shared 
savings payment, an authorized representative with authority to legally 
bind the ACO must make a written request to us for payment of the 
shared savings in a document that certifies the ACO's compliance with 
program requirements as well as the accuracy, completeness, and 
truthfulness of any information submitted by the ACO the ACO 
participants, or the ACO providers/suppliers to us, including any 
quality data or other information or data relied upon by us in 
determining the ACO's eligibility for, and the amount of, a shared 
savings payment or the amount owed by the ACO to us. We further propose 
that, if such data are generated by ACO participants or another 
individual or entity, or a contractor, or subcontractor of the ACO or 
the ACO participants, such ACO participant, individual, entity, 
contractor, or subcontractor must similarly certify the accuracy, 
completeness, and truthfulness of the data and provide the government 
with access to such data for audit, evaluation, and inspection.
c. Conflicts of Interest
    We are proposing that the ACO governing body have a conflicts of 
interest policy that applies to members of the governing body. The 
purpose of this proposal is to ensure that members of the governing 
body act in the best interests of the ACO and Medicare beneficiaries We 
propose that the conflicts of interest policy must require members of 
the governing body to disclose relevant financial interests. Further, 
the policy must provide a procedure for the ACO to determine whether a 
conflict of interest exists and set forth a process to address any 
conflicts that arise. Such a policy would also address remedial action 
for members of the governing body that fail to comply with the policy. 
We solicit comments on this proposal, including the scope and content 
of such a policy.
d. Screening of ACO Applicants
    The Medicare program includes substantial screens of enrolling 
providers and suppliers, including, for example, newly enrolling ACO 
participants. ACOs will not be subject to those existing screens 
because they are not enrolling in Medicare. Consistent with our efforts 
throughout the Medicare program to strengthen provider enrollment 
standards and encourage compliance with program requirements, we are 
considering screening ACOs during the Shared Savings Program 
application process with regard to their program integrity history, 
including any history of program exclusions or other sanctions and 
affiliations with individuals or entities that have a history of 
program integrity issues. ACOs whose screening reveals a history of 
program integrity issues and/or affiliations with individuals or 
entities that have a history of program integrity issues may be subject 
to rejection of their Shared Savings Program applications or the 
imposition of additional safeguards or assurances against program 
integrity risks. We solicit comments on the nature and extent of such 
screening and the screening results that would justify rejection of an 
application or increased scrutiny.
e. Prohibition on Certain Required Referrals and Cost-Shifting
    In section II.D. of this proposed rule, we propose to assign 
beneficiaries to an ACO after the conclusion of a performance period, 
but we also indicate that we are considering assigning beneficiaries to 
an ACO on a prospective basis at the beginning of a performance period. 
We are concerned that ACOs or ACO participants may offer or be offered 
inducements to overutilize services or to otherwise increase costs for 
Medicare or other Federal health care programs with respect to the care 
of individuals who are not assigned to the ACO under the Shared Savings 
Program. The risk of such abuse might be heightened if the final rule 
provides for prospective assignment of beneficiaries. To address the 
risk of inappropriate cost-shifting within Medicare and other Federal 
health care programs, we are considering prohibiting ACOs and their ACO 
participants from conditioning participation in the ACO on referrals of 
Federal health care program business

[[Page 19553]]

that the ACO or its ACO participants know or should know is being 
provided to beneficiaries who are not assigned to the ACO.

C. Establishing the 3-Year Agreement With the Secretary

1. Options for Start Date of the Performance Year
    Section 1899 (b)(2)(B) of the Act, as added by section 3022 of the 
Affordable Care Act provides that an ``ACO shall enter into an 
agreement with the Secretary to participate in the [Shared Savings 
Program] for no less than a 3-year period * * * '' In establishing the 
requirement for a minimum 3-year agreement period, the statute does not 
prescribe a particular application period or specify a start date for 
ACO agreements. In this section of this proposed rule, we will discuss 
our proposals for establishing an application period and for setting 
the start date for the 3-year agreements with ACOs.
    We considered several options for establishing start dates, with 
the corresponding 3-year agreement periods: Annual start dates; 
semiannual start dates; rolling start dates; and delayed start dates. 
In our consideration of these options, we attempted to balance the need 
for maximum flexibility for program applicants with the advantages of 
establishing a streamlined administrative approach. Adopting an annual 
application period and start date would create cohorts of ACO 
applicants, which would be simultaneously evaluated for eligibility to 
participate in the program. Agreements with ACOs of the same cohort 
would take effect on the same date each year. This would allow for more 
streamlined processes around agreement renewal and performance 
analysis, evaluation and monitoring.
    However, under section 1899(a)(1) of the Act, the Secretary must 
establish the Shared Savings Program by not later than January 1, 2012. 
Given the short timeframe for implementation of the program and our 
desire to permit as many qualified ACOs as possible to participate in 
the first year, we also gave a great deal of consideration to 
alternative approaches that would provide flexibility to program 
applicants. For instance, we could allow ACOs to apply on a ``rolling'' 
basis in which applications are accepted and evaluated any time of year 
and the ACO's agreement period would begin after a determination that 
the eligibility requirements had been met. In this way, applicants 
could apply throughout the course of the year as they become ready and 
we could review and approve applications and begin performance periods 
on a rolling basis.
    After exploring the various alternatives, it has become clear that 
the greatest barrier to any option other than an annual uniform start 
date relates to appropriate beneficiary assignment, particularly for 
markets where there may be multiple ACOs. First, if ACO agreements 
begin more often than once a year, beneficiaries could be assigned to 
two ACOs for an overlapping period. As discussed in section II.D. of 
this proposed rule, we propose that beneficiaries will be assigned to 
ACOs based upon where they receive the plurality of their primary care 
services. Since the physician associated with the plurality of a 
beneficiary's primary care services could vary from year to year, 
having multiple start dates could result in a beneficiary being 
assigned to multiple ACOs for an overlapping period. This scenario 
would result in confusion for beneficiaries and the potential for 
duplicate shared savings payments for care provided to a single 
beneficiary. Problems with patient assignment may cause unintended 
consequences for per capita costs, making it difficult to make 
comparisons of one ACO's performance to another that has a different 
start date. In addition, adopting multiple start dates within a year 
would require multiple cycles for application review and approval, 
calculation of baselines and targets, data sharing, quality reporting, 
and financial reconciliation, which would impose a significant 
administrative challenge.
    After evaluating the various options for start date, we are 
proposing to establish an application process with an annual 
application period during which a cohort of ACOs would be evaluated for 
eligibility to participate in the Shared Savings Program. We further 
propose that the performance years be based on the calendar year to be 
consistent with most CMS payment and quality incentive program cycles. 
In other words, we propose: (1) To adopt the general requirement that 
ACO applications must be submitted by a deadline established by us; (2) 
we will review the applications and approve applications from eligible 
organizations prior to the end of the calendar year; (3) the requisite 
3-year agreement period will begin on the January 1 following approval 
of an application; and (4) the ACO's performance periods under the 
agreement will begin on January 1 of each respective year during the 
agreement period.
    However, we are concerned that, in light of the short time frame 
for implementing the Shared Savings Program in the first year of the 
program, a January 1 start date might not provide the flexibility 
necessary to allow all interested ACOs to complete their application 
packages. Accordingly, we solicit comment on any alternatives to a 
January 1 start date that would allow the greatest number of qualified 
organizations to apply to participate in the first year of the program. 
One specific example of an alternative to a single start date of 
January 1 for the first year of the Shared Savings Program might be to 
add an additional start date of July 1 and to allow the agreement 
period for ACOs with a July 1 start date to be increased to 3.5 years. 
Under this example, the first performance year of the agreement period 
would be defined as 18 months in order that all of the agreement 
periods would synchronize with ACOs entering the program on January 1 
of the following year. We envision that if adopted, this alternative 
would only be available in the first year of the program and for all 
subsequent years all applications would have to be reviewed and 
accepted prior to the beginning of the applicable calendar year and all 
agreements would be for 3 years.
2. Timing and Process for Evaluating Shared Savings
    Section 1899(d)(1) of the Act, as added by section 3022 of the 
Affordable Care Act, provides that an ACO shall be eligible to receive 
shared savings payments for each year of the agreement period, if the 
ACO has met the quality performance standards established under section 
1899(b)(3) of the Act and has achieved the required percent of savings 
below its benchmark. However, the statute is silent with respect to 
when the shared savings determination should be made. Potential ACOs 
have indicated that they need timely feedback on their performance in 
order to develop and implement improvements in care delivery. In 
developing our proposals, we have therefore been attentive to the 
importance of determining shared savings payments and providing 
feedback to ACOs on their performance in a timely manner while at the 
same time not sacrificing the accuracy needed to calculate per capita 
expenditures.
    Our determination of an ACO's eligibility to receive a payment for 
shared savings will be based upon an analysis of the claims submitted 
by providers and suppliers for services and supplies furnished to 
beneficiaries assigned to the ACO. There is an inherent lag between 
when a service is performed and when a claim is submitted to us for 
payment. Additionally, there is also a time lag

[[Page 19554]]

between when the claim is received by us and when the claim is paid. 
For this reason, all Medicare service and expenditure data have what 
can be defined as a claims run-out period. The claims run-out period is 
the time between when a Medicare-covered service has been furnished to 
a beneficiary and when the final payment is actually issued for the 
respective service.
    From the perspective of the utilization and expenditure data that 
would be needed in order to determine an ACO's eligibility to receive 
shared savings and to provide performance feedback reports, the longer 
the claim run-out period, the more complete and accurate the 
utilization and expenditure data would be for any given year. Higher 
completion percentages are associated with longer run out periods and 
thus would necessitate a longer delay before we could determine whether 
an ACO is eligible to receive shared savings and provide performance 
feedback. Conversely, a lower completion percentage would be associated 
with a shorter run out period and thus a quicker turnaround for the 
shared savings determination and for the provision of performance 
feedback. Based upon historical trends, a 3-month run-out would result 
in a completion percentage of approximately 98.5 percent for physician 
services and 98 percent for Part A services. A 6-month run-out of 
claims data results in a completion percentage of approximately 99.5 
percent for physician services and 99 percent for Part A services. 
Since neither a 3-month nor a 6-month run-out of claims data would 
offer complete calendar year utilization and expenditure data, we would 
have to work with our Office of the Actuary to determine if the 
calculation of a completion percentage is warranted. If determined 
necessary, the completion percentage would be applied to ensure that 
the shared savings determination reflects the full costs of care 
furnished to assigned beneficiaries during a given calendar year. Thus, 
we must balance the need to ensure accurate and complete claims data 
are used to determine shared savings with the need to provide timely 
feedback to ACOs participating in the Shared Savings Program. 
Additionally, regardless of whether we use a 3-month or 6-month claims 
run-out period, we are concerned that some claims (for example, high 
cost claims) may be filed after the claims run-out period which would 
affect the accuracy of the amount of the shared savings payment. We are 
considering, and seek comment on, ways to address this issue, including 
applying an adjustment factor determined by CMS actuaries to account 
for incomplete claims, termination of the ACO's agreement with us for 
ACOs found to be holding claims back, or attributing claims submitted 
after the run-out period to the following performance period.
    We propose using a 6-month claims run-out to calculate the 
benchmark and per capita expenditures for the performance year. A 6-
month claims run-out will allow us to more accurately determine the per 
capita expenditures associated with each respective ACO. Although the 
use of a 6-month claims run out will delay the computation of shared 
savings payments and the provision of feedback to participating ACOs, 
the trade-off for a more accurate calculation of per capita costs is 
warranted. More accurately defining the per capita expenditures will 
allow us to share the appropriate amount of savings or alternatively, 
if no shared savings are realized, it will allow the ACO to focus on 
potential areas for improvement. However, we seek comment on whether 
there are additional considerations that might make a 3-month claims 
run-out more appropriate.
3. Data Sharing
    Under section 1899(b)(2)(A) of the Act, as added by section 3022 of 
the Affordable Care Act, an ACO must, ``be willing to become 
accountable for the quality, cost, and overall care of the Medicare 
fee-for-service beneficiaries assigned to it.'' Section 1899 of the Act 
does not address what data, if any, we should make available to ACOs on 
their assigned beneficiary populations to support them in evaluating 
the performance of ACO participants and ACO providers/suppliers, 
conducting quality assessment and improvement activities, and 
conducting population-based activities relating to improved health. In 
agreeing to become accountable for a group of Medicare beneficiaries, 
we generally expect that participating ACOs are able to, or are working 
toward, independently identifying and producing the data they believe 
are necessary to best evaluate the health needs of their patient 
population, improve health outcomes, monitor provider/supplier quality 
of care and patient experience of care, and produce efficiencies in 
utilization of services. Moreover, this ability to self-manage is a 
critical skill for each ACO to develop, leading to an understanding of 
the unique patient population that it serves.
    However, we also recognize that while an ACO typically should have, 
or is moving toward having, complete information for the services it 
provides to or coordinates on behalf of its FFS beneficiary population, 
it may not have complete information on a FFS beneficiary who, for 
example, has chosen to receive services, medications or supplies from 
providers of services and suppliers outside its organization. We 
believe that providing ACOs with an opportunity to request CMS claims 
data, as described later in this proposed rule, on their potentially 
assigned beneficiary population would allow them to understand the 
totality of care provided to beneficiaries assigned to them by 
identifying the services and supplies that fee-for-service 
beneficiaries receive during the performance year both within and 
outside of the ACO. We believe that access to this data would promote 
coordinated care and a better understanding of the population served by 
the ACO with resulting positive impacts on both the quality and 
efficiency of ease of delivered. ACOs represent a positive step toward 
transforming the current health care system and we want to ensure that 
participating organizations have access to information that will assist 
them in achieving both improvements in the quality of care and a better 
understanding of the population served by the ACO while simultaneously 
lowering the growth in health care costs.
    We could provide data to ACOs in different forms with a focus on 
different levels of information, for example, aggregated population 
level data or beneficiary identifiable data. These data could be 
combined with data collected within the ACO. For example, our data 
could be combined with provider level data compiled within the ACO. 
Combining aggregate and beneficiary identifiable data as well as 
provider level and other internally generated data would provide ACOs 
with a more complete picture about the care their assigned 
beneficiaries receive both within and outside the ACO, their ACO 
participants and ACO providers/suppliers' patterns of care, and could 
be used to assess their performance relative to their previous years' 
performance. With this information, in accordance with established 
privacy and security protections, ACOs would be able to identify how 
its ACO participants and ACO providers/suppliers measure up to 
benchmarks and targets, how they perform in relation to peers 
internally, and identify which categories of beneficiaries would 
benefit most from care coordination and other patient-centered 
approaches. For a more complete discussion of the requirements

[[Page 19555]]

associated with the sharing of internally generated data, please see 
section II.B. of this proposed rule
4. Sharing Aggregate Data
    Because we believe that ACOs have the potential to significantly 
improve the quality of care provided to Medicare beneficiaries while 
improving the efficiency and cost-effectiveness of that care, we 
believe that, where feasible, we should provide information to help 
ACOs improve the quality of care, improve the health of their 
beneficiary population, and create efficiencies within their systems. 
One possible approach is to provide aggregated data on beneficiary use 
of health care services. An ACO should be able to use aggregated data 
reports on its assigned or potentially assigned beneficiary population 
to monitor, understand, and manage its utilization and expenditure 
patterns as well as to develop, target, and implement quality 
improvement programs and initiatives. For example, if data shows that 
an ACO's beneficiary population had a high rate of hospital 
readmissions, the ACO could consider the need for actions to improve 
discharge coordination among its attending physicians, hospitals, and 
post-acute care providers or to improve access to primary care clinics. 
Similarly, an analysis of aggregated Part D data that shows 
beneficiaries were not filling their prescriptions could lead to 
interventions applicable to all beneficiaries designed to assess and 
develop strategies to overcome difficulties in filling prescriptions. 
Likewise, aggregated data could show a relatively high incidence within 
the ACO's beneficiary population of certain types of procedures 
relative to national benchmarks, potentially prompting an ACO to 
further explore and examine the appropriateness of its ACO 
participants' and ACO providers/suppliers' practice patterns by using 
provider-level data.
    In the PGP demonstration, we provided several types of aggregate 
data to the participating group practices. We generated an annual 
profile report that provided the following information:
     Financial performance including number of patients seen, 
number of patients assigned, per capita expenditures, risk score, 
benchmark, total assigned beneficiary expenditures, minimum savings 
amount, shareable savings, and annual performance payment.
     Quality performance scores, including numerator, 
denominator, and rate for each measure along with the target benchmark 
for each measure.
     Aggregated metrics on the assigned beneficiary population, 
including a breakdown of the population into high risk score 
beneficiaries, beneficiaries with 1 or more hospitalizations, and 
chronic disease subpopulations such as patients with congestive heart 
failure, coronary artery disease, hypertension, chronic obstructive 
pulmonary disease, and diabetes.
     The number of patients overall and in each subpopulation 
with emergency department visits, hospital discharges, physician visits 
and their corresponding rate for the assigned population.
    The feedback received on the PGP demonstration suggested that 
making these data available was helpful to the participating practices; 
they noted the benefits of having aggregate data that were more easily 
digestible compared to ``data dumps'' comprised of claims-based data.
    In general, by making similar types of aggregate, data available to 
ACOs participating in the Shared Savings Program, we believe ACOs would 
have a more complete picture of the services rendered to their assigned 
FFS beneficiaries, which would allow the pursuit of a variety of 
strategies to streamline and consolidate care provision in a way that 
enhances quality and slows the growth in Medicare expenditures for 
their assigned beneficiary population. Thus, providing aggregated 
Medicare data reports to ACOs in the beginning of the program may be 
especially helpful to ACOs as they identify priority areas of care upon 
which to focus. Accordingly, similar to the PGP demonstration, we 
propose to provide aggregate data reports which would include, when 
available, aggregated metrics on the assigned beneficiary population, 
and beneficiary utilization data at the start of the agreement period 
based on historical data used to calculate the benchmark. We further 
propose to include these data in conjunction with the yearly financial 
and quality performance reports. Additionally, we propose to provide 
quarterly aggregate data reports to ACOs based upon the most recent 12 
months of data from potentially assigned beneficiaries. We request 
comments on these proposals as well as the kinds of aggregate data and 
frequency of data reports that would be most helpful to the ACO's 
efforts in coordinating care, improving health, and producing 
efficiencies.
5. Identification of Historically Assigned Beneficiaries
    Based upon feedback from the PGP demonstration, the RFI comments on 
the Shared Savings Program, and Shared Savings Program Open Door 
Forums, we propose to make certain limited beneficiary identifiable 
data available at the beginning of the first performance year. In 
addition to sharing aggregated data reports based on the ACO's 
historically assigned beneficiary population, we believe the ACO would 
benefit from understanding which of their fee-for-service beneficiaries 
were used to generate the aggregated data reports. Accordingly, we 
propose to disclose the name, date of birth (DOB), sex and Health 
Insurance Claim Number (HIC) of the historically assigned beneficiary 
population. We believe that knowing these identifiers would be useful 
to the ACO in two ways: First, the ACO providers could use the 
information to identify the beneficiaries, review their records, and 
identify care processes that may need to change. For example, the ACO 
might look at whether an inability to get a timely clinic appointment 
resulted in an avoidable emergency room visit for a particular patient. 
Second, experience with the PGP demonstration has suggested that a high 
percentage of historically assigned patients will continue to receive 
care from the ACO participants and ACO providers/suppliers. Knowing 
individuals who have been assigned in the past would help the ACO 
participants to identify individuals who may benefit from improved care 
coordination strategies going forward.
    Providing a list of historically assigned patients to the ACO may 
also raise concerns. In section II.D. of this proposed rule, we have 
proposed to assign beneficiaries to the ACO retrospectively. One reason 
for this is that we believe that the ACO should be evaluated on the 
quality and cost of care furnished to those beneficiaries who actually 
chose to receive care from ACO participants during the course of each 
performance year. Another reason for retrospective assignment is to 
encourage the ACO to redesign its care processes for all Medicare FFS 
beneficiaries, not just for the subset of beneficiaries upon whom the 
ACO is being evaluated. We recognize that providing a list of 
historically assigned beneficiaries may provide an opportunity for the 
ACO to identify and avoid at-risk beneficiaries that appear on the list 
so that the costs of these beneficiaries do not appear in the 
calculation of the ACO's actual expenditures during a performance year. 
We are addressing this concern through the proposal described in 
section II.H. of this proposed rule, that takes steps to ensure ACOs do 
not avoid at-risk beneficiaries.
    Furthermore, we recognize that there are a number of issues and 
sensitivities surrounding the disclosure of

[[Page 19556]]

individually-identifiable (patient-specific) health information, and 
note that a number of laws place constraints on the sharing of 
individually identifiable health information. For example, section 1106 
of the Act generally bars the disclosure of information collected under 
the Act without consent unless a law (statute or regulation) permits 
for the disclosure. In this instance, the HIPAA Privacy Rule permits 
that legal authority and provides for this proposed disclosure of 
individually identifiable health information by us.
    Under the HIPAA Privacy Rule, covered entities (defined as health 
care plans, providers that conduct covered transactions, and health 
care clearinghouses) are barred from using or disclosing individually 
identifiable health information (called ``protected health 
information'' or PHI) in a manner that is not explicitly permitted or 
required under the HIPAA Privacy Rule. When another entity conducts a 
function or activity involving the use or disclosure of individually 
identifiable health information on behalf of a covered entity, that 
entity is a business associate of the covered entity. (45 CFR 160.103). 
Under the HIPAA Privacy Rule, a covered entity may disclose PHI to 
business associates if it obtains ``satisfactory assurances that the 
business associate will appropriately safeguard the information'' (45 
CFR 164.502(e)). These satisfactory assurances generally take the form 
of contractual obligations to protect the data as the covered entity is 
required to do under the HIPAA Privacy Rule. Any use or disclosure of 
PHI that a covered entity can make under the HIPAA Privacy Rule can 
also be performed on its behalf by a business associate if the use or 
disclosure is authorized in the contract between the covered entity and 
the business associate.
    The Medicare FFS program, a ``health plan'' function of the 
Department, is subject to the HIPAA Privacy Rule limitations on the 
disclosure of PHI. The ACO participants and ACO providers/suppliers are 
also covered entities, provided they are health care providers as 
defined by 45 CFR 160.103 and they or their agents electronically 
engage in one or more HIPAA standard transactions, such as for claims, 
eligibility or enrollment transactions. Similarly, an ACO may itself be 
a HIPAA covered entity if it is a health care provider that conducts 
such transactions. Alternatively, based on their work on behalf of ACO 
participants and ACO providers/suppliers in conducting quality 
assessment and improvement activities, the ACOs will qualify as the 
business associates of their covered entity ACO participants and ACO 
providers/suppliers.
    In light of these relationships, the proposed disclosure of the 
four identifiers would be permitted by the HIPAA Privacy Rule under the 
provisions that permit disclosures of PHI for ``health care 
operations'' purposes. Under those provisions, a covered entity is 
permitted to disclose PHI to another covered entity for the recipient's 
health care operations purposes if both covered entities have or had a 
relationship with the subject of the PHI to be disclosed (which is true 
here), the PHI pertains to that relationship (which is also true here) 
and the recipient will use the PHI for a ``health care operations'' 
function that falls within the first two paragraphs of the definition 
of ``health care operations'' in the HIPAA Privacy Rule. (45 CFR 
164.506(c)(4)). The first paragraph of the definition of health care 
operations includes ``population-based activities relating to improving 
health or reducing health costs, protocol development, case management 
and care coordination'' (45 CFR 164.501). We believe that this 
provision is extensive enough to cover the uses we would expect an ACO 
to make of the identifying data elements for the historically assigned 
patients. In coming to this conclusion, we recognize that an 
individual's authorization is generally required before using or 
disclosing PHI for marketing purposes, 45 CFR 164.508, but we also note 
that both those ACOs acting as a covered entity (as opposed to business 
associates) and those ACOs acting on behalf of covered entity ACO 
participants and ACO providers/suppliers as business associates will be 
able to use the four data elements to communicate with individuals on 
the list to describe available services and for case management and 
care coordination purposes under the exceptions to the definition of 
``marketing'' under the HIPAA Privacy Rule, 45 CFR 164.501.
    Furthermore, when using or disclosing PHI, or when requesting this 
information from another covered entity, covered entities must make 
``reasonable efforts to limit'' the information that is used, disclosed 
or requested the ``minimum necessary'' to accomplish the intended 
purpose of the use, disclosure or request, 45 CFR 164.502(b). We 
believe that the provision of the four proposed data elements would 
constitute the minimum data necessary to accomplish the Shared Savings 
Program goals of the ACO.
    The Privacy Act of 1974 also places limits on agency data 
disclosures. The Privacy Act is a Federal withholding statute. It 
applies when the Federal government maintains a system of records by 
which information about individuals is retrieved by use of the 
individual's personal identifiers (names, Social Security numbers, or 
any other codes or identifiers that are assigned to the individual). 
The Privacy Act generally prohibits disclosure of information from a 
system of records to any third party without the prior written consent 
of the individual to whom the records apply, 5 U.S.C. 552a(b). 
``Routine uses'' are an exception to this general principle. A routine 
use is a disclosure outside of the agency that is compatible with the 
purpose for which the data was collected. Routine uses are established 
by means of a publication in the Federal Register about the applicable 
system of records describing to whom the disclosure will be made and 
the purpose for the disclosure. We believe that the proposed data 
disclosures are consistent with the purpose for which the data 
discussed in this rule was collected, and thus, should not run afoul of 
the Privacy Act, provided we ensure that an appropriate Privacy Act 
system of records ``routine use'' is in place prior to making any 
disclosures.
    Therefore, at the beginning of the agreement period, at the request 
of the ACO, we are proposing to provide the ACO with a list of 
beneficiary names, date of birth, sex, and HICN derived from the 
assignment algorithm used to generate the 3-year benchmark. As 
discussed in section II.B. of this proposed rule, these are 
beneficiaries who received the plurality of primary care services from 
primary care physicians who are ACO participants. We seek comment on 
this proposal and on whether and how this information would be 
beneficial to the goals of improved care coordination and improving 
care delivery for the ACO's assigned beneficiary population.
6. Sharing Beneficiary-Identifiable Claims Data
    While the availability of aggregate beneficiary information and the 
identification of the beneficiaries used to determine the benchmark 
should assist ACOs in the overall redesign of care processes and 
coordination of care for their assigned beneficiary populations, we 
believe that more complete beneficiary-identifiable information would 
enable practitioners in an ACO to better coordinate and target care 
strategies towards the individual beneficiaries who may

[[Page 19557]]

ultimately be assigned to them. For example, knowing which 
beneficiaries have frequent emergency department visits could help the 
ACO develop systems to ensure these beneficiaries have timely access to 
office-based care.
    The PGP demonstration provided beneficiary identifiable claims data 
to the participating sites but the beneficiary identifiable claims data 
that was provided was the previous year's historical data on those 
beneficiaries that might be assigned to the site. The feedback we 
received from the PGP demonstration was that the historical beneficiary 
identifiable claims data was useful in some instances but that current 
year beneficiary claims data would be preferred and result in a more 
proactive approach to coordinating care. Through comments on the 
November 17, 2010 RFI, open door forums, and other venues, stakeholders 
have expressed the importance of timely data on their patient 
population. They submit that they will need detailed data for their 
patients so they can establish baseline levels of utilization and 
patient morbidity, identify key beneficiaries and subpopulations for 
proactive care coordination efforts, and track their progress against 
defined performance measures. These data are especially important for 
ACOs made up of small and individual practices that may not have fully 
developed information technology systems. Additionally, stakeholders 
have expressed a desire to receive updated beneficiary identifiable 
claims data on either a monthly or quarterly basis.
    For these reasons we believe sharing beneficiary identifiable 
claims data with ACOs will assist them in improving care for 
individuals, improving health of their population, and reducing the 
growth in expenditures for their assigned beneficiary population. 
However, there are clear legal and practical limitations on how useful 
these CMS claims data may be to an ACO. For example, providers have 
said that they would like to know when their patients are admitted to 
the hospital in ``real time''. We are not able to provide this type of 
data since we generally only become aware of a hospital admission at 
the time of discharge when the hospital bills us for the service. So, 
there will always be a claims lag that will make our data less useful 
for ``real time'' responses. Unlike claims data, real time information 
may be more readily available through development and use of an 
interoperable electronic health record or participation in local/
regional health information exchanges, or through more effective 
coordination with admitting and discharging personnel in hospitals that 
the ACO's patients utilize, something that is consistent with the 
overall purpose and intent of the Shared Savings Program (see Section 
II.B. of this proposed rule). Moreover, unlike MA plans, under the 
Shared Savings Program, freedom of choice for FFS beneficiaries is 
retained, which means that a full analysis of the beneficiary 
population cared for by the ACO during the course of the performance 
year can only be performed retrospectively.
    It should also be noted that 42 U.S.C. 290dd-2 and implementing 
regulations at 42 CFR part 2 restrict the disclosure of patient records 
by Federally conducted or assisted substance abuse programs, except as 
expressly authorized. The law states that ``records of the identity, 
diagnosis, prognosis, or treatment of any patient which are maintained 
in connection with the performance of any program or activity relating 
to substance abuse education, prevention, training, treatment, 
rehabilitation, or research, which is conducted, regulated, or directly 
or indirectly assisted by any department or agency of the United States 
shall * * * be confidential.'' Such data may be disclosed only with the 
prior written consent of the patient, or as otherwise provided in the 
statute and regulations. Consistent with this requirement, claims 
containing this specifically protected information would not be 
included in any beneficiary identifiable claims data shared with ACOs.
    As discussed later in the document in more detail, we are proposing 
to give the ACO the opportunity to request certain beneficiary 
identifiable claims data on a monthly basis, in compliance with 
applicable laws, in the form of a standardized data set about the 
beneficiaries currently being served by the ACO participants and ACO 
providers/suppliers. We propose to limit the beneficiaries covered by 
such data sets to those who have received a service from a primary care 
physician participating in the ACO during the performance year, and who 
have not opted out of having us share their claims data with the ACO. 
In order to obtain beneficiary information that is subject to 42 CFR 
290dd, the individual must have provided his or her prior written 
consent. Furthermore, we also propose to limit the content of this data 
set to the minimum data necessary for the ACO to effectively coordinate 
care of its patient population.
    As noted previously, there are limitations on the content and 
timeliness of data that we can share with an ACO. If an ACO chooses to 
request beneficiary identifiable claims data as part of the application 
process, we propose that the ACO will be required to explain how it 
intends to use these data to evaluate the performance of ACO 
participants and ACO providers/suppliers, conduct quality assessment 
and improvement activities, and conduct population-based activities to 
improve the health of its assigned beneficiary population. If an ACO 
does not choose to request these data at the time of its application, 
it will be required to submit a formal request for data during the 
agreement period that includes a description of how it intends to use 
the requested data for the purposes noted previously. We solicit 
comment on these proposals.
    Additionally, when an ACO is accepted to participate in the Shared 
Savings Program, we propose to require ACOs to enter into a Data Use 
Agreement (DUA) prior to receipt of any beneficiary identifiable claims 
data. Under the DUA, the ACO would be prohibited from sharing the 
Medicare claims data that we provide through the Shared Savings Program 
with anyone outside the ACO. In addition, we propose to require in the 
DUA that the ACO agree not to use or disclose the claims data obtained 
under the DUA in a manner in which a HIPAA covered entity could not, 
without violating the HIPAA Privacy Rule. We propose to make compliance 
with the DUA a condition of the ACO's participation in the Shared 
Savings Program--non-compliance with this requirement would result in 
the ACO no longer being eligible to receive data, and could lead to 
termination from the Shared Savings Program or additional sanctions and 
penalties available under the law. For example, under the Privacy Act, 
any ``person who knowingly and willfully requests or obtains any record 
concerning an individual from an agency under false pretenses shall be 
guilty of a misdemeanor and fined not more than $5,000'' 5 U.S.C. 
552a(i)(3). In those instances where an ACO does not choose to request 
the data at the time of their application, the ACO will be required to 
submit a formal request for data during the agreement period. We 
propose that the ACO would be required to certify compliance with the 
DUA in the same manner in which prospective ACOs did in the original 
application process. We solicit comment on these proposals.
a. Legal Authority To Disclose Beneficiary-Identifiable Claims Data to 
ACOs
    As noted previously, section 1106 of the Act generally bars the 
disclosure of information absent patient authorization

[[Page 19558]]

that is collected under the Act unless a law (statute or regulation) 
provides for disclosure. Once again, we believe that the HIPAA Privacy 
Rule permits disclosure for purposes of sharing Medicare Part A and B 
claims data with ACOs participating in the Shared Savings Program. 
Similarly, we believe the regulations governing the sharing of Part D 
data would permit us to share information regarding prescription drug 
claims with ACOs. We also believe that the proposed disclosures of 
claims data under Parts A, B, and D are consistent with the purposes 
for which the data were collected, and thus, for the reasons discussed 
previously would be permitted under the Privacy Act if we ensure that 
an appropriate Privacy Act System of Records ``routine use'' is in 
place prior to making any disclosures.
(1) Sharing Data Related to Medicare Parts A and B
    As discussed in section II.B. of this proposed rule, the ACOs are 
tasked with working with ACO participants and ACO providers/suppliers 
to evaluate their performance, conduct quality assessment and 
improvement activities, and conduct population-based activities 
relating to improved health for their assigned beneficiary population. 
When done by or on behalf of a covered entity, these are covered 
functions and activities that would qualify as ``health care 
operations'' under the first and second paragraphs of the definition of 
health care operations at 45 CFR 164.501. These activities are done by 
the ACOs either on their own behalf as covered entities, or on behalf 
of their covered entity ACO participants and ACO providers/suppliers, 
in which case the ACOs would be the business associate of its ACO 
participants and ACO providers/suppliers.
    The proposed disclosure of Part A and B claims data would be 
permitted by the HIPAA Privacy Rule provisions governing disclosures 
for ``health care operations.'' As discussed previously in the context 
of our proposed disclosure of the four data elements about the 
historically assigned beneficiary population, a covered entity is 
permitted to disclose PHI to another covered entity for the recipient's 
health care operations if both covered entities have or had a 
relationship with the subject of the records to be disclosed (which is 
true here), the records pertain to that relationship (which is also 
true here) and the recipient plans to use the records for a ``health 
care operations'' function that falls within the first two paragraphs 
of the definition of ``health care operations'' in the HIPAA Privacy 
Rule. 45 CFR 164.506(c)(4). The first two paragraphs of the definition 
of health care operations include a covered entity or its business 
associate evaluating a provider's or supplier's performance, conducting 
quality assessment and improvement activities, and conducting 
population-based activities relating to improved health. 45 CFR 
164.501. We believe that these provisions are extensive enough to cover 
the uses we would expect an ACO to make of the Parts A and B claims 
data set that we are proposing to make available to them. Thus, we 
believe that there is authority for us to disclose to an ACO, as the 
business associate of the covered entity, the minimum Medicare Parts A 
and B data necessary to allow ACOs to conduct the health care operation 
activities outlined previously.
    Accordingly, barring a beneficiary requesting to opt-out of having 
his or her information shared as described later in the document, and 
subject to applicable confidentiality laws, we are proposing to make 
Part A and Part B data about patients who have had a visit with a 
primary care physicians participation in the ACO during the performance 
year available upon request to participating ACOs this data would be 
used for the purposes of aiding the ACO as it evaluates the performance 
of ACO participants and ACO providers/suppliers, conducts quality 
assessment and improvement activities, and conducting population-based 
activities relating to improved health. In doing so, we will only 
disclose the minimum data necessary to accomplish these purposes in 
accordance with the requirements of the HIPAA Privacy Rule. We believe 
that the minimum necessary Parts A and B data elements would include 
data elements such as: Procedure code, diagnosis code, beneficiary ID; 
date of birth; gender; and, if applicable, date of death; claim ID; the 
from and thru dates of service; the provider or supplier ID; and the 
claim payment type.
    As discussed previously, we will not disclose any patient 
information related to alcohol and substance abuse that is subject to 
42 CFR 290dd without the patient's written consent.
    Similar to the process by which ACOs can receive the four 
beneficiary identifiable data points, under this proposal, in order to 
receive data, ACOs would be required to attest in either their initial 
application or in their subsequent formal request for data if they 
failed to request data in the application stage, that; (1) They are a 
covered entity or a business associate of covered entity ACO 
participants and ACO suppliers/providers under the Shared Savings 
Program; (2) their business associate agreement with these ACO 
participants and ACO providers/suppliers authorizes them to seek PHI on 
behalf of the ACO participants and ACO providers/suppliers for one of 
the health care operations purposes laid out previously; (3) their 
request reflects the minimum data necessary to do that health care 
operations work; and (4) that their use of these requested data would 
be limited to the Shared Savings Program activities related to one or 
more of the health care operations purposes laid out previously or (1) 
They are a HIPAA covered entity; (2) they are requesting the claims 
data about their own patients for one of the health care operations 
purposes laid out previously; (3) their request reflects the minimum 
data necessary to do that health care operations work; and (4) that 
their use of these requested data would be limited to the Shared 
Savings Program activities related to one or more of the health care 
operations purposes laid out previously.
(2) Sharing Data Related to Medicare Part D
    Beneficiary identifiable Medicare prescription drug information 
could also be beneficial to ACOs for improving the care coordination of 
their patient population. Having a complete picture, for example, of 
the beneficiary's medication regimen can assist in avoiding duplication 
or adverse interactions among medications.
    We issued a final rule in May of 2008 authorizing the Secretary to 
recollect Part D claims data that were originally collected for Part D 
payment purposes for research, analysis, reporting, and public health 
functions (73 FR 30664). In that final rule, we noted our intent to use 
the data for a wide variety of purposes including ``supporting care 
coordination and disease management programs,'' and ``supporting 
quality improvement and performance measurement activities.'' (42 CFR 
423.505(f)(3)(v), (vi)). We also expressed our view that ``it is in the 
interest of public health to share the information 
collected[hellip]with entities outside of CMS for legitimate research, 
or in cases of other governmental agencies, for purposes consistent 
with their mission.'' (73 FR 30666). Accordingly, the regulations 
specified when data would be shared with outside entities, such as 
other government agencies, and external entities, including 
researchers.
    The Part D data rule did not expressly address the question of 
whether Part D data could be shared with external entities, such as 
ACOs, for purposes other than research. However, in the rule, we noted 
that sharing Part D claims data, in addition to Parts A and B data, 
could have salutary effects on

[[Page 19559]]

the evaluation and functioning of the Medicare programs as well as 
improving the clinical care furnished to beneficiaries. Furthermore, 
the rule explicitly contemplated the use of Part D data to support care 
coordination and disease management programs, as well as quality 
improvement and performance measurement activities, which are central 
to the Shared Savings Program and its success.
    We believe that ACOs participating in the Shared Savings Program 
would use information on prescription drug use in order to improve the 
quality of care furnished to their assigned beneficiaries and to 
enhance care coordination for these beneficiaries. As a result, 
although the Part D data rule did not expressly address the question of 
whether Part D data could be shared with external entities for purposes 
other than research, we believe that the release of Part D claims data 
to ACOs for the purpose of supporting care coordination, quality 
improvement, and performance measurement activities, would be 
consistent with the purposes outlined in the Part D data rule. The Part 
D data will be released in accordance with the requirements outlined in 
the regulations at 42 CFR 423.505(m)(1). As a result, certain data 
elements may be unavailable or available only in an aggregated format.
    Accordingly, consistent with the regulations governing the release 
of Part D data, we propose to provide ACOs with the minimum Part D data 
necessary to permit the ACO to undertake evaluation of the performance 
of ACO participants and ACO providers/suppliers, conduct quality 
assessment and improvement activities with and on behalf of the ACO 
participants and ACO providers/suppliers, and conduct population-based 
activities relating to improved health for Medicare beneficiaries who 
have a primary care visit with a primary care physician used to assign 
patients to the ACO during a performance year. We propose that the 
minimum data elements necessary to perform these functions could 
include data elements such as: beneficiary ID, prescriber ID, drug 
service date, drug product service ID, and indication if the drug is on 
the formulary.
a. Beneficiary Opportunity To Opt-Out of Claims Data Sharing
    Although we have the legal authority within the limits described 
previously to share Medicare claims data with ACOs without the consent 
of the patients, and while we believe that these data will provide a 
valuable tool to assist ACOs in evaluating the performance of ACO 
participants and ACO providers/suppliers, conducting quality assessment 
and improvement activities, and conducting population-based activities 
relating to improved health, we nevertheless believe that beneficiaries 
should be notified of, and have meaningful control over who, has access 
to their personal health information for purposes of the Shared Savings 
Program. Thus, we are proposing to require that, as part of its broader 
activities to notify patients at the point of care that their provider 
or supplier is participating in an ACO, as discussed in Section II. D., 
the ACO must also inform beneficiaries of its ability to request claims 
data about them if they do not object. We believe that this 
notification will give the beneficiaries meaningful choice as to 
whether this information may be shared. The only exceptions to this 
advanced notice would be the initial four data points (the 
beneficiary's name, date of birth, sex, and HICN) that we will provide 
to ACOs for individuals in the 3-year data set used to determine the 
ACO's benchmark.
    We believe that to be meaningful, the opportunity to make a choice 
as to whether their information may be shared would: (1) Allow the 
individual advance notice and time to make a decision; (2) be 
accompanied by adequate information about the benefits and risks of 
making their data available for the proposed uses; (3) not compel 
consent; and (4) not use the choice to permit their information to be 
shared for discriminatory purposes.
    We considered two alternative mechanisms for implementing 
meaningful beneficiary choice: having beneficiaries affirmatively 
choose to permit us to share their protected health information through 
the signing of a consent or authorization (``opt-in''); and sharing 
protected health information with the ACO unless beneficiaries indicate 
that they choose not to have this information shared (``opt-out'').
    A requirement of patient choice about whether to participate in a 
system of information exchange, whether opt-in or opt-out should 
provide an excellent opportunity for providers to engage patients in 
true patient-centered care, creating a strong incentive for an ACO and 
its ACO participants and ACO providers/suppliers to forge a positive 
relationship with each beneficiary. Consumers have consistently 
expressed strong support for the implementation and exchange of 
electronic health information, believing that these technologies have 
the potential to improve care coordination, reduce paperwork, and 
reduce the number of unnecessary and repeated tests and procedures.\8\ 
Successful electronic health information exchange systems have engaged 
consumers, physicians and other stakeholders at an early stage to 
ensure that choice is integrated into the architecture of the 
systems.\9\
---------------------------------------------------------------------------

    \8\ See Schneider, S. et al. ``Consumer Engagement in Developing 
Electronic Health Information System.'' Prepared for: Agency for 
Healthcare Research and Quality, July 2009, at 16. Available at: 
http://www.healthit.ahrq.gov/portal/server.pt/gateway/PTARGS_0_1248_888520_0_0_18/09%E2%80%900081%E2%80%90EF.pdf%00%00 at 16; 
Markle Foundation. Survey Finds Americans Want Electronic Personal 
Health Information to Improve Own Health Care, November 2006, at 1. 
Available at: http://www.markle.org/downloadable_assets/research_doc_120706.pdf.
    \9\ See Goldstein, M.M. and A.L. Rein. Consumer Consent Options 
for Electronic Health Information Exchange: Policy Considerations 
and Analysis,'' March, 2010. Available at: http://healthit.hhs.gov/portal/server.pt/gateway/PTARGS_0_11673_911197_0_0_18/ChoiceModelFinal032610.pdf.
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    Many organizations engaging in health information exchange have 
selected opt-in models for patient consent. For example, the 
Massachusetts eHealth Collaborative (MAeHC) achieved an average of 90 
percent participation in three pilot communities using an opt-in 
system. The New York Clinical Information Exchange (NYCLIX) has also 
realized high patient participation rates by using an opt-in method of 
patient choice.\10\ An opt-in method has several advantages. Consumers 
have consistently expressed a desire that their consent should be 
sought before their health information may be shared.\11\ Obtaining 
affirmative written permission would also provide documentation of the 
beneficiary's choice.
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    \10\ J. Shapiro, J. Bartley, G. Kuperman, Health Information 
Exchange Consent Policy Influences: Emergency Department Patient 
Data Accessibility. ACEP 2010. See also N. Daurio, et al. 
Implementation of an Enterprise-wide Electronic Health Record: A 
Nurse-Physician Partnership, in K. Saranto et al., eds, Connecting 
Health and Humans (IOS Press 2009).
    \11\ Schneider, at 36-37. Public Attitudes Toward Medical 
Privacy. (2000). Conducted by The Gallup Organization on behalf of 
the Institute for Health Freedom. Available at: http://forhealthfreedom.org/Gallupsurvey/IHF-Gallup.html.
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    However, many organizations find that an opt-in approach 
significantly reduces both provider and beneficiary participation for 
administrative reasons, and not because patients are making an active 
choice not to participate.\12\ Where

[[Page 19560]]

opt-in rates are very high, significant paperwork burdens arise as 
providers must track consents for the majority of their patient 
population. Reducing such burdens is one of the major reasons that 
other organizations engaged in health information exchange have adopted 
an opt-out approach. 12 13 An opt-out approach is used 
successfully in most systems of electronic exchange of information \13\ 
because it is significantly less burdensome on consumers and providers 
while still providing an opportunity for caregivers to engage with 
patients to promote trust and permitting patients to exercise control 
over their data. We are concerned about the effect of an opt-in 
approach on beneficiary participation and the additional administrative 
burdens on physician practices. Therefore, we propose affording 
beneficiaries the ability to opt-out of sharing their protected health 
information with the ACO. We believe this opportunity coupled with 
notification of how protected health information will be shared and 
used affords beneficiaries meaningful choice. An example of the opt-out 
approach would be that when a beneficiary has a visit with their 
primary care physician, their physician would inform them at this visit 
that he or she is an ACO participant or ACO provider/supplier and that 
the ACO would like to be able to request claims information from us in 
order to better coordinate the beneficiary's care. If the beneficiary 
objects, we propose that the beneficiary would be given a form stating 
that they have been informed of their physician's participation in the 
ACO and explaining how to opt-out of having their personal data shared. 
The form could include a phone number and/or e-mail address for 
beneficiaries to call and request that their data not be shared. As 
discussed in section II. D., the Shared Savings Program lays the 
foundation for a beneficiary-centered delivery system that should 
create a new relationship between beneficiaries and care providers 
based, in large part, on patient engagement in the new care system. The 
successful creation of this relationship is not possible when 
beneficiaries are not aware of the new delivery system available 
through ACOs, and the possibility of being included in the population 
assigned to an ACO.
---------------------------------------------------------------------------

    \12\ See Micky Tripathi, David Delano, Barbara Lund and Lynda 
Rudolph. ``Engaging Patients for Health Information Exchange.'' 
Health Affairs. Volume 28, Number 2. March/April 2009; Missouri 
Office of Health Information Technology. Opt-in Versus Opt-out: 
Consent Models for Health Information Exchange through Missouri's 
Statewide Health Information Exchange Network. Jefferson City: 
Missouri. Department of Social Services (2010). Available online at 
http://www.dss.mo.gov/hie/leadership/pdf2010/optin_vs_optout_overview.pdf.
    \12\ See Goldstein, M.M. and A.L. Rein. Consumer Consent Options 
for Electronic Health Information Exchange: Policy Considerations 
and Analysis,'' March, 2010, at 35. Available at: http://healthit.hhs.gov/portal/server.pt/gateway/PTARGS_0_11673_911197_0_0_18/ChoiceModelFinal032610.pdf.
    \13\ See Goldstein, M.M. and A.L. Rein. Consumer Consent Options 
for Electronic Health Information Exchange: Policy Considerations 
and Analysis,'' March, 2010, at 35. Available at: http://healthit.hhs.gov/portal/server.pt/gateway/PTARGS_0_11673_911197_0_0_18/ChoiceModelFinal032610.pdf.
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    We therefore propose to develop a communications plan, discussed in 
more detail in section II. D of this proposed rule, that will offer 
insight into both the Shared Savings Program in general and the 
beneficiaries' right to opt-out of the data sharing portion of the ACO 
Shared Savings Program.
    As noted previously, ACOs will only be allowed to request 
beneficiary identifiable claims data for beneficiaries who have (1) 
visited a primary care participating provider during the performance 
year, and (2) have not chosen to opt-out of claims data sharing.
    A beneficiary that chooses to opt-out is only opting out of the 
data sharing portion of the program. The decision to opt-out in no way 
effects use of the beneficiaries' data or assignment to the ACO for 
purposes of determining such calculations as ACO benchmarks, per capita 
costs, quality performance, or performance year per capita 
expenditures. Our data contractor will maintain a running list of all 
HICNs that have chosen to opt-out of data sharing. We will monitor 
whether ACOs continue to request data on beneficiaries who have opted 
out of having their data shared and will take appropriate actions 
against any ACO that is found to violate this requirement.
    We request comments on our proposals related to the provision of 
both aggregate and beneficiary identifiable data to ACOs. We are 
particularly interested in comments on the kinds and frequency of data 
that would be useful to ACOs, potential privacy and security issues, 
and the implications for sharing protected health information with 
ACOs, and the use of a beneficiary opt-out, as opposed to an opt-in, to 
obtain beneficiary consent to the sharing of their information.
7. New Program Standards Established During 3-Year Agreement Period
    The Shared Savings Program is a new program designed to encourage 
providers to redesign care processes in order to achieve the outcomes 
of better care for individuals, better health for populations, and 
lower growth in expenditures for Medicare FFS beneficiaries. We 
anticipate that as we continue to work with the stakeholder community 
and learn what methods and measures work most effectively for the 
Shared Savings Program, we will make changes and improvements to the 
Shared Savings Program. For example, we expect to integrate lessons 
learned from Innovation Center initiatives to shape and change the 
Shared Savings Program over time. Because we expect that these changes 
may occur more frequently than the length of the 3-year agreement 
periods, the question arises as to whether those ACOs that have already 
committed to a 3-year agreement to participate in the Shared Savings 
Program should be subject to those changes. It is not unprecedented for 
Medicare agreements to include a provision requiring that the agreement 
is subject to changes in laws and regulations. For example, the 
contracts with Medicare Advantage organizations contain such a clause. 
However, these contracts are for a term of 1 year, as opposed to 3 or 
more years. As a result, there are more frequent opportunities for 
these organizations to reassess whether they wish to continue to 
participate in the program in light of changes to the laws and 
regulations governing the program.
    In the Shared Savings Program, regulatory changes could affect a 
variety of different components of the program, including quality 
measures, reporting requirements, monitoring requirements, program 
integrity, and eligibility requirements. If the agreements are subject 
to all changes in the applicable regulations, it is possible that some 
ACOs that were eligible for participation in the program at the start 
of their respective 3-year agreement might become ineligible based upon 
modifications to the regulations. Creating an environment in which the 
continued eligibility of existing program participants is uncertain 
could be detrimental to the success of program and could deter program 
participation. Conversely, the ability to incorporate regulatory 
changes into the agreements with ACOs would facilitate the 
administration of the program because all ACOs would be subject to the 
requirements imposed under the current regulations, rather than up to 3 
different sets of requirements, based upon the year in which the ACO 
entered the program. Additionally, requiring ACOs to adhere to certain 
regulatory changes related to quality measures, routine program 
integrity changes, processes for quality management and patient 
engagement, and patient-centeredness criteria that are up to date with 
current clinical practice ensures that ACO activities keep pace with 
changes in clinical practices and developments in evidence-based 
medicine. We do not believe that requiring ACOs to adhere to

[[Page 19561]]

regulatory modifications related to quality measures, routine program 
integrity changes, processes for quality management and patient 
engagement, and patient centeredness criteria is likely to affect 
either the ACOs' underlying organizational structure or their continued 
eligibility to participate in the Shared Savings Program--although it 
may necessitate changes in how ACOs design and deliver care to meet 
these program requirements, as compared to descriptions of these 
processes in their initial applications.
    We propose that ACOs be subject to future changes in regulation 
with the exception of the following program areas:
     Eligibility requirements concerning the structure and 
governance of ACOs;
     Calculation of sharing rate; and
     Beneficiary assignment.
    For example, ACOs would be subject to changes in regulation related 
to the quality performance standard. The language of the ACO agreement 
would be explicit to ensure that ACOs understand the dynamic nature of 
this part of the program and what specific programmatic changes would 
be incorporated into the agreement. We further propose that in those 
instances where regulatory modifications effectuate changes in the 
processes associated with an ACO pertaining to design, delivery, and 
quality of care that the ACO will be required to submit to us for 
review and approval, as a supplement to their original application, an 
explanation of how they will address key changes in processes resulting 
from these modifications. If an ACO fails to effectuate the changes 
needed to adhere to the regulatory modifications, we propose that the 
ACO would be placed on a corrective action plan, and if after being 
given an opportunity to act upon the corrective action plan, the ACO 
still fails to come into compliance, it would be terminated from the 
program. For a more detailed discussion of the process for requiring 
and implementing a corrective action plan, please refer to the section 
II. H. of this proposed rule. We propose that ACO participants shall 
continue to be subject to all requirements applicable to FFS Medicare, 
such as routine CMS business operations updates and changes in FFS 
coverage decisions, as they may be amended from time to time. In other 
words, nothing in the Shared Savings Program shall be construed to 
affect the payment, coverage, program integrity, and other requirements 
that apply to providers and suppliers under FFS Medicare.
8. Managing Significant Changes to the ACO During the Agreement Period
    Aside from changes that an ACO may experience as a result of 
regulatory changes, the ACO itself may also experience significant 
changes within the course of its 3-year agreement period due to such 
events as: The following:
     Deviations from approved application for reasons such as 
the drop out of an ACO participant upon which assignment is based; 
changes in overall governing board composition (in terms of interests 
represented) or leadership; changes in ACO's eligibility to participate 
in the program, including changes to the key processes pertaining to 
the design, delivery and quality of care (such as processes for quality 
management and patient engagement and patient centeredness criteria) as 
outlined in the application criteria for acceptance into the program; 
or changes in planned distribution of shared savings.
     A material change, as defined in detail in section II. H. 
of ACOs of this proposed rule, in the ACOs provider composition, 
including the addition of ACO providers/suppliers such that the ACO 
requires a mandatory antitrust review or re-review as discussed in 
section II. I. Coordination with Other Agencies., and other 
circumstances under which an ACO or an ACO participant is unable to 
complete its 3-year commitment.
     Government-required ACO reorganization, or exclusion of 
ACO participants or ACO providers/suppliers, or conduct restriction due 
to: OIG excluding the ACO, an ACO participant, or an ACO provider/
supplier for any reason authorized by law; CMS revoking an ACO, ACO 
participant or ACO provider/supplier's Medicare billing privileges 
under 42 CFR 424.535, for noncompliance with billing requirements or 
other prohibited conduct; or reorganization or conduct restrictions to 
resolve antitrust concerns.
    Whenever an ACO reorganizes its structure, we must determine if the 
ACO remains eligible to participate in the Shared Savings Program. 
Since an ACO is admitted to the program based on its application, 
adding ACO participants during the course of the 3-year agreement may 
deviate from its approved application and jeopardize the ACO's 
eligibility since the ACO would differ from its approved application 
and could be subject to further antitrust review. Changes such as this 
may result in termination of the 3-year agreement and forfeiture of the 
25 percent withhold of shared savings earned by the original ACO 
participants. We therefore propose that the ACO may not add ACO 
participants during the course of the 3-year agreement. In order to 
maintain flexibility, however, we propose that the ACO may remove ACO 
participants (TINs) or add/subtract ACO providers/suppliers (NPIs). We 
request comment on this proposal that ACOs may not add ACO participants 
and how this proposal might impact small or rural ACOs. We propose that 
the ACO be required to notify us in order to have its new structure 
approved whenever significant changes, such as those referenced 
previously, occur to its structure. We have identified five outcomes 
that may result from our review:
     The ACO may continue to operate under the new structure 
with savings calculations for the performance year based upon the 
updated list of ACO participants and ACO providers/suppliers.
     The remaining ACO structure qualifies as an ACO but is so 
different from the initially approved ACO structure that the ACO must 
start over as a new ACO with a new 3-year agreement, including an 
antitrust review, if warranted.
     The remaining ACO structure qualifies as an ACO but is 
materially different from the initially approved ACO structure because 
of the inclusion of additional ACO providers/suppliers that the ACO 
must obtain approval from a reviewing Antitrust Agency before it can 
continue in the program.
     The remaining ACO structure no longer meets the 
eligibility criteria for the program, and the ACO would no longer be 
able to participate in the program, for example, if the ACO's assigned 
population falls below 5,000 during an agreement year as discussed in 
section II. B. of this proposed rule.
     CMS and the ACO may mutually decide to terminate the 
agreement.
    We propose that when an ACO reorganizes its structure by excluding 
ACO participants or by adding or excluding ACO providers/suppliers, 
deviates from its approved application, changes information contained 
in its approved application, or experiences other changes which may 
make it unable to complete its 3-year agreement, it must notify us 
within 30 days of the event for reevaluation of its eligibility to 
continue to participate in the Shared Savings Program. We would respond 
in one of the five ways specified previously. We request comment on 
this proposal.

[[Page 19562]]

9. Future Participation of Previously Terminated Program Participants
    As described in section II.H. of the proposed rule, there are a 
number of circumstances under which we may terminate our agreement with 
an ACO, including avoidance of at-risk beneficiaries and failure to 
meet the quality performance standards. In contrast, there are also 
many reasons why an ACO participant TIN, used for assignment, or 
individual ACO providers/suppliers may drop out of an ACO; such as 
government exclusion, relocation, retirement, a voluntary decision to 
terminate participation, or bankruptcy.
    Permanently barring former program participants from subsequent 
participation in the Shared Savings Program due to a voluntary or 
forced termination from an ACO appears unduly harsh given the dynamic 
nature of organizational membership. Alternatively, we do want to 
ensure our policy on subsequent participation in the Shared Savings 
Program does not provide a second chance for under-performing 
organizations or to providers or suppliers who have been terminated for 
failing to meet program integrity requirements.
    We propose the ACO disclose to CMS whether the ACO, its ACO 
participants, or its ACO providers/suppliers have participated in the 
program under the same or a different name, and specify whether it was 
terminated or withdrew voluntarily from the program. If the ACO, its 
ACO participants or ACO providers/suppliers were previously terminated 
from the program, the applicant must identify the cause of termination 
and what safeguards are now in place to enable the prospective ACO to 
participate in the program for the full period of the 3-year agreement 
period. We propose that such ACOs may not begin another 3-year 
agreement period until the original agreement period has lapsed. 
Additionally, because we believe that subsequent participation in the 
Shared Savings Program should not provide a second chance for under-
performing organizations, we propose that an ACO may not reapply to 
participate in the Shared Savings Program if it previously experienced 
a net loss during its first 3-year agreement period. We seek comment on 
these proposals and whether requirements for denying participation to 
ACOs that previously under-perform would create disincentives for the 
formation of ACOs. We are specifically interested in whether this 
requirement will create disincentives for participation among smaller 
entities.

D. Assignment of Medicare Fee-for-Service Beneficiaries

    Section 1899(c) of the Act, as added by section 3022 of the 
Affordable Care Act, requires the Secretary to ``determine an 
appropriate method to assign Medicare FFS beneficiaries to an ACO based 
on their utilization of primary care services provided under this title 
by an ACO professional described in subsection (h)(1)(A).'' Subsection 
1899(h)(1)(A) of the Affordable Care Act constitutes one element of the 
definition of the term ``ACO professional.'' Specifically, this 
subsection establishes that ``a physician (as defined in section 
1861(r)(1))'' is an ``ACO professional'' for purposes of the Shared 
Savings Program. Section 1861(r)(1) of the Act in turn defines the term 
physician as ``* * * a doctor of medicine or osteopathy legally 
authorized to practice medicine and surgery by the State in which he 
performs such function or action.'' In addition, subsection 
1899(h)(1)(B) defines an ACO professional to include practitioners 
described in section 1842(b)(18)(C)(i) of the Act, such as PAs and NPs.
    Thus, although the statute defines the term ``ACO professional'' to 
include both physicians and non-physician practitioners, such as 
advance practice nurses, physician assistants, and nurse practitioners, 
for purposes of beneficiary assignment to an ACO, the statute requires 
that we consider only beneficiaries' utilization of primary care 
services provided by ACO professionals who are physicians. The method 
of assigning beneficiaries therefore must take into account the 
beneficiaries' utilization of primary care services rendered by 
physicians. Therefore, for purposes of the Shared Savings Program, the 
inclusion of practitioners described in section 1842(b)(18)(C)(i) of 
the Act, such as PAs and NPs in the statutory definition of the term 
``ACO professional'' is a factor in determining the entities that are 
eligible for participation in the program (for example, ``ACO 
professionals in group practice arrangements'' in section 1899(b)(1)(A) 
of the Act). However, assignment of beneficiaries to ACOs is to be 
determined only on the basis of primary care services provided by ACO 
professionals who are physicians.
    Assigning Medicare beneficiaries to ACOs also requires several 
other elements: (1) An operational definition of an ACO (as 
distinguished from the formal definition of an ACO and the eligibility 
requirements that we discuss in section II.B. of this proposed rule) so 
that ACOs can be efficiently identified, distinguished, and associated 
with the beneficiaries for whom they are providing services; (2) a 
definition of primary care services for purposes of determining the 
appropriate assignment of beneficiaries; (3) a determination concerning 
whether to assign beneficiaries to ACOs prospectively, at the beginning 
of a performance year on the basis of services rendered prior to the 
performance year, or retrospectively, on the basis of services actually 
rendered by the ACO during the performance year; and (4) a 
determination concerning the proportion of primary care services that 
is necessary for a beneficiary to receive from an ACO in order to be 
assigned to that ACO for purposes of this program.
    The term ``assignment'' in this context refers only to an 
operational process by which Medicare will determine whether a 
beneficiary has chosen to receive a sufficient level of the requisite 
primary care services from physicians associated with a specific ACO so 
that the ACO may be appropriately designated as exercising basic 
responsibility for that beneficiary's care. Consistent with section 
1899(b)(2)(A), the ACO will then be held accountable ``for the quality, 
cost, and overall care of the Medicare FFS beneficiaries assigned to 
it.'' The ACO may also qualify to receive a share of any savings that 
are realized in the care of these assigned beneficiaries due to 
appropriate efficiencies and quality improvements that the ACO may be 
able to implement. It is important to note that the term ``assignment'' 
for purposes of this provision in no way implies any limits, 
restrictions, or diminishment of the rights of Medicare FFS 
beneficiaries to exercise complete freedom of choice in the physicians 
and other health care practitioners and suppliers from whom they 
receive their services.
    Thus, while the statute refers to the assignment of beneficiaries 
to an ACO, we would characterize the process more as an ``alignment'' 
of beneficiaries with an ACO as the exercise of free choice by 
beneficiaries in the physicians and other health care providers and 
suppliers from whom they receive their services is a presupposition of 
the Shared Savings Program. Therefore, an important component of the 
Shared Savings Program will be timely and effective communication with 
beneficiaries concerning the Shared Savings Program, their possible 
assignment to an ACO, and their retention of freedom of choice under 
the Medicare FFS program. The issues of beneficiary information and 
notification regarding their potential assignment to an ACO are further 
discussed at the end of this section.

[[Page 19563]]

1. Operational Identification of an ACO
    The first step in developing a method for assigning beneficiaries 
is to establish a clear operational method of identifying an ACO that 
correctly associates its health care professionals and providers with 
the ACO. It is designed to be consistent with the statutory definition 
of an ACO as well as the eligibility and other requirements for an 
organization to participate in the Shared Savings Program as an ACO. As 
discussed in section II.B. of this proposed rule, section 1899(a)(1)(A) 
of the Act defines ACOs as ``groups of providers of services and 
suppliers'' who work together to manage and coordinate care for 
Medicare fee-for-service beneficiaries. More specifically, the Act 
refers to group practice arrangements, networks of individual practices 
of ACO professionals, partnerships or joint venture arrangements 
between hospitals and ACO professionals, hospitals employing ACO 
professionals, or other combinations that the Secretary determines 
appropriate.
    From a technical, operational perspective, there are two data 
sources that could be used to identify the specific providers of 
services and suppliers participating in these kinds of arrangements as 
ACOs--specifically, their--(1) National Provider Identifier (NPI); and 
(2) TIN. Under the Medicare program, individual practitioners are 
defined by their NPI, but generally file and receive payment for 
Medicare claims based on their TIN. The TIN may be an employer 
identification number (EIN) or social security number (SSN). Some 
individual physicians and other ACO professionals, for example, do not 
have EINs, and enroll in the Medicare program through their SSNs. 
Physicians and other ACO professionals who are members of a group 
practice and bill for their services through the group may not have 
individual EINs but may use a group EIN for billing Medicare rather 
than their individual SSNs. While all physicians and practitioners have 
TINs (either EINs or SSNs), not all physicians and practitioners have 
Medicare enrolled TINs. For example, physicians and other ACO 
professionals who are members of a group practice often bill for their 
services through the group and may not have individual Medicare 
enrolled TINs. Groups of physicians and practitioners, however, 
necessarily have TINs which they employ for billing Medicare, because a 
TIN must be used for billing purposes. It should be noted that, under 
the Shared Savings Program, the standard restrictions on disclosure of 
information apply. (For a discussion regarding the public disclosure of 
information under the Shared Savings Program, see the discussion in 
section II.E. of this proposed rule.)
    Under the PGP demonstration, beneficiaries were assigned and group 
quality performance was measured by identifying practices operationally 
as a collection of Medicare enrolled TINs. Through this demonstration 
we found that TINs provide the most direct link between the beneficiary 
and the practice providing primary care services. Further, TINs are 
more stable than NPIs and more likely to provide complete longitudinal 
data required for benchmarking and beneficiary assignment, and to 
promote the stability necessary for the ACO to commit to redesigning 
care processes and complete the required 3-year agreement period. The 
reason NPIs tend to be less stable is because individual physicians and 
practitioners often change from one practice to another, potentially 
rendering data continuity and beneficiary assignment problematic when 
only NPIs are available. In the PGP demonstration, the individual NPIs 
associated with the TIN were identified from claims data and provider 
enrollment information, providing for more effective monitoring of 
performance within the ACO. Finally, reporting at the TIN level 
appeared to reduce the reporting burden for practices participating in 
the PGP demonstration.
    Therefore, we are proposing to identify an ACO operationally as a 
collection of Medicare enrolled TINs. More specifically, an ACO will be 
identified operationally as a set of one or more TINs currently 
practicing as a ``group practice arrangement'' or in a ``network'' such 
as where ``hospitals are employing ACO professionals'' or where there 
are ``partnerships or joint ventures of hospitals and ACO 
professionals'' as stated under section 1899(b)(1)(A) through (E) of 
the Act. For example, a single group practice that participates in the 
Shared Savings Program would be identified by its TIN. A network of 
independent practices that forms an ACO would be identified by the set 
of TINs of the practices constituting the ACO. We are proposing to 
require that organizations applying to be an ACO provide their ACO 
participant TINs. Each TIN can be systematically linked to an 
individual physician specialty code by us. Therefore, under this 
approach, beneficiaries would be assigned to an ACO through a TIN based 
on the primary care services they received from physicians billing 
under that TIN.
    We also propose that ACO professionals within the respective TIN on 
which beneficiary assignment is based, will be exclusive to one ACO 
agreement in the Shared Savings Program. This exclusivity will only 
apply to the primary care physicians (defined as physicians with a 
designation of internal medicine, geriatric medicine, family practice, 
and general practice, as discussed in this rule) by whom beneficiary 
assignment is established.
    ACO participant TINs upon which beneficiary assignment is not 
dependent (for example, acute care hospitals, surgical and medical 
specialties, RHCs, and FQHCs) would be required to agree to participate 
in the ACO for the term of the 3-year agreement, but would not be 
restricted to participation in a single ACO. As stated in section II.G. 
of this proposed rule, competition in the marketplace promotes quality 
of care for Medicare beneficiaries, protects access to a variety of 
providers, and helps sustain the Medicare program by controlling cost 
pressures. All of these benefits to Medicare patients would be reduced 
or eliminated if we allow the creation of ACOs with significant market 
power. This is especially important in certain areas of the country 
that might not have many specialists. In addition, exclusivity of ACO 
participant TINs upon which beneficiary assignment is not dependent 
might also contribute to the prospects that ACOs could develop 
excessive market power, especially in areas with shortages of 
physicians. In turn, greater market power could provide opportunities 
for these organizations to engage in activities that raise issues of 
fraud and abuse, such as those related to self-referrals. For these 
reasons, physicians upon whom assignment is dependent would be 
committed for a 3-year period and be exclusive to one ACO. Conversely, 
to ensure that physicians and other entities upon which assignment is 
not dependent (that is, hospitals, FQHC, RHCs, specialists) can 
participate in more than one ACO, and thereby facilitate the creation 
of competing ACOs, these providers and suppliers would be committed to 
the 3-year agreement but would not be exclusive and would have the 
flexibility to join another ACO.
    Based on our experience, we recognize that the TIN level data alone 
will not be entirely sufficient for a number of purposes in the Shared 
Savings Program. In particular, NPI data will be useful to assess the 
quality of care furnished by an ACO. For example, NPI information will 
be necessary to determine what percent of physicians

[[Page 19564]]

and other practitioners in the ACO are registered in the HITECH program 
(discussed in section II.E. of this proposed rule). NPI data will also 
be helpful in our monitoring of ACO activities (which we discuss in 
section II.H. of this proposed rule). Therefore, we are also proposing 
to require that organizations applying to be an ACO must provide not 
only their TINs but also a list of associated NPIs for all ACO 
professionals, including a list that separately identifies physicians 
that provide primary care. As we discuss in more detail later in the 
document, for purposes of the Shared Savings Program, we are proposing 
to define primary care physicians as those physicians that practice in 
the areas of internal medicine, general practice, family practice, and 
geriatric medicine. We welcome comments on our proposal to require 
reporting of TINs along with information about the NPIs associated with 
the ACO.
    In summary, we believe that our proposal to define the ACO 
operationally as a group of Medicare-enrolled TINs, while also 
collecting information about the NPIs associated with those TINs, 
allows us to link the beneficiary, type of service provided, and the 
type of physician providing the services for purposes of beneficiary 
assignment to the ACO as required by statute. This approach also offers 
the most complete longitudinal data required for benchmarking and 
beneficiary assignment, most effectively limits administrative burden 
for participating providers and suppliers, and makes it possible for us 
to take advantage of infrastructure and methodologies already developed 
for group-level reporting and evaluation. Moreover, this option affords 
us the most flexibility and statistical stability for monitoring and 
evaluating quality and outcomes for the population of patients assigned 
to the ACO.
2. Definition of Primary Care Services
    Section 1899(c) of the Act requires the Secretary to assign 
beneficiaries to an ACO ``based on their utilization of primary care 
services'' provided by a physician. However, the statute does not 
specify which kinds of services should be considered ``primary care 
services'' for this purpose, nor the amount of those services that 
would be an appropriate basis for making assignments. We discuss issues 
concerning the appropriate proportion of such services in the next 
section. In this section of this proposed rule, we discuss how to 
identify the appropriate primary care services on which to base the 
assignment and our proposal for defining primary care services for this 
purpose.
    In order to ensure the statistical reliability of the required 
performance measurements and benchmarks, ACOs must have a sufficient 
number of assigned beneficiaries. Having too few beneficiaries assigned 
to a participating ACO will impede determining whether changes in cost 
and quality measures are likely a reflection of normal variation rather 
than real improvement in the delivery of care. Section 1899(b)(2)(D) of 
the Act specifically provides that the composition of the ACO shall 
include sufficient numbers of ACO primary care professionals so that at 
least 5,000 beneficiaries are assigned to the ACO.
    Primary care services can generally be defined based on the type of 
service provided or the type of provider specialty that provides the 
service. The PGP demonstration has helped inform assignment 
methodologies. Under the PGP demonstration, the assignment methodology 
incorporated outpatient evaluation and management (E&M) services 
provided by both primary care and specialist providers. One reason for 
this is that certain specialists (for example, cardiologists, 
endocrinologists, neurologists, oncologists) are often the principal 
primary care provider for elderly and chronically ill patients who do 
not otherwise have a primary care provider, and it is reasonable to 
expect them to take responsibility for these patients' care. Another 
reason is that the assignment methodology provided an opportunity for 
specialists to take responsibility for ensuring that their patients' 
primary care needs were being met even if the specialist provided care 
initially on a referral basis.
    We would note that in defining primary care services, certain 
Affordable Care Act provisions also rely on a blend of the type of 
service and type of provider delivering the service. For example, 
section 5501 of the Affordable Care Act makes incentive payments 
available to primary care practitioners for whom primary care services 
account for at least 60 percent of the allowed charges under Part B. 
For purposes of this provision, a ``primary care practitioner'' is 
defined as a physician ``who has a primary specialty designation of 
family medicine, internal medicine, geriatric medicine, or pediatric 
medicine,'' or as a ``nurse practitioner, clinical nurse specialist, or 
physician assistant.'' In that section, ``primary care services'' are 
defined as a set of services identified by these HCPCS codes: 99201 
through 99215; 99304 through 99340; and 99341 through 99350. 
Additionally, we would consider the Welcome to Medicare visit (G0402) 
and the annual wellness visits (G0438 and G0439) as primary care 
services for purposes of the Shared Savings Program.
    In developing our proposal, we have considered three options with 
respect to defining ``primary care services'' for the purposes of 
assigning beneficiaries under the Shared Savings Program: (1) 
Assignment of beneficiaries based upon a predefined set of ``primary 
care services;'' (2) assignment of beneficiaries based upon both a 
predefined set of ``primary care services'' and a predefined group of 
``primary care providers;'' and (3) assignment of beneficiaries in a 
step-wise fashion. Under this option, beneficiary assignment would 
proceed by first identifying primary care physicians (internal 
medicine, family practice, general practice, geriatric medicine) who 
are providing primary care services, and then identifying specialists 
who are providing these same services for patients who are not seeing 
any primary care professional.
    The first option would assign beneficiaries by defining ``primary 
care services'' on the basis of the select set of E&M services, 
specifically those defined as ``primary care services'' in section 5501 
of the Affordable Care Act, and including G-codes associated with the 
annual wellness visit and Welcome to Medicare benefit regardless of 
provider specialty. This option would increase the number of potential 
beneficiaries assigned to the ACO in areas with primary care shortages 
(where specialists would necessarily be providing more primary care 
services as defined by the code set). It is also administratively 
straightforward, and we have experience with the similar methodology 
initially used in the PGP demonstration. However, assigning 
beneficiaries to ACOs based only on primary care services without 
distinction of caregiver specialty increases the likelihood of 
assigning beneficiaries to a specialist over a primary care provider. 
In addition, it would appear to be somewhat inconsistent with section 
5501 of the Affordable Care Act, which, for purposes of establishing an 
incentive payment for primary care services, first defines a set of 
primary care practitioners, and then identifies a set of HCPCS codes as 
``primary care services.'' The primary care services are recognized for 
the incentive payment only when they are provided by primary care 
practitioners. It is dubious whether the codes identified in section 
5501 of the Affordable Care Act alone, when they are not provided by 
primary care

[[Page 19565]]

doctors and other practitioners, truly constitute primary care 
services. Rather, these codes alone simply represent outpatient 
cognitive services (generally, consultations and office visits) that 
are provided for in all sorts of health care situations, including 
primary care but also specialty care, and are provided by many types of 
physicians. As such, this option has the potential to diminish the 
appropriate level of emphasis on a primary care core in the Shared 
Savings Program, by failing to place any priority on the services of 
designated primary care providers (for example, internal medicine, 
general practice, family practice, and geriatric medicine) in the 
assignment process.
    The second option that we have considered is therefore to assign 
beneficiaries to physicians designated as primary care providers 
(internal medicine, general practice, family practice, and geriatric 
medicine) who are providing the appropriate primary care services to 
beneficiaries. As in the case of the first option, we would define 
``primary care services'' on the basis of the select set of HCPCS codes 
identified in section 5501 of the Affordable Care Act, including G-
codes associated with the annual wellness visit and Welcome to Medicare 
visit. This option more closely aligns the definition of primary care 
services with the definition in section 5501 of the Affordable Care 
Act. As in the case of the first option, this option would be 
relatively straightforward administratively. However, this option could 
reduce the number of beneficiaries assigned to an ACO, by excluding 
primary care services delivered by specialists, especially in some 
areas that may have shortages of primary care physicians but a 
relatively greater number of specialists. Consequently, this option 
could make it difficult for ACOs to form in some geographic regions 
with such primary care shortages.
    The third option we have considered is to assign beneficiaries in a 
step-wise fashion. Under this option, beneficiary assignment would 
proceed by first identifying primary care physicians (internal 
medicine, family practice, general practice, geriatric medicine) who 
are providing primary care services, and then identifying specialists 
who are providing these same services for patients who are not seeing 
any primary care professional. This option would introduce a greater 
level of operational complexity compared to the two other options we 
considered. In addition, it could undermine our goal of ensuring 
competition among ACOs by reducing the number of specialists that can 
participate in more than one ACO, since specialists to whom 
beneficiaries are assigned would be required to be exclusive to one 
ACO. As noted previously, the ability of specialists to participate in 
more than one ACO is especially important in certain areas of the 
country that might not have many specialists. On the other hand, a 
``step-wise approach'' would not affect all specialists and it would 
reflect many of the advantages of the other two approaches, balancing 
the need for emphasis on a primary care core with a need for increased 
assignment numbers in areas with primary care shortages.
    After considering these options, we are proposing the second 
option, which would assign beneficiaries with physicians designated as 
primary care providers (internal medicine, general practice, family 
practice, and geriatric medicine) who are providing the appropriate 
primary care services to beneficiaries. We believe that this option 
best aligns with other Affordable Care Act provisions related to 
primary care by placing an appropriate level of emphasis on a primary 
care core in the Shared Savings Program. That is, this option places 
priority on the services of designated primary care physicians (for 
example, internal medicine, general practice, family practice, and 
geriatric medicine) in the assignment process. This option also allows 
ACOs to focus their efforts to coordinate and redesign care for 
patients seeing primary care providers and creates incentives for ACOs 
to establish primary care linkages for their patients who may not have 
a primary care provider. The option is also relatively straightforward 
administratively.
    However, we are also concerned that this proposal may not 
adequately account for primary care services delivered by specialists, 
especially in certain areas with shortages of primary care physicians, 
and that it may make it difficult to obtain the minimum number of 
beneficiaries to form an ACO in geographic regions with such primary 
care shortages. Therefore, while we are proposing to assign 
beneficiaries to physicians designated as primary care providers 
(internal medicine, general practice, family practice, and geriatric 
medicine) who are providing the appropriate primary care services to 
beneficiaries, we invite comments on this proposal and other options 
that may better address the delivery of primary care services by 
specialists. In the final rule, we could consider adopting another 
option; therefore we are seeking comments on the definition of primary 
care services approach as well as the ``step-wise'' approach as 
described previously.
3. Prospective vs. Retrospective Beneficiary Assignment To Calculate 
Eligibility for Shared Savings
    Section 1899(d)(1) of the Act provides that an ACO may be eligible 
for shared savings with the Medicare program if the ACO meets 
performance standards established by the Secretary (which we discuss in 
section II.E. of this proposed rule) and meets the requirements for 
realizing savings for its assigned beneficiaries against the benchmark 
established by the Secretary under section 1899(d)(1)(B) of the Act. 
Thus, for each year of an agreement period each ACO will have an 
assigned population of beneficiaries. Eligibility for shared savings 
will be based on whether the requirements for receiving shared savings 
payments are met for this assigned population. We refer to each year 
for which such determinations must be made as a ``performance year.''
    There are two basic options for assigning beneficiaries to an ACO 
to calculate eligibility for shared savings for a performance year. The 
first option is that beneficiary assignment could occur at the 
beginning of the performance year, or prospectively, based on 
utilization data demonstrating the provision of primary care services 
to beneficiaries in prior periods. The second option is that 
beneficiary assignment could occur at the end of the performance year, 
or retrospectively, based on utilization data demonstrating the 
provision of primary care services to beneficiaries by ACO physicians 
during the performance year.
    Many observers and prospective ACO managers have argued that it is 
essential for an ACO to know who is included in its assigned population 
prior to the start of the performance year. While they intend to treat 
all patients the same, they assert that it is fundamental to population 
management to be able to profile a population, identify individuals at 
high risk, develop outreach programs, and proactively work with 
patients and their families to establish care plans. These observers 
also argue that, as with any well managed enterprise, it is essential 
to have operational goals and targets to manage effectively. Thus, they 
would like to be able to track prospective targeted expenses, in order 
to gauge their results as they go through the performance year. These 
observers also understand that even prospective assignment 
methodologies will require a retrospective definition of the population 
to adjust for a variety of changes in the population that occur during 
a performance year. Some current patients of the practice will

[[Page 19566]]

become eligible for Medicare. Some will join a Medicare Advantage (MA) 
plan and, although they may continue to receive care furnished by the 
ACO, these beneficiaries can no longer be considered part of the 
assigned population of the ACO for purposes of computing shared 
savings. Individuals will move in and out of the service area during 
the year. For all these reasons, any methodology will require a 
retrospective redefinition of the assigned population.
    Advocates for the retrospective approach start with the observation 
that the actual population seen by a set of physicians changes 
significantly from year to year. Medicare FFS beneficiaries' right to 
see any enrolled physician typically leads to more year-to-year 
variability in treating physicians compared to patients in managed care 
programs. Analysis of the PGP population did show approximately a 25 
percent variation in assignment from year to year. Prospective 
assignment of a population seems inherently inaccurate from this 
perspective. If beneficiary assignment changes by 25 percent from year 
to year, a prospective assignment would not be an accurate reflection 
of those beneficiaries that were actually seen by physicians in the ACO 
during the performance year. Retrospective assignment of the 
population, on the other hand, appropriately holds the ACO accountable 
for the actual population it cared for during the performance year.
    Proponents of the retrospective approach also make a second 
argument. They suggest that identifying a population prospectively may 
lead an ACO to focus only on providing care coordination and other ACO 
services to this limited population, ignoring other beneficiaries in 
their practices or hospitals. Given that the goal of the Shared Savings 
Program is to change the care experience for all beneficiaries, ACOs 
should not be told who among their patients are likely to be in their 
assigned population. ACO participants and ACO providers/suppliers 
should have incentives to treat all patients equally, using 
standardized evidence-based care processes, to improve the quality and 
efficiency of all of the care they provide, and in the end they should 
see positive results in the retrospectively assigned population.
    We believe there are merits in both approaches. It does seem 
appropriate for an ACO to have information regarding the population it 
will likely be responsible for in order to target its care improvements 
to those patients who would benefit the most. At the same time, we do 
not want to encourage ACOs to limit their care improvement activities 
to a subset of their patients that they believe may be assigned to 
them. Finally, we believe it is critical that the assessment of ACO 
performance in any year be based on patients who received the plurality 
of their primary care from the ACO in that year, rather than an earlier 
period. As noted previously, even under a prospective assignment 
approach, a retrospective redefinition of the assigned population to 
account for changes from prior periods would be required or the ACO 
would be held accountable for patients that it did not provide services 
for during the performance year. Under a prospective system, the 
assignment would have to be adjusted every year to account for 
beneficiaries entering and leaving FFS Medicare as well as for those 
patients who move in and out of the geographic area of the ACO, as well 
as potentially other adjustments such as when a beneficiary remains in 
the area but chooses to receive their care outside of the ACO based 
upon where the plurality of their primary care services are being 
performed. Considering the merits of both approaches, we believe that 
the retrospective approach to beneficiary assignment for purposes of 
determining eligibility for shared savings is compelling. We believe 
that the assignment process should accurately reflect the population 
that an ACO is actually caring for, in order to ensure that the 
evaluation of quality measures is fair and that the calculation of 
shared savings, if any, accurately reflects the ACO's success in 
improving the quality and efficiency of the care provided to the 
beneficiaries for which it was actually accountable. In contrast, as we 
noted previously, a prospective approach has intrinsic inaccuracies, 
and requires additional adjustments in order to achieve the requisite 
level of accuracy for purposes of the Shared Savings Program.
    In response to the November 17, 2010 RFI, of the few commenters 
favoring retrospective alignment, a group of commenters suggested the 
use of retrospective alignment for determining utilization and shared 
savings, but prospective assignment for purposes of CMS sharing 
beneficiary identifiable data with ACOs. We agree that, given 
appropriate safeguards for maintaining the confidentiality of patient 
information, providing ACOs with meaningful information about their 
``expected assigned population'' with the potential to identify an 
``estimated benchmark target'' will be helpful. We address our 
proposals for providing information to ACOs to help them understand 
their patient populations and better manage their care in section II.C. 
of this proposed rule.
    Therefore, we are proposing the combined approach of retrospective 
beneficiary assignment for purposes of determining eligibility for 
shared savings balanced by the provision of aggregate beneficiary level 
data for the assigned population of Medicare beneficiaries during the 
benchmark period. (As we discuss in section II.C. of this proposed 
rule, we will provide ACOs with a list of beneficiary names, date of 
birth, sex, and other information derived from the assignment algorithm 
used to generate the 3-year benchmark.) Although the assignment 
methodology for the PGP demonstration was different from the proposed 
Shared Savings Program assignment methodology, when the PGP data is 
modeled with the Shared Savings Program assignment methodology, the 
assigned patient population would vary by approximately 25 percent from 
year to year. We believe that providing data on those beneficiaries 
that are assigned to an ACO in the benchmark period is a good 
compromise that will allow ACOs to have information on the population 
they will likely be responsible for in order to target their care 
improvements to that population while still not encouraging ACOs to 
limit their care improvement activities to only the subset of 
beneficiaries they believe will be assigned to them in the performance 
year. We believe that such a combined approach provides the best of 
both approaches while minimizing the disadvantages of either. ACO 
physicians will have the information they need to manage their 
population and estimate a target to manage towards, while they will 
still be encouraged to provide high-quality, efficient, and well-
coordinated services to all Medicare FFS beneficiaries because they 
will not know for sure who will be in the assigned population. However, 
the ultimate evaluation of their effectiveness will be based on the 
actual population they served. We solicit comments on this combined 
approach of retrospective beneficiary assignment for purposes of 
determining eligibility for shared savings balanced by the provision of 
beneficiary data (names, date of birth, etc.) and aggregate beneficiary 
level data for the assigned population of Medicare beneficiaries during 
the benchmark period. We also seek comment on alternate assignment 
approaches, including the prospective method of assignment.

[[Page 19567]]

4. Majority vs. Plurality Rule for Beneficiary Assignment
    Section 1899(c) of the Act requires that Medicare FFS beneficiaries 
be assigned to ``an ACO based on their utilization of primary care 
services'' furnished by an ACO professional who is a physician, but it 
does not prescribe the methodology for such assignment, nor criteria on 
the level of primary care services utilization that should serve as the 
basis for such assignment. Rather, the statute requires the Secretary 
to ``determine an appropriate method to assign Medicare FFS 
beneficiaries to an ACO'' on the basis of their primary care 
utilization.
    An obvious general approach is to make such an assignment on the 
basis of some percentage level of the primary care services a 
beneficiary receives from an ACO physician. The more specific issue 
under such an approach is whether to assign beneficiaries to the ACO 
when they receive a plurality of their primary care services from that 
ACO, or to adopt a stricter standard under which a beneficiary will be 
assigned to an ACO only when he or she receives a majority of their 
primary care services from an ACO.
    Under the PGP demonstration beneficiaries were assigned to a 
practice based on the plurality rule. By employing a plurality standard 
for primary care services, our analysis indicates that between 78 and 
88 percent of the patients seen for primary care services at the PGP 
during the year were subsequently assigned to that PGP group. As 
measured by allowed charges (evaluation and management CPT codes), the 
PGP provided on average 95 percent of all primary care services 
provided to the assigned patients.
    Alternatively, it could be argued that adopting a majority standard 
might enhance an ACO's sense of responsibility for its assigned 
patients, which is certainly consistent with the general goals of the 
Shared Savings Program. However, adopting a majority standard would 
likely somewhat reduce the number of beneficiaries assigned to an ACO 
and more beneficiaries would be unassigned to any ACO. On balance, we 
believe that a majority rule for assignment is too strict a standard to 
employ in a system where many Medicare beneficiaries may regularly 
receive primary care services from two or more primary care 
practitioners (for example, an internal medicine physician and a 
geriatric medicine physician). As such, this standard could undermine 
the development and sustainability of ACOs. Therefore, we are proposing 
to assign beneficiaries for purposes of the Shared Savings Program to 
an ACO if they receive a plurality of their primary care services from 
primary care physicians within that ACO. We believe that the plurality 
rule provides a sufficient standard for assignment because it ensures 
that beneficiaries will be assigned to an ACO when they receive more 
primary care from that ACO than from any other provider. This will 
result in a greater number of beneficiaries assigned to ACOs, which may 
enhance the viability of the Shared Savings Program, especially in its 
initial years of operation. We welcome comments on our proposal to 
assign patients based upon a plurality rule. Additionally we would also 
welcome any comments on whether there should be a minimum threshold 
number of primary care services that a beneficiary should receive from 
physicians in the ACO in order to be assigned to the ACO under the 
plurality rule and if so, where that minimum threshold should be set.
    Finally, we can determine when a beneficiary has received a 
plurality of primary care services from an ACO either on the basis of a 
simple service count or on the basis of the accumulated allowed charges 
for the services delivered. The method of using a plurality of allowed 
charges would provide a greater weight to more complex primary care 
services in the assignment methodology, while a simple service method 
count would weigh all primary care encounters equally in determining 
assignment. We have previous experience with the method of using a 
plurality of allowed charges in the PGP demonstration. One advantage of 
this method is that it would not require tie-breaker rules, since it is 
unlikely that allowed charges by two different entities would be equal. 
On the other hand, this method does not necessarily assign the 
beneficiary to the entity that saw the patient most frequently, but 
rather to the entity that provided the highest complexity and intensity 
of primary care services. Assignment of beneficiaries on the basis of 
plurality in a simple service method count would require tie-breaker 
rules for those rare occasions when two or more entities delivered an 
equal number of services to a beneficiary. One possible tie-breaker for 
such cases is to assign the beneficiary to the ACO if it is the entity 
that most recently provided primary care services.
    We propose to implement the method of using a plurality of allowed 
charges for primary care services to assign beneficiaries to ACOs. 
Allowed charges are a reasonable proxy for the resource use of the 
underlying primary care services, so the method of using a plurality of 
allowed charges assigns beneficiaries to ACOs according to the 
intensity of their primary care interactions, not merely the frequency 
of such services.
5. Beneficiary Information and Notification
    Section 1899(c) of the Act, as added by section 3022 of the 
Affordable Care Act, does not state whether beneficiaries should be 
informed in any way about the Shared Savings Program. Thus, it does not 
specify any information to be provided to beneficiaries about the 
Shared Savings Program in general, whether they are receiving services 
from an ACO participant or ACO provider/supplier, or whether they have 
been assigned to an ACO for purposes of determining that ACO's 
performance with respect to the quality standards and its possible 
shared savings under the Shared Savings Program.
    As discussed previously, the term ``assignment'' as used in the 
statute for purposes of this provision in no way implies any limits, 
restrictions, or diminishment of the rights of Medicare FFS 
beneficiaries to exercise freedom of choice in the physicians and other 
health care practitioners from whom they receive their services. 
Rather, the statutory term ``assignment'' in this context refers only 
to an operational process by which Medicare will determine whether a 
beneficiary has chosen to receive a sufficient level of the requisite 
primary care services from a specific ACO so that the ACO may be 
appropriately designated as being accountable for that beneficiary's 
care. For example, if a beneficiary's physician becomes part of an ACO 
and the beneficiary does not wish to receive health care services under 
the ACO care coordination and management efforts, the beneficiary has 
the freedom of choice to go to a different physician. The continued 
exercise of free choice by beneficiaries in selecting the physicians 
and other health care practitioners from whom they receive their 
services is thus a presupposition of the Shared Savings Program. The 
exercise of free choice, however, can be undermined or even nullified 
if beneficiaries do not possess adequate information to assess the 
possible consequences of available choices, or to evaluate which 
available options are most consistent with their values and preferences 
concerning their own health care. We therefore believe that an 
important component of the Shared Savings Program must be timely and 
effective communication with beneficiaries concerning the Shared 
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[[Page 19568]]

assignment to an ACO, and what that may mean for the beneficiaries' 
care.
    Furthermore, the Shared Savings Program lays the foundation for a 
beneficiary-centered delivery system that should create a strong 
relationship between beneficiaries and care providers based, in large 
part, on patient engagement in the new care system. Such engagement 
would be more difficult when beneficiaries are not aware of the new 
delivery system available from ACOs, and the possibility of being 
included in the population assigned to an ACO. In short, transparency 
must be a central feature of the Shared Savings Program.
    Therefore, we intend to develop a communications plan, including 
educational materials and other forms of outreach, to provide 
beneficiaries in a timely manner with accurate, clear, and 
understandable information about the Shared Savings Program in general, 
about their utilization of services furnished by a provider or supplier 
participating in an ACO, about the possibility of their being assigned 
to an ACO for quality and shared savings purposes, and about the 
potential that their health information may be shared with the ACO, and 
their ability to opt-out of that data sharing. Accordingly, we will 
update the annual Medicare handbook to contain information about the 
Shared Savings Program, ACOs, and what receiving care from an ACO means 
for the Medicare FFS beneficiary.
    One limitation on the timing of the information that we provide to 
beneficiaries arises from our proposal to assign beneficiaries to an 
ACO retroactively, that is, after the end of a performance year, on the 
basis of a beneficiary's actual primary care service utilization during 
the year. It is therefore not possible to inform beneficiaries of their 
assignment to an ACO in advance of the period in which they may seek 
services from the ACO. However, we believe that it is essential for 
beneficiaries to receive some form of advance notification that a 
physician or other provider from whom they are receiving services is 
participating in an ACO. The only practical manner in which such 
notification could be provided in a timely manner is to require ACOs to 
provide such notification to beneficiaries when they seek services from 
ACO providers/suppliers. Specifically, we propose to require ACOs to 
post signs in the facilities of participating ACO providers/suppliers 
indicating their participation in the Shared Savings Program and to 
make available standardized written information to Medicare FFS 
beneficiaries whom they serve. ACOs would provide standardized written 
notice to beneficiaries of both their participation in the Shared 
Savings Program and the potential for CMS to share beneficiary 
identifiable data with ACOs when a beneficiary receives services from a 
physician on whom assignment to ACO is based. We also plan to instruct 
ACOs to supply a form allowing beneficiaries to opt-out of having their 
data shared. The form would be provided to each beneficiary as part of 
their office visit with a primary care physician, and must include a 
phone number, fax or e-mail for beneficiaries to contact and request 
that their data not be shared.
    Likewise, in instances where either an ACO chooses to no longer 
participate in the Shared Savings Program or we have terminated a 
participation agreement with an ACO, beneficiaries should be made aware 
of this change. Thus, we are proposing that ACOs be required to provide 
beneficiaries notice in a timely manner if they will no longer be 
participating in the Shared Savings Program. It should include the 
effective date of the termination of their agreement with us. As 
discussed in section II.C. of this proposed rule, we are also proposing 
to require an ACO seeking to terminate its participation in the Shared 
Savings Program to provide us with advanced notice.
    We recognize that such a requirement could place an administrative 
burden on ACOs. However, we believe that such notification is essential 
to enhance patient engagement and understanding of their care. As 
discussed in section II.B. of this proposed rule, section 1899(b)(2)(H) 
of the Act requires that the ``ACO * * * demonstrate to the Secretary 
that it meets patient-centeredness criteria specified by the Secretary 
* * *.'' We believe that providing notice of participation in or 
termination from the Shared Savings Program to beneficiaries is 
essential to the ability of beneficiaries to exercise free choice, and 
therefore would be an appropriate patient-centered criterion to be 
designated by the Secretary. In addition to notifying beneficiaries 
that they are seeking services from a provider or supplier 
participating in an ACO under the Shared Savings Program, this proposed 
notification will inform beneficiaries how assignment with an ACO is 
likely to affect (and not affect) the care they receive from the 
providers they have chosen. We seek comment on the appropriate form and 
content of this notification. For example, we seek comment on the 
utility of informing consumers about those objectives of the Shared 
Savings Program that might have the most impact on the beneficiary as a 
consumer of services from an ACO professional, such as the following:
     Easing the burden on consumers to coordinate their own 
care among different providers,
     Fostering follow-up with patients as they receive care 
from different providers,
     Facilitating greater dialogue between and among 
beneficiaries and providers about how health care is delivered, and
     Providing beneficiaries with quality measures by which 
they can evaluate the performance of their providers compared to 
regional and national norms.
    We also seek comment on the most important items to communicate to 
beneficiaries about matters that will not change under the Shared 
Savings Program, including the fact that their cost-sharing will 
continue to be the same, and they remain free to seek care from 
providers of their choosing.
    We welcome comments not only on our proposal to establish these 
notification requirements, but also on all matters concerning the 
appropriate form and content of such notification. If we adopt a 
notification requirement in the final rule, we will take comments on 
the issues such as the appropriate form and content of such a 
notification into account as we develop more detailed instructions for 
ACOs on beneficiary notification through guidance.

E. Quality and Other Reporting Requirements

1. Introduction
    As discussed in section I. of this proposed rule, the intent of the 
Shared Savings Program is to: (1) Promote accountability to Medicare 
beneficiaries; (2) improve the coordination of FFS items and services; 
and (3) encourage investment in infrastructure and redesigned care 
processes to achieve high health care quality and efficient service 
delivery. In conjunction with the Shared Savings Program and other 
provisions of the Affordable Care Act, we have adopted three goals for 
improvement of the health care of Medicare beneficiaries and, by 
extension, of all Americans. These goals include: (1) Better care for 
individuals; (2) better health for populations; and (3) lower growth in 
expenditures. (We define better health care for individuals as health 
care that is safe, effective, patient-centered, timely, efficient, and 
equitable, as described in the IOM's six aims for changing U.S. health 
care delivery.) \14\ This section of this

[[Page 19569]]

proposed rule pertains to the first two goals.
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    \14\ Committee on Quality of Health Care in America, Institute 
of Medicine. Crossing the Quality Chasm: A New Health System for the 
21st Century. Washington, DC, USA: National Academies Press; 2001.
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    In this portion of the proposed regulation, we propose: (1) 
Measures to assess the quality of care furnished by an ACO; (2) 
requirements for data submission by ACOs; (3) quality performance 
standards; (4) the incorporation of reporting requirements under 
section 1848 of the Act for the Physician Quality Reporting System; and 
(5) requirements for public reporting by ACOs.
2. Proposed Measures To Assess the Quality of Care Furnished by an ACO
a. General
    Section 1899(b)(3)(A) of the Act, requires the Secretary to 
determine appropriate measures to assess the quality of care furnished 
by the ACO, such as measures of clinical processes and outcomes; 
patient, and, wherever practicable, caregiver experience of care; and 
utilization (such as rates of hospital admission for ambulatory 
sensitive conditions). Section 1899(b)(3)(B) of the Act requires ACOs 
to submit data in a form and manner specified by the Secretary on 
measures that the Secretary determines necessary for the ACO to report 
in order to evaluate the quality of care furnished by the ACO. We 
believe that the Secretary's authority to determine the form and manner 
of data submission allows for establishing requirements for submission 
of data on measures the Secretary determines to be appropriate for 
evaluating the quality of care furnished by the ACO, without regard to 
whether the Secretary has established a specific quality performance 
standard with respect to those measures that must be met in order to be 
eligible for shared savings.
    We propose that an ACO be considered to have met the quality 
performance standard if they have reported quality measures and met the 
applicable performance criteria in accordance with the requirements 
detailed in rulemaking for each of the three performance years. We 
further propose to define the quality performance standard at the 
reporting level for the first year of the Shared Savings Program and to 
define it based on measure scores in subsequent program years. We have 
listed the measures we propose to use to establish quality performance 
standards that ACOs must meet for shared savings for the first 
performance period in Table 1. Quality measures for the remaining two 
years of the 3-year agreement will be proposed in future rulemaking.
b. Considerations in Selecting Measures
    We view value-based purchasing as an important step to revamping 
how care and services are paid for, moving increasingly toward 
rewarding better value, outcomes, and innovations instead of merely 
volume. The Shared Savings Program is a critical element of our 
Medicare value-based purchasing initiative. In implementing these 
value-based purchasing initiatives, we seek to meet certain common 
goals, as follows:
1. Use of Measures
     Value-based payment systems and public reporting should 
rely on a mix of standards, processes, outcomes, and patient experience 
measures, including measures of care transitions and changes in patient 
functional status. Across all programs, we seek to move as quickly as 
possible to the use of outcome and patient experience measures. To the 
extent practicable and appropriate, these outcome and patient 
experience measures should be adjusted for risk or other appropriate 
patient population or provider characteristics.
     To the extent possible, and recognizing differences in 
payment system maturity and statutory authorities, measures should be 
aligned across Medicare and Medicaid's public reporting and payment 
systems. We seek to evolve a focused core-set of measures appropriate 
to each specific provider category that reflects the level of care and 
the most important areas of service and measures for that provider.
     The collection of information should minimize the burden 
on providers to the extent possible. As part of that effort, we have 
begun and will continuously seek to align Shared Savings Program 
measures with the methods and measures included in the Medicare and 
Medicaid EHR Incentive Programs to enable the collection and reporting 
of performance information to be a seamless part of care delivery and 
the meaningful use of certified EHR technology.
     To the extent practicable, measures used by us should be 
nationally endorsed by a multi-stakeholder organization. Measures 
should be aligned with best practices among other payers and the needs 
of the end users of the measures.
2. Scoring Methodology
     Providers should be scored on their overall achievement 
relative to national or other appropriate benchmarks. In addition, 
scoring methodologies should consider improvement as an independent 
goal.
     Measures or measurement domains need not be given equal 
weight, but over time, scoring methodologies should be more weighted 
towards outcome, patient experience and functional status measures.
     Scoring methodologies should be reliable, as 
straightforward as possible, and stable over time and enable consumers, 
providers, and payers to make meaningful distinctions among providers' 
performance.
    Consistent with these value-based purchasing principles, our 
principal goal in selecting quality measures for ACOs is to identify 
measures of success in the delivery of high-quality health care at the 
individual and population levels. We considered a broad array of 
process and outcome measures and accounted for a variety of factors in 
arriving at the proposed measures, prioritizing measures that meet the 
following:
     Address the goals we previously identified: Improving 
individual health and improving the health of populations.
     Address an array of quality domains, priorities, and aims, 
including the IOM six quality aims previously described and the 
National Quality Strategy, and other HHS priorities, such as 
prevention, care of chronic illness, treatment of high prevalence 
conditions such as cardiovascular disease, patient safety, patient and 
caregiver engagement, and care coordination.
     Support the goals for the Shared Savings Program, as 
stated in section 1899(a)(1) of the Act, of promoting provider 
accountability for a patient population, coordinating care furnished 
under Medicare Parts A and B, and encouraging investment in 
infrastructure and redesigned care processes for high quality and 
efficient service delivery. Thus, measures should have high impact in 
terms of accountability and cost, particularly for vulnerable 
populations, when comparing beneficiary care received in ACOs to 
beneficiary care received in non-ACO Medicare FFS.
     Align with other Medicare incentive programs such as the 
Physician Quality Reporting System (``PQRS''; formerly known as the 
Physician Quality Reporting Initiative), Electronic Prescribing 
Incentive Program, Electronic Health Records (EHR) Incentive Programs, 
Hospital Inpatient Quality Reporting Program, and also Medicaid and 
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[[Page 19570]]

     Include the quality performance standards that ACOs must 
meet in order to be eligible for shared savings, which should be well-
established, correlate with improved patient outcomes, and be accepted 
by the professional and provider community, such as through National 
Quality Forum (NQF) endorsement.
     Are consistent across ACOs, regardless of ACO composition.
     Offer key opportunities for improvement in care and 
significantly impact the health status and outcomes of care for the 
Medicare beneficiaries served by the ACO.
     Are limited to those that have high impact, and/or are 
cross-cutting to the extent possible, with parsimony serving to focus 
clinical attention, and limiting the burden of data collection and 
reporting.
     Exhibit sensitivity to administrative burden and seek to 
become less burdensome over time.
c. Proposed Quality Measures for Use in Establishing Quality 
Performance Standards That ACOs Must Meet for Shared Savings
    Based upon the principles described, we are proposing 65 measures 
(see Table 1) for use in the calculation of the ACO Quality Performance 
Standard. We propose that ACOs will submit data on these measures using 
the process described later in this proposed rule and meet defined 
quality performance thresholds. We propose that ACOs be required to 
report quality measures and meet applicable performance criteria, as 
defined in rulemaking, for all 3 years within the 3-year agreement 
period to be considered as having met the quality performance standard. 
Specifically, for the first year of the program, we propose for the 
quality performance standard to be at the level of full and accurate 
measures reporting; for subsequent years, we propose the quality 
performance standard be based on a measures scale with a minimum 
attainment level as described in section II.E.4 of this proposed rule.
    ACOs that do not meet the quality performance thresholds for all 
proposed measures would not be eligible for shared savings, regardless 
of how much per capita costs were reduced. Specifically, as discussed 
in section II.H. of this proposed rule, in those instances where an ACO 
fails to meet the minimum attainment level for 1 or more domains, we 
propose to give the ACO a warning and to re-evaluate the following 
year. If the ACO continues to underperform on the quality performance 
standards in the following year, the agreement will be terminated. We 
also propose that if an ACO fails to report 1 or more measures, we 
would send the ACO a written request to submit the required data by a 
specified date and to provide a reasonable written explanation for its 
delay in reporting the required information. If the ACO fails to report 
by the requested deadline and does not provide a reasonable explanation 
for delayed reporting, we would immediately terminate the ACO for 
failing to report quality measures. ACOs that exhibit a pattern of 
inaccurate or incomplete reporting or fail to make timely corrections 
following notice to resubmit may be terminated from the program. We 
note that since meeting the quality standard is a condition for sharing 
in savings, the ACO would be disqualified from sharing in savings in 
each year in which it underperforms. Termination from the Shared 
Savings Program is discussed further in sections II.H and II.C. of this 
proposed rule.
    In addition to categorizing each of the proposed measures into the 
goals of better care for individuals and better health for populations, 
Table 1 includes the domain each of the proposed measures addresses, 
the measure title, a brief description of the data the measure 
captures, applicable Physician Quality Reporting System or EHR 
Incentive Programs information, the measure steward or, if applicable, 
NQF measure number, the proposed method of data submission for each 
measure, and the Measure Type. Under Measure Type, we have listed 
Patient Experience of Care, Process, or Outcome, consistent with the 
domains proposed in the Hospital Value Based Purchasing rule (76 FR 
2457), for each of the proposed Shared Savings Program quality 
measures.
    In an effort to provide focus to ACO quality improvement activity, 
we have identified 5 key domains within the dimensions of improved care 
and improved health that we propose will serve as the basis for 
assessing, benchmarking, rewarding, and improving ACO quality 
performance. These 5 domains are as follows:
     Better Care for Individuals:
    ++ Patient/Caregiver Experience
    ++ Care Coordination
    ++ Patient Safety
     Better Health for Populations:
    ++ Preventive Health
    ++ At-Risk Population/Frail Elderly Health
    We note that while many of the proposed measures have NQF 
endorsement or are currently used in other CMS quality programs, the 
specifications for some of the proposed measures will need to be 
refined in order to be applicable to an ACO population. However, we 
propose to align the quality measures specifications for the Shared 
Savings Program with the measures specifications used in our existing 
quality programs to the extent possible and appropriate for purposes of 
the Shared Savings Program. We plan to make the specifications for the 
proposed measures available on our Web site prior to the start of the 
Shared Savings Program.
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    Information on Physician Quality Reporting System measures are 
available at: http://www.cms.gov/pqri/. Information on EHR Incentive 
Program measures are available at: https://www.cms.gov/EHRIncentivePrograms/. Information on quality measures used by the 
Hospital Inpatient Quality Reporting Program are available at: http://www.cms.gov/HospitalQualityInits/08_HospitalRHQDAPU.asp.
    As illustrated in the ``Method of Data Submission'' column of Table 
1, we propose to calculate results for the first program year measures 
via claims, the Group Practice Reporting Option (GPRO) data collection 
tool, as discussed in section II.E.4. of this proposed rule, and survey 
instruments. The ACO GPRO tool would be a new tool based on the data 
collection tool currently used in the Physician Quality Reporting 
System (formerly known as the Physician Quality Reporting Initiative) 
group practice reporting option (GPRO) and Physician Group Practice 
(PGP) demonstration.
    In subsequent program years through additional rulemaking, we would 
expect to refine and expand the ACO measures to enhance our ability to 
assess the quality of care furnished by ACOs participating in the 
Shared Savings Program and expand measures reporting mechanisms to 
include those that are directly EHR-based. Specifically, we expect to 
expand the measures through future rulemaking to include other highly 
prevalent conditions and areas of interest, such as frailty, as well as 
measures of caregiver experience. In addition to ambulatory measures, 
we would expect to add measures of hospital-based care and quality 
measures for care furnished in other settings, such as home health 
services and nursing homes. To the extent consistent with the Shared 
Savings Program requirements under section 1899 of the Act, we also 
anticipate the ACO quality measures will evolve over time in an effort 
to achieve our quality program alignment goal of developing a single 
quality measure set that could be used by ACOs operating across a wide 
variety of payers, including those dealing with Medicaid, the 
Children's Health Insurance Program (CHIP), and Special Needs Plans.
    We invite comments on the implication of including or excluding any 
proposed measure or measures in the calculation of the ACO Quality 
Performance Standard. Commenters may suggest variations or 
substitutions that are substantially equivalent to the proposed 
measures. However, without future rulemaking, we cannot consider 
measures that do not substantially cover the same patient populations, 
processes, or outcomes addressed by the existing measures outlined in 
this proposed rule. We invite comment on whether the list of proposed 
measures should be narrowed, and also invite comments on whether any of 
the measures we proposed in Table 1 for calculating the ACO Quality 
Performance Standard should be excluded for scoring purposes and/or 
instead be considered for quality monitoring purposes only. Finally, we 
also seek comment on a process for retiring or adjusting the weights of 
domains, modules, or measures over time.
3. Requirements for Quality Measures Data Submission by ACOs
a. General
    Under section 1899(b)(3)(B) of the Act, ACOs are required to submit 
data in a form and manner specified by the Secretary on measures the 
Secretary determines necessary for the ACO to report in order to 
evaluate the quality of care furnished by the ACO. Most of the proposed 
measures identified in Table 1 can be derived from CMS systems and 
calculated for the assigned patient population the ACO serves. Most of 
the measures are consistent with those reported for the Physician 
Quality Reporting System, others will rely on eRx and HITECH program 
data, and some may rely on Hospital Compare or the Centers for Disease 
Control and Prevention National Healthcare Safety Network data. 
However, we recognize that there are a number of limitations associated 
with claims-based reporting, since the claims processing system was 
designed for billing purposes and not for the submission of quality 
data. For instance, measures dealing with laboratory results are not 
conducive to claims-based reporting, since claims typically include 
diagnosis and procedure codes but not specific test results. For this 
reason, we propose to make available a CMS-specified data collection 
tool and a survey tool for certain proposed measures (that is, those 
measures in Table 1 where the proposed method of data submission is 
listed as ``GPRO'').
    We also propose that for some measures ACOs collect data via survey 
instruments. As noted previously, we plan to continually align the ACO 
reporting requirements with those required for the EHR Incentive 
Program and leverage the infrastructure and measures specifications 
being developed for that program. We propose that during the year 
following the first performance period, each ACO would be required to 
report via the GPRO tool, as applicable, the proposed quality measures 
listed in Table 1 with respect to services furnished during the 
performance period. We propose that we would derive the claims-based 
measures from claims submitted for services furnished during the first 
performance period, which therefore would not require any additional 
reporting on the part of ACO professionals. Survey data would also 
reflect care received during the first performance period. For future 
performance periods, we intend to use rulemaking to update the quality 
measure requirements and mechanisms.
    We welcome comments on the proposed data submission requirements. 
We also seek comment on whether alternative data submission methods 
should be required or considered, such as limiting the measures to 
claims-based and survey-based reporting only.
b. GPRO Tool
    In 2010, 36 large group practices and integrated delivery systems 
used the GPRO tool to report 26 quality measures for an assigned 
patient population under the Physician Quality Reporting System. The 
GPRO tool affords a key advantage in that it is a mechanism through 
which beneficiary laboratory results and other measures requiring 
clinical information can be reported to us. The tool would allow ACOs 
to submit clinical information from EHRs, registries, and 
administrative data sources required for measurement reporting. The 
tool reduces the administrative burden on health care providers 
participating in ACOs by allowing them to tap into their existing 
Information Technology (IT) tools that support data collection and 
health care provider feedback, including at the point of care. We 
propose that the existing GPRO tool be built out, refined, and upgraded 
to support clinical data collection and measurement reporting and 
feedback to ACOs under the Shared Savings Program.
    For the measures with ``GPRO'' listed as the method of data 
collection in Table 1, we plan to determine a sample for each domain or 
measure set within the domain using a sampling methodology modeled 
after the methodology currently used in the 2011 Physician Quality 
Reporting System GPRO I, as described later in the document. Assigned 
beneficiaries, for purposes of the GPRO tool, would be limited to those 
Medicare FFS beneficiaries assigned to the ACO, as discussed in Section 
II.D.
    For the measures with ``GPRO'' listed as the method of data 
collection in

[[Page 19593]]

Table 1, we also plan to provide each ACO with access to a database 
(that is, the GPRO data collection tool) that will include a sample of 
its assigned beneficiary population and the GPRO quality measures 
listed in Table 1. We plan to pre-populate the data collection tool 
with the beneficiaries' demographic and utilization information based 
on their Medicare claims data. The ACO would be required to populate 
the remaining data fields necessary for capturing quality measure 
information on each of the beneficiaries.
    Identical to the sampling method used in the 2011 Physician Quality 
Reporting System GPRO I, we plan to require that the random sample for 
measures reported via ACO GPRO must consist of at least 411 assigned 
beneficiaries per measure set/domain. If the pool of eligible, GPRO 
assigned beneficiaries is less than 411 for any measure set/domain, 
then we plan to require the ACO to report on 100 percent, or all, of 
the assigned beneficiaries. For each measure set/domain within the GPRO 
tool, the ACO would be required to report information on the assigned 
beneficiaries in the order in which they appear consecutively in the 
ACO's sample.
    Some GPRO measures will not rely on beneficiary data but rather on 
ACO attestation. GPRO measures relying on attestation include those in 
the Care Coordination domain that pertain to HITECH Meaningful Use, the 
Electronic Prescribing Incentive Program, and patient registry use. We 
plan to validate GPRO attestations through CMS data from the EHR 
Incentive Program and Electronic Prescribing Incentive Program.
    For the other measures, that we propose be reported via the GPRO 
tool, we propose to retain the right to validate the data entered into 
the tool. In the event we were to audit the data entered into the GPRO 
tool, we propose to do so via a data validation process based on the 
one used in phase I of the PGP demonstration, as described later in the 
document.
    In the GPRO audit process, we plan to abstract a random sample of 
30 beneficiaries previously abstracted for each of the quality measure 
domains/measure sets. The audit process would include up to three 
phases, depending on the results of the first two phases. Although each 
sample would include 30 beneficiaries per domain, only the first eight 
beneficiaries' medical records would be audited for mismatches during 
the first phase of the audit. A mismatch represents a discrepancy 
between the numerator inclusions or denominator exclusions in the data 
submitted by the ACO and our determination of their appropriateness 
based on supporting medical records information submitted by the ACO. 
If there are no mismatches, the remaining 22 of the 30 beneficiaries' 
records would not be audited. If there are mismatches, the second phase 
of the audit would occur, and the other 22 beneficiaries' records would 
be audited. A third phase would only be undertaken if mismatches are 
found in more than 10 percent of the medical records in phase two. If a 
specific error is identified and the audit process goes to Phase 3, 
which involves corrective action, we propose to first provide education 
to the ACO on the correct specification process and provide the 
opportunity to correct and resubmit the measure(s) in question. If, at 
the conclusion of the third audit process the mismatch rate is more 
than 10 percent, we propose that the ACO will not be given credit for 
meeting the quality target for any measures for which this mismatch 
rate still exists. We note that the failure to report quality measure 
data accurately, completely and timely (or to timely correct such data) 
may subject the ACO to termination or other sanctions, per the 
Monitoring section of this proposed rule.
    We invite comment on the proposed quality data submission 
requirements and on the administrative burden associated with 
reporting.
c. Certified EHR Technology
    In July 2010, HHS published final rules for the EHR Incentive 
Programs. Included within the final regulations were certain clinical 
quality measures for which eligible professionals and eligible 
hospitals are responsible. We have noted in Table 1, the proposed 
Shared Savings Program quality measures currently included in the EHR 
Incentive Programs and will continue to further align the measures 
between the two programs. Given that we have proposed in Section II.E.6 
that at least 50 percent of an ACO's PCPs are ``meaningful EHR users'' 
as that term is defined in 42 CFR 495.4 by the start of the second 
Shared Savings Program performance year in order to continue 
participation in the Shared Savings Program, our intent is to develop 
the capability of the GPRO web-based tool to interface with EHR 
technology, such that EHR data could directly populate the ACO GPRO 
tool with the required quality data. As we intend to further align both 
the Shared Savings Program and EHR incentive program through subsequent 
rulemaking, we anticipate that certified EHR technology (including 
certified EHR modules capable of reporting clinical quality measures) 
will be an additional measures reporting mechanism used by ACOs under 
the Shared Savings Program for future program years.
4. Quality Performance Standards
a. General
    Before an ACO can share in any savings created, it must demonstrate 
that it is delivering high quality care. Thus, a calculation of the 
quality performance standard will indicate whether an ACO has met the 
quality performance goals that would deem it eligible for shared 
savings. As discussed previously in section II.E.3 of this proposed 
rule, we propose to use the 65 measures in Table 1 to establish the 
quality performance standards that ACOs must meet in order to be 
eligible for shared savings.
    We considered two alternative options for establishing quality 
standards: Rewards for better performance, and a minimum quality 
threshold for shared savings. The performance score approach rewards 
ACOs for better quality with larger percentages of shared savings. The 
threshold approach ensures that ACOs exceed minimum standards for the 
quality of care, but allows full shared savings if ACOs meet the 
minimum. We propose the performance score approach and seek comment on 
the threshold approach.
b. Option 1--Performance Scoring
    Under the first option, we would use quality performance standards 
to arrive at a total performance score for an ACO. We would organize 
the measures by domain, as discussed in section II.E.5.b. of this 
proposed rule. The performance on each measure will be scored, as 
discussed in section II.E.5.c. of this proposed rule. The scores for 
the measures will be rolled up into a score by each domain as discussed 
in section II.E.5.d. of this proposed rule. ACOs will receive 
performance feedback at both the individual measure and domain level. 
The percentage of points earned for each domain will be aggregated 
using the weighting method discussed in section II.E.5.d. of this 
proposed rule to arrive at a single percentage that will be applied to 
determine the quality sharing rate for which the ACO is eligible. The 
aggregated domain scores will determine the ACO's eligibility for 
sharing up to 50 percent of the total savings generated by the ACO 
under the one-sided model or 60 percent of the total savings generated 
by the ACO under the two-sided risk model discussed in Section II. G, 
Two-Side

[[Page 19594]]

Model. We also discuss our proposal to set the quality performance 
standard in the first year of the Shared Savings Program at the 
reporting level and set the standard at a higher level in subsequent 
years in section II.E.5.e. of this proposed rule.
(1) Measure Domains and Measures Included in the Domains
    The 65 quality performance standard measures in Table 1 are 
subdivided into 5 domains, as discussed in section II.E.3.c. of this 
proposed rule. The domains include: (1) Patient/Caregiver Experience; 
(2) Care Coordination; (3) Patient Safety; (4) Preventive Health; (5) 
At-Risk Population/Frail Elderly Health. The At-Risk Population Care 
domain would include the following chronic diseases: Diabetes mellitus 
(DM); heart failure (HF); coronary artery disease (CAD); hypertension; 
and chronic obstructive pulmonary disorder (COPD). The measures from 
Table 1 that are included in each domain are as indicated in Table 2.
[GRAPHIC] [TIFF OMITTED] TP07AP11.021

(2) Methodology for Calculating a Performance Score for Each Measure 
Within a Domain
    We propose that an ACO will receive a performance score on each 
measure included in Table 1. For the first year of the Shared Savings 
Program, these scores would be for informational purposes, since we 
propose to set the quality performance standard at the reporting level. 
We propose setting benchmarks for each measure using Medicare FFS 
claims data, MA quality performance rates, or, where appropriate, the 
corresponding percent performance rates that an ACO will be required to 
demonstrate. For each measure, we propose to set a performance 
benchmark and a minimum attainment level as defined in Table 3. The 
benchmarks would be established using the most currently available data 
source and most recent available year of benchmark data prior to the 
start of the Shared Savings Program annual agreement periods. We would 
determine Medicare FFS rates by pulling a data sample and modeling the 
measures. For MA rates, we would check the distribution from annual MA 
quality performance data and set the benchmark accordingly. 
Furthermore, since MA quality performance rates utilize both claims and 
clinical data, we propose to use those rates when they are available.
    Benchmark levels for each of the measures included in the quality 
performance standard would be made available to ACOs, prior to the 
start of the Shared Savings Program and each annual performance period 
thereafter, so ACOs will be aware of the benchmarks they must achieve 
to receive the maximum quality score. In future program years, we 
anticipate that actual ACO performance will be used to update the 
benchmarks. As discussed in section II.H of this proposed rule, if an 
ACO fails to meet quality performance standard during a performance 
year (that is, fails to meet, the minimum attainment level for one or 
more domain(s)), we propose to give the ACO a warning, provide an 
opportunity to resubmit, and reevaluate the ACO's performance the 
following year. If the ACO continues to significantly under-perform, 
the agreement may be terminated. We further propose that ACOs that 
exhibit a pattern of inaccurate or incomplete reporting or fail to make 
timely corrections following notice to resubmit may be terminated from 
the program.

[[Page 19595]]

[GRAPHIC] [TIFF OMITTED] TP07AP11.022

    We propose that performance below the minimum attainment level 
would earn zero points for that measure under both the one-sided and 
two-sided risk models. Performance equal to or greater than the minimum 
attainment level but less than the performance benchmark shall receive 
points on a sliding scale based on the level of performance, for those 
measures in which the points scale applies. Table 3 represents the 
approach that we are currently considering. We also are considering 
setting the initial minimum attainment level for both the one-sided and 
two-sided shared savings models at 30 percent or the 30th percentile of 
Medicare FFS or the MA rate, depending on what performance data are 
available.
    Measures 35 and 52 in Table 1 include diabetes and coronary artery 
disease composite measures in which we propose ``all or nothing'' 
scoring. We propose that measures designated as all or nothing measures 
receive the maximum available points if all criteria are met and zero 
points if at least one of the criteria are not met. We define ``all or 
nothing'' scoring to mean all of the care process steps and expected 
outcomes for a particular beneficiary with the target condition must be 
achieved to score positively. This means all 5 submeasures within the 
diabetes composite and all 5 submeasures within the CAD composite would 
need to be reported in order to earn points for these 2 composite 
measures. The intent of all or nothing scoring is to signal to 
providers that failing to perform any element of a process is 
unacceptable and will result in a ``zero'' score for quality for that 
measure. We believe that incorporating all or nothing scoring concepts 
into the ACO quality performance standard would provide greater insight 
into the use of these methodologies, drive ACOs to aggressively improve 
their population's health, and encourage future development of 
composite measures.
    However, we also recognize that all or nothing scoring implies that 
all beneficiaries can and should receive the indicated care process, 
which may not necessarily be appropriate for all beneficiaries in the 
Medicare population given the difficulty in attaining targets for 
individuals with multiple chronic conditions and complications that may 
not be adequately addressed in denominator exclusions. Therefore, in 
addition to scoring the diabetes and CAD composites, we also propose 
scoring the sub measures within the diabetes and CAD composites 
individually.
    Measure 24 is a hospital acquired conditions (HACs) 
composite, in which we propose a summation of the events included 
within the measure and attributing the rate to the same scale used for 
other measures described in Table 3. We do not propose all or nothing 
scoring for this composite, since the HACs are rare events. Because the 
HACs are rare events, we believe that grouping them into one measure 
will make the measure more meaningful for ACOs, which will have smaller 
populations and, therefore, should have even fewer HAC events than a 
hospital would experience for its total population outside of the 
Shared Savings Program. We also believe grouping the HACs into one 
measure reduces the HACs' impact on the ACO's overall quality 
performance score. We intend to post performance rates for the final 
measures set, including the applicable benchmarks, on the CMS Web site 
prior to the start of the first performance period.
(3) Methodology for Calculating a Performance Score for Each Domain
    Similar to our proposal for setting a quality standard for each 
individual measure at the reporting level in the first program year, we 
also propose setting a quality standard for each domain at the 
reporting level. For subsequent program years, we plan to calculate the 
percentage of points an ACO earns for each domain after determining the 
points earned for each measure. We plan to divide the points earned by 
the ACO across all measures in the domain by the total points available 
in that particular domain. Each domain would be worth a pre-defined 
number of points based on the number of individual measures in the 
domain, as shown in Table 4.

[[Page 19596]]

[GRAPHIC] [TIFF OMITTED] TP07AP11.023

    As illustrated in Table 4, a maximum of 2 points per measure could 
be earned under both the one-sided and two-sided model based on the 
ACO's performance. However, the total potential for shared savings will 
be higher under the two-sided model, since the maximum potential 
shareable savings based on quality performance is 60 percent of the 
savings generated, compared to 50 percent under the one-sided model. 
That is, full and accurate reporting of the quality measures in the 
first year of the Shared Savings Program will result in an ACO earning 
60 or 50 percent of shareable savings, depending on whether the ACO is 
in the two-sided or one-sided model. For future program years, the 
percent of potential shareable savings will vary on the ACO's 
performance on the measures as compared with the measure benchmarks.
    For example, the preventive health domain has 9 measures and would 
be worth a maximum of 18 points (that is, 9 measures x 2 points equals 
18 quality points). We propose the sliding scale in Table 3 for 
determining points earned for each measure. As mentioned previously, we 
propose calculating the percentage of points an ACO earns for each 
domain by dividing the points earned by the total points available, 
yielding a percentage. For example, if an ACO earns 16.2 out of 18 
points in the preventive health domain, the ACO earned 90 percent of 
the points for the preventive health domain (16.2 divided by 18 equals 
.90). Assuming the ACO is operating under the two-sided shared savings 
model and earns 90 percent of the quality performance points across all 
five domains and generates shared savings, it would receive 90 percent 
of the ACO's share of the savings or 54 percent of the total savings 
generated. That is, achieving 90 percent of the potential 60 percent of 
shared savings an ACO can earn under the two-sided model, means the ACO 
could earn 54 percent of the total savings generated. Under the one-
sided model, achieving 90 percent of the potential 50 percent of shared 
savings, means the ACO could earn 45 percent of the shareable savings 
generated.
    Under both the one-sided and two-sided shared savings models, the 
quality measures domain scoring methodology treats all domains equally 
regardless of the number of measures within the domain. We believe the 
key benefit of weighting the domains equally is that it does not create 
a preference for any one domain, which we believe is important as we 
expect ACOs to vary in composition, and, as a result, to place more 
emphasis on different domains. We also considered weighting the domains 
to emphasize priority conditions or areas in order to emphasize (or de-
emphasize) certain measures that are more difficult (or easy) to 
achieve without needing to change the scoring methodology. This method 
would require judgment about which domains are more important than 
others, which may not be appropriate. Equal weighting contains an 
implicit judgment that domains such as patient/caregiver experience of 
care and patient safety are equally important to the quality of care. 
Accordingly, we believe ACOs should seek to address all aspects of 
patient care in order to improve the overall quality of care under the 
Medicare program. Furthermore, we want to encourage a diverse set of 
ACOs and believe that emphasizing certain domains over others would 
encourage a certain type of ACO to participate but discourage other 
types from participating.
    We propose aggregating the quality domain scores into a single 
overall ACO score which would be used to calculate the ACOs final 
sharing rate for purposes of determining shared savings or shared 
losses as described in section II.F. of this proposed rule. All domain 
scores for an ACO would be averaged together equally to calculate the 
overall quality score that would be used to calculate the ACO's final 
sharing rate.

[[Page 19597]]

    We also propose that ACOs must report completely and accurately on 
all measures within all domains to be deemed eligible for shared 
savings consideration. We believe this is important as it requires ACOs 
to address all domains and be accountable across the continuum of care. 
If the ACO demonstrates sufficient cost savings in addition to meeting 
the quality performance requirements, the ACO would be deemed eligible 
for shared savings. We believe that this methodology provides a 
sufficient incentive for quality improvement targeted to specific 
domains and allows ACOs of varying compositions, which may be stronger 
in some domains than others, to receive some level of shared savings. 
In addition to this proposed domain-based scoring methodology, we 
considered several other options for assessing the quality performance 
of ACOs. We considered scoring measures individually under a method 
that would weight all measures equally. Each measure would be worth the 
maximum points available as described previously for a total maximum 
possible points for each ACO. This system would avoid overweighting or 
underweighting measures due to the number of measures in a domain. We 
also considered weighting quality measures by their clinical 
importance. More important quality measures would account for a greater 
proportion of shared savings. Outcome measures such as hospital-
acquired infections and readmissions would be worth more than process 
measures. This would avoid overweighting or underweighting measures due 
to their domain, and account for clinical importance.
    However, we did not think either of these approaches would be 
consistent with a larger measurement strategy of driving better health 
for populations and better care for individuals overall for the ACO 
beneficiary population, since we believe population health is better 
assessed across domains that encompass a variety of measures that apply 
to beneficiaries with different needs.
(4) The Quality Performance Standard Level
    We propose to set the quality performance standard of the first 
year of the Shared Savings Program at the reporting level. That is, 
under the one-sided model, we propose that an ACO would receive 50 
percent of shared savings (provided that the ACO realizes sufficient 
cost savings under the methodology described in the Shared Savings 
Determination section of this proposed rule) based on 100 percent 
complete and accurate reporting on all quality measures. Similarly, we 
propose that under the two-sided risk model, ACOs would receive 60 
percent of shared savings (provided that the ACO realizes sufficient 
cost savings under the methodology described in the section II.G. of 
this proposed rule) based on 100 percent complete and accurate 
reporting on all quality measures. We believe setting the quality 
performance standard for the first year of the Shared Savings Program 
at full and accurate reporting allows ACOs to ramp up, invest in their 
infrastructure, engage ACO providers/suppliers, and redesign care 
processes to capture and provide data back to their ACO providers/
suppliers to transform care at the point of care. It also would provide 
CMS with the opportunity to learn about the process, establish and 
refine benchmarks on ACO reported data, and establish improvement 
targets using data reporting for the first performance year. Setting 
the quality performance standard at the reporting level is also 
consistent with other value-based purchasing programs that have started 
out initially as pay for reporting programs.
    Via future rulemaking, we plan to raise the quality performance 
standard requirements beginning in the second program year, when actual 
performance on the reported measures would be considered in determining 
whether an ACO is eligible to receive any shared savings (provided, 
that the ACO realizes cost savings under the methodology described in 
the Shared Savings Determination section of this proposed rule). We 
believe this approach is consistent with section 1899(b)(3)(C) of the 
Act, which requires that the Secretary ``seek to improve the quality of 
care furnished by ACOs over time by specifying higher standards, new 
measures, or both for the purposes of assessing such quality of care.''
c. Option 2: Quality Threshold
    Under the second option, we would establish a minimum quality 
threshold for participating ACOs. If an ACO exceeded the quality 
threshold, it would retain the full shared savings percentage 
attributable to quality under this proposed rule (50 percent for one-
sided risk, and 60 percent for two-sided risk). If an ACO did not meet 
the minimum quality standards in a performance year, it would not be 
eligible for shared savings. Furthermore, as discussed in section II.H. 
of this proposed rule and with respect to the performance standards 
option, if an ACO that fails to meet the minimum threshold during a 
performance year, we propose to give the ACO a warning, an opportunity 
for correction, and follow the termination process described in the 
Monitoring section if the ACO continues to underperform.
(1) Minimum Quality Threshold
    Alternatively, we could establish the minimum quality threshold 
using the same set of quality measures and domains outlined in Table 1. 
We would also use the benchmarks for performance described in Table 3, 
established using claims data from FFS Medicare or the Medicare 
Advantage program. The minimum quality threshold would be performance 
at or above the 50th percentile (on the performance standards described 
in Table 3) for each domain: patient/caregiver experience; care 
coordination; patient safety; preventive health; and at-risk 
population/frail elderly. If an ACO meets these thresholds, it would be 
eligible for the full 50 percent of shared savings attributable to 
quality for those participating in the one-sided model, and the full 60 
percent for those participating in the two-sided model. If an ACO 
failed to meet this threshold, it would not be eligible for shared 
savings. We expect that the quality threshold will increase over time 
in future rulemaking, under the requirement to improve the quality of 
care furnished by the ACO under section 1899(b)(3)(C) of the Act. We 
solicit comment on this approach and the appropriate threshold level, 
and on the pros and cons of the minimum threshold approach.
(2) Considerations in Establishing a Quality Threshold
    The quality threshold option has advantages and disadvantages 
compared with the performance standard option. Under the performance 
standard option, an ACO could receive rewards for higher quality based 
on outcomes in one or two domains (for example, patient/caregiver 
experience and preventive care), while having very low quality in 
others (for example, patient safety). This is true for individual 
measures (for example, healthcare-acquired infections) as well. Setting 
a minimum threshold ensures that all ACOs meet basic standards on all 
quality measures, with a special emphasis on patient safety. An ACO's 
quality outcomes may vary from year to year due to factors outside of 
its control, meaning that performance-based standards could reward ACOs 
due to random variability. A threshold established at a basic level of 
quality acknowledged to be minimally necessary presents less of a risk 
of being triggered due to random variation, as opposed to truly poor 
performance. Finally, for ACOs meeting

[[Page 19598]]

the threshold, their shared savings percentage attributable to quality 
would be fixed and certain. This would increase incentives, achieve 
savings, and present more certainty on potential investment returns for 
organizations considering whether or not to become ACOs.
    A quality threshold also presents disadvantages. Under this model, 
once an ACO is certain that it has met the minimum threshold, there is 
no incentive to continue improving quality; in effect, the quality 
incentives would be the same as under traditional FFS. ACOs may even 
have an incentive to reduce quality to just above the minimum. 
Additionally, an ACO would not be rewarded for improving quality 
outcomes on specific measures once it was confident that the minimum 
was exceeded.
    In addition to proposing these two options, we also considered 
establishing performance standards for the overarching goals (of 
improving health care for individuals and populations) or a single 
performance standard to measure overall ACO performance. However, we 
believe that such aggregated scores may not be meaningful or useful for 
the ACO, since the general goals of improving health for individuals 
and populations are not as actionable as, for instance, a specific goal 
of lowering patients' LDL cholesterol levels. For the patient 
experience domain measures, we also considered weighting more heavily 
the responses of beneficiaries who have sought care with the ACO 
providers longer than the responses of those who are newer to the ACO 
providers. Finally, we considered an option that would permit the ACO 
to satisfy the quality performance standards based on peer to peer 
benchmarking. Under this approach the quality measure benchmarks would 
be set based on all ACOs' performance during the year. However, the 
main reason we did not propose this option is that, for measures in 
which most ACOs achieve high performance levels, minor changes in 
performance could determine whether an ACO achieves the performance 
benchmark. Thus, there would be little incentive to improve quality 
beyond the level necessary to share in savings. Additionally, our 
proposed approach enables us to reward improvement over the minimum 
attainment level by allowing the ACO to share in greater savings as 
they improve over time.
    We also considered permitting ACOs to report a subset of the 
measures in Table 1, based on their level of readiness to participate 
in the Shared Savings Program. ACOs seeking to participate in the 
Shared Savings Program may vary with respect to their readiness to 
function in the Shared Savings Program, with respect to their 
organizational and systems capacity and structure. Accordingly, some 
ACOs might more quickly be able to demonstrate quality improvements and 
savings than will others. However, consistent with the overall goals of 
the Shared Savings Program discussed in section I. of this proposed 
rule, we believe that ACOs participating in the Shared Savings Program 
should seek to improve quality across a variety of measures addressing 
a range of domains, not only for those areas in which they are 
currently able or comfortable to report, hence our proposal to require 
100 percent reporting for the measures in Table 1 to satisfactorily 
meet the quality performance requirements under the Shared Savings 
Program
    We propose the performance scoring option and invite comment on 
this option as well as the quality threshold option. Within these 
options, we seek comment on the appropriateness of weighting all 
domains equally in determining an ACO's quality performance or whether 
certain domains and/or specific measures should be weighted more 
heavily. We also invite comment on alternatives that would blend these 
two approaches. For example, under the two-sided model, allowing ACOs 
that generate savings to increase their share of savings with higher 
quality scores (Option 1) but using a threshold approach (Option 2) 
when calculating losses so that higher quality does not reduce an ACO's 
share of any losses. Such an approach would have the effect of 
essentially applying a minimum sharing rate for losses (for example, 50 
percent) and could appropriately reflect the goal of the Shared Savings 
Program to reward high quality and efficient care, by providing a 
greater reward when high quality care is also efficient and less relief 
for high quality care that is not efficient. Alternatively, the 
threshold option could be utilized in the two-sided model so that if 
the threshold score for the two-sided model resulted in 60% shared 
savings, it would also result in 60 percent shared losses, creating a 
symmetrical two-sided model. Another example of a blended approach 
would be to use the threshold approach (Option 2) for the first 3 years 
of the Shared Savings Program and then, as experience is gained and 
measures are further aligned, transition to performance scoring (Option 
1). We also invite comment on the proposal to set the quality 
performance standard of the first program year at the reporting level 
and to raise the standard to reflect performance in subsequent years. 
We also invite comment on the proposed quality measures scoring 
methodologies under the one-sided and two-sided risk models. In 
addition, we invite comment on our proposal to have all quality 
measures listed in Table 1 required of all ACOs, and the alternative 
under which ACOs would be required to only report a subset of the 
measures in Table 1, based on their level of readiness for the Shared 
Savings Program.
5. Incorporation of Other Reporting Requirements Related to the 
Physician Quality Reporting System and Electronic Health Records 
Technology Under Section 1848 of the Act
    Medicare provides multiple incentive payment options for providers 
to report and use clinical information more proactively in their 
practices. The Affordable Care Act gives the Secretary authority to 
incorporate reporting requirements and incentive payments from these 
programs into the Shared Savings Program, and to use alternative 
criteria to determine if payments are warranted. Specifically, section 
1899(b)(3)(D) of the Act affords the Secretary discretion to ``* * * 
incorporate reporting requirements and incentive payments related to 
the physician quality reporting initiative (PQRI), under section 1848, 
including such requirements and such payments related to electronic 
prescribing, electronic health records, and other similar initiatives 
under section 1848 * * *'' and permits the Secretary to ``use 
alternative criteria than would otherwise apply under section 1848 for 
determining whether to make such payments.'' Under this authority, we 
propose to incorporate certain reporting requirements and payments 
related to the Physician Quality Reporting System into the Shared 
Savings Program for ``eligible professionals'' within an ACO. Under 
section 1848(k)(3)(B) of the Act, the term ``eligible professional'' 
means any of the following: (1) A physician; (2) a practitioner 
described in section 1842(b)(18)(C) of the Act; (3) a physical or 
occupational therapist or a qualified speech-language pathologist; or 
(4) a qualified audiologist.
    We propose to incorporate a Physician Quality Reporting System 
group practice reporting option (GPRO) under the Shared Savings Program 
and further propose that the eligible professionals that are ACO 
participant providers/suppliers would constitute a group practice for 
purposes of qualifying for a Physician Quality

[[Page 19599]]

Reporting System incentive under the Shared Savings Program. 
Specifically, eligible professionals would be required to submit data 
through the ACO on the quality measures proposed in Table 1 using the 
GPRO tool and methodology described in section II.E.3. of this proposed 
rule to qualify for the Physician Quality Reporting System incentive 
under the Shared Savings Program. We propose that the ACO would report 
and submit data on behalf of the eligible professionals in an effort to 
qualify for the Physician Quality Reporting System incentive as a group 
practice; that is, eligible professionals within an ACO would qualify 
for the Physician Quality Reporting System incentive as a group 
practice, and not as individuals. In addition, we propose a calendar 
year reporting period from January 1 through December 31, for purposes 
of the Physician Quality Reporting System incentive under the Shared 
Savings Program.
    With regard to the requirements for satisfactory reporting for 
purposes of earning the Physician Quality Reporting System incentive 
under the Shared Savings Program, we propose to incorporate certain 
aspects of the criteria for satisfactory reporting under the 2011 
Physician Quality Reporting System GPRO I option (75 FR 73506), with a 
few modifications. In particular, we propose the following criteria for 
satisfactory reporting for purposes of the Physician Quality Reporting 
System incentive for the first performance period under the Shared 
Savings Program:
     ACOs, on behalf of its EPs, would need to report on all 
measures included in the data collection tool;
     Beneficiaries will be assigned to the ACO using the 
methodology described in the Assignment section of this proposed rule. 
As a result, the GPRO tool would be populated based on a sample of the 
ACO-assigned beneficiary population. ACOs would need to complete the 
tool for the first 411 consecutively ranked and assigned beneficiaries 
in the order in which they appear in the group's sample for each 
domain, measure set, or individual measure if a separate denominator is 
required such as in the case of preventive care measures which may be 
specific to one sex. If the pool of eligible assigned beneficiaries is 
less than 411, the ACO would report on 100 percent of assigned 
beneficiaries for the domain, measure set, or individual measure.
     The GPRO tool will need to be completed for all domains, 
measure sets, and measures described in Table 1.
    Accordingly, eligible professionals within an ACO that 
satisfactorily report the measures proposed in Table 1 during the 
reporting period would qualify under the Shared Savings Program for a 
Physician Quality Reporting System incentive equal to 0.5 percent of 
the ACO's eligible professionals' total estimated Medicare Part B PFS 
allowed charges for covered professional services furnished during the 
first performance period. ``Covered professional services'' are 
services for which payment is made under, or based on, the physician 
fee schedule and which are furnished under the ACO participant's TINs.
    We plan to align the incorporated Physician Quality Reporting 
System requirements with the general Shared Savings Program reporting 
requirements, such that no extra reporting is actually required in 
order for eligible professionals or the ACO to earn the Physician 
Quality Reporting System incentive under the Shared Savings Program. 
Thus, for ACOs that meet the quality performance standard under the 
Shared Savings Program for the first performance period, the Physician 
Quality Reporting System eligible professionals within such ACOs will 
be considered eligible for the Physician Quality Reporting System 
incentive under the Shared Savings Program for that year. This means 
ACOs will need to report on all measures proposed in Table 1 in order 
to receive both the Shared Savings Program shared savings and Physician 
Quality Reporting System incentive. Failure to meet the Shared Savings 
Program quality performance standard would result in failure to be 
considered eligible for shared savings, as well as failure for the EPs 
within the ACO to receive a Physician Quality Reporting System 
incentive under the Shared Savings Program for that year. ACO 
participant provider/suppliers who meet the quality performance 
standard but do not generate shareable savings would still be eligible 
for PQRS incentive payments. We intend to discuss the policy for 
incorporating the Physician Quality Reporting System incentive under 
the Shared Savings Program for subsequent years in future rulemaking.
    We note that ACOs will be eligible for the Physician Quality 
Reporting System incentive under the Shared Savings Program to the 
extent that they contain eligible professionals as defined under Sec.  
414.90(b). As a result, not all ACOs will necessarily be eligible for 
the Physician Quality Reporting System incentive under the Shared 
Savings Program. A complete list of Physician Quality Reporting System 
eligible professionals (EP) is available at:  http://www.cms.gov/PQRI/Downloads/EligibleProfessionals.pdf. In addition, similar to 
traditional Physician Quality Reporting System, an EP could not qualify 
for the Physician Quality Reporting System incentive as both a group 
that is part of an ACO and as an individual. Furthermore, EPs could not 
qualify for a Physician Quality Reporting System incentive under both 
the Physician Quality Reporting System under the Shared Savings Program 
and the traditional Physician Quality Reporting System. For purposes of 
analysis and payment, we intend to use TINs and National Provider 
Identification numbers similar to what we have done in the traditional 
Physician Quality Reporting System (75 FR 40169), and we will provide 
such details in guidance.
    At this time, we are not proposing to incorporate such payments for 
the EHR Incentive Program or Electronic Prescribing Incentive Program 
under the Shared Savings Program. Professionals in ACOs may still 
separately participate in those other incentive programs. However, we 
propose to require in the Shared Savings Program measures also included 
in the EHR Incentive Program and metrics related to successful 
participation in the Medicare and Medicaid EHR Incentive Programs for 
eligible professionals and hospitals and the eRx Incentive Program, as 
illustrated in Table 1. Metrics related to successful participation in 
the EHR Incentive Program and the eRx Incentive Program includes 
scoring the percentage of ``meaningful users'' of certified EHR 
technology, as defined in our regulations, and the percentage of those 
professionals that meet the criteria for the eRx incentive, as measures 
that are part of the quality performance standard. These measures would 
be subject to the same points scale and 30 percent or 30th percentile 
minimum attainment level previously described in table D3. We note that 
including metrics based on EHR Incentive Program and eRx Incentive 
Program data does not in any way duplicate or replace specific program 
measures within each of the two respective programs or allow eligible 
professionals to satisfy the requirements of either of the two programs 
through the Shared Savings Program. To receive incentive payments under 
the EHR incentive or eRx programs (or to avoid payment adjustments), 
eligible professionals will be required to meet all the requirements of 
the respective EHR and eRx programs. In addition, as a Shared Savings 
Program requirement separate from the quality measures reporting 
discussed previously, we propose

[[Page 19600]]

requiring that at least 50 percent of an ACO's primary care physicians 
are determined to be ``meaningful EHR users'' as that term is defined 
in 42 CFR 495.4 as defined in the HITECH Act and subsequent Medicare 
regulations by the start of the second performance year in order to 
continue participation in the Shared Savings Program. The EHR Incentive 
regulations, including the definition of meaningful EHR user and 
certified EHR technology can be found at 42 CFR part 495, as published 
on July 28, 2010 (75 FR 44314). The preamble to the July 28, 2010 final 
rule also describes the stages of meaningful use. We believe these 
approaches would foster incentives for improving and delivering high 
quality care by engaging providers in performance based quality 
incentive programs; and encourage adoption of EHRs. The requirement 
that at least 50 percent of ACO primary care physicians be meaningful 
users represents a first step towards achieving our objective of 
incenting full participation of ACOs' providers in the EHR Incentive 
Program over time. For subsequent years, we anticipate proposing 
greater alignment between the Shared Savings Program and the EHR 
Incentive program through future rulemaking. We considered several 
other options for incorporating other program reporting requirements 
into the Shared Savings Program. One option was to incorporate 
Physician Quality Reporting System into the Shared Savings Program via 
a scaled approach, in which how the ACO performs on the quality 
measures under the Shared Savings Program would determine the amount of 
Physician Quality Reporting System incentive an ACO could earn. 
However, we thought this approach would be burdensome and confusing to 
providers who are used to a different approach under the traditional 
Physician Quality Reporting System. We also considered proposing to 
limit incorporation of the Physician Quality Reporting System incentive 
under the Shared Savings Program to the ACO's group practices that were 
used for beneficiary assignment rather than to all group practices 
associated with an ACO. However, we thought expanding the Physician 
Quality Reporting System incentive under the Shared Savings Program to 
all participant TINs within an ACO would be more efficient for EPs 
participating in both traditional Physician Quality Reporting System 
and the Physician Quality Reporting System and the Physician Quality 
Reporting System incentive under the Shared Savings Program. This way 
ACOs would report one way for the Physician Quality Reporting System 
for all of its ACO providers/suppliers who are eligible professionals; 
that is, for purposes of qualifying for the Physician Quality Reporting 
System incentive, the ACO would not need to report one way for the TINs 
used for beneficiary assignment and another way for the TINs not used 
for assignment. Another option we considered was to incorporate the eRx 
Incentive Program's incentive requirements and payments into the Shared 
Savings Program. However, we are not proposing to incorporate the eRx 
incentive requirements and payments under the Shared Savings Program 
since the eRx incentive ends after 2013. We believe it would be 
burdensome to require ACOs to incorporate the eRx incentive 
requirements for only a 2-year period.
    In concert with the proposal for 50 percent of primary care 
physicians to be meaningful EHR users by the second performance year, 
we seek comment on whether we should also specify a percentage-based 
requirement for hospitals. Such a requirement would be similar to the 
previous proposal for primary care physicians and would require 50 
percent of eligible hospitals that are ACO providers/suppliers achieve 
meaningful use of certified EHR technology by the start of the second 
performance year in order for the ACO to continue participation in the 
Shared Savings Program. We also request public comment related to 
circumstances where the ACO may only include one eligible hospital or 
no hospital and whether we would need to provide an exclusion or 
exemption in such a circumstance.
    We also considered limiting the metrics related to percentage of 
meaningful users to be applicable to the Medicare EHR Incentive Program 
only, since presumably ACO providers/suppliers may see a high 
proportion of Medicare FFS patients. However, we realize that ACO 
providers/suppliers eligible for the EHR incentive may seek to qualify 
for the EHR incentive through any of the EHR Incentive Programs 
available to Medicare and Medicaid eligible professionals and 
hospitals. Finally, we considered incorporating EHR Incentive Program's 
incentive requirements into the Shared Savings Program, however, per 
the previous discussion, we did not believe the program was ready for 
incorporation at this time. Furthermore, we are proposing that ACOs 
report quality measures as a group, and the EHR Incentive program does 
not include a group reporting option at this time.
    We invite comment on our proposal to incorporate Physician Quality 
Reporting System requirements and payments and certain metrics related 
to under the Shared Savings Program, as well as the options discussed 
previously that we considered.
6. Public Reporting
    Increasingly, transparency of information in the health care sector 
is seen as a means to facilitate more informed patient choice, offer 
incentives, and feedback that help improve the quality and lower the 
cost of care, and improve oversight with respect to program integrity. 
Examples of existing efforts that improve transparency include Hospital 
Compare, which enables patients along with their family and health care 
providers to compare the quality of care provided in the hospitals that 
agree to submit data on the quality of certain services they provide 
for certain conditions. Hospital Compare displays the following kinds 
of information:
     Rates for process of care measures that show whether or 
not hospitals provide some of the care that is recommended for patients 
being treated for a heart attack, heart failure, pneumonia, asthma 
(children only) or patients having surgery.
     Information on hospital outcome of care measures, 
including 30-day risk adjusted death (mortality) and readmission rates.
     Data collected from the Hospital Consumer Assessment of 
Healthcare Providers and Systems (HCAHPS) Survey, reflecting patients' 
hospital experiences.
     Medicare inpatient hospital payment information.
     The number of Medicare patients treated for certain 
illnesses or diagnoses (as reported by Medicare severity-diagnosis 
related groups (MS-DRGs)).
    (For more information, see the Hospital Compare Web site at http://www.hospitalcompare.hhs.gov/hospital-search.aspx?AspxAutoDetectCookieSupport=1.)
    Similarly, Nursing Home Compare reports detailed information about 
every Medicare and Medicaid-certified nursing home in the country. 
Nursing Home Compare includes comparative information on health 
inspection results such as: (1) An assessment of the care of residents; 
(2) the process of care; (3) staff and resident interactions; and (4) 
the nursing home environment; (5) nursing home staffing; and quality 
measures. (For more information, see the Nursing Home Compare Web site 
at http://www.medicare.gov/NHCompare/Include/DataSection/Questions/
SearchCriteriaNEW.asp?version=default&browser=

[[Page 19601]]

IE%7C6%7CWinXP&language=English&defaultstatus=0&pagelist=Home&CookiesEna
bledStatus=True.)
    The Affordable Care Act included several new initiatives that will 
expand transparency in the Medicare program. Among these, section 3003 
of the Affordable Care Act will make aggregate information on physician 
resource use publicly available; section 3004 of the Affordable Care 
Act will make quality data relating to long-term care hospitals, 
inpatient rehabilitation facilities, and hospices publicly available; 
and section 3005 of the Affordable Care Act will make quality data for 
certain cancer hospitals publicly available. Similarly, section 10331 
of the Affordable Care Act requires the Secretary to develop a 
Physician Compare Internet Web site by January 1, 2011 with information 
on physicians enrolled in the Medicare program and other eligible 
professionals who participate in the Physician Quality Reporting 
Initiative. Not later than January 1, 2013, the Secretary must also 
implement a plan for making information on quality and patient 
experience measures publicly available. Further, in developing this 
plan and as determined appropriate, the Secretary must consider the 
plan to transition to a value-based purchasing program for physicians 
and other practitioners developed under section 131 of the Medicare 
Improvements for Patients and Providers Act of 2008 (Pub. L. 110-275). 
Section 10332 of the Affordable Care Act requires the Secretary to make 
certain standardized claims data under Medicare Parts A, B, and D 
available to entities qualified by the Secretary to use these data to 
evaluate the performance of providers of services and suppliers on 
measures of quality, efficiency, effectiveness, and resource use.
    While the Act did not include a specific requirement for public 
reporting and transparency related to the Shared Savings Program, 
improved transparency would support a number of program requirements. 
In particular, increased transparency would be consistent with and 
support the requirement under section 1899(b)(2)(A) of the Act for ACOs 
to be willing to ``become accountable for the quality, cost, and 
overall care'' of the Medicare beneficiaries assigned to it.
    Public reporting of ACO cost and quality measure data would improve 
a beneficiary's ability to make informed health care choices, and 
facilitate an ACO's ability to improve the quality and efficiency of 
its care by making available information that enables ACO professionals 
to assess their performance relative to their peers, and creates 
incentives for those professionals to improve their performance. For 
example, the transparency of outcomes that results when consumers have 
access to publicly reported performance information could be an 
important catalyst for providers to continually seek to improve their 
performance. Further, many other stakeholders, including health plans, 
employers, and policy makers have an interest in knowing the degree to 
which different health care delivery models are effective in improving 
quality and reducing costs. Timely dissemination of reports on ACO 
quality and cost performance will contribute to the dialogue, at the 
national, regional and local level, on how to drive improvement and 
innovation in health care.
    Therefore, we believe it is desirable and consistent with section 
1899(b)(2)(A) of the Act for several aspects of an ACO's operation and 
performance to be transparent to the public--specifically, information 
regarding: (1) Providers and suppliers participating in the ACO; (2) 
parties sharing in the governance of the ACO; (3) quality performance 
standard scores; and (4) general information on how an ACO shares 
savings with its members. We are proposing that certain information 
regarding the operations of the ACO would be subject to public 
reporting to the extent administratively feasible and permitted by law. 
Specifically, we propose that the following information regarding the 
ACO be publicly reported:
     Name and location.
     Primary contact.
     Organizational information including--
    ++ ACO participants;
    ++ Identification of ACO participants in joint ventures between ACO 
professionals and hospitals;
    ++ Identification of the ACO participant representatives on its 
governing body; and
    ++ Associated committees and committee leadership.
     Shared savings information including--
    ++ Shared savings performance payment received by ACOs or shared 
losses payable to us; and
    ++ Total proportion of shared savings invested in infrastructure, 
redesigned care processes and other resources required to support the 
three-part aim goals of better health for populations, better care for 
individuals and lower growth in expenditures, including the proportion 
distributed among ACO participants.
     Quality performance standard scores.
    In the interest of transparency, it is important that the ACO make 
available to the public information on its accountability for the 
quality, cost, and the overall care furnished to its assigned 
beneficiary population. We are proposing that each ACO be responsible 
for making this information available to the public in a standardized 
format that we will make available through subregulatory guidance. This 
requirement would be included in each ACO's 3-year agreement.
    We seek comments on our proposals, including whether the proposed 
list includes elements that should not be required, or excludes 
elements that are important for achieving transparency or meaningful 
public disclosure within the Shared Savings Program and whether we 
should standardize the format or allow ACOs the flexibility to try 
different and innovative approaches for providing this information to 
beneficiaries. We welcome comment on these requirements and new 
reporting requirement recommendations that could be considered for 
future program years through future rulemaking. Also, we seek comment 
on whether ACOs themselves should be required to make this information 
publicly available or whether ACOs should report this information to 
us, and we would then make this information publicly available.
7. Aligning ACO Quality Measures With Other Laws and Regulations
    The standards for Accountable Care Organizations proposed in this 
rule are among the first quality standards for doctors and health care 
organizations established under the Affordable Care Act. As such, we 
believe that they represent an opportunity to continue a robust 
discussion between the Federal government, affected parties such as 
physicians, hospitals, and patients, and all other stakeholders on 
developing and aligning the best possible framework for ensuring 
quality care. The Act directs the Department to promulgate quality 
standards and require accountability or reporting in several sections. 
It calls for a National Quality Strategy that was released on March 21, 
2011. We have already proposed standards for inpatient hospitals and 
the Medicaid program through rulemaking, as well as the standards for 
ACOs outlined in this rule. These standards affect different 
constituencies, including physicians, hospitals, other providers, and 
patients and their families. As such, we have proposed distinct domains 
and

[[Page 19602]]

categories of quality measures, and different frameworks for rewarding 
performance, under each Affordable Care Act program as illustrated in 
Table 5.
[GRAPHIC] [TIFF OMITTED] TP07AP11.024

    While these quality domains and categories--and the parties that 
they affect--overlap in a number of areas, each set of standards has 
different domains, categories, and specific measures. We recognize that 
different quality frameworks and rewards may add to confusion and 
administrative burdens for affected parties, and mitigate efforts to 
focus on the highest-quality care. We seek comment from affected 
parties and other stakeholders on the best and most appropriate way to 
align quality domains, categories, specific measures, and rewards 
across these and other Federal healthcare programs, to ensure the 
highest-possible quality of care. Specifically, we seek comment on 
whether quality standards in different Affordable Care Act programs 
should use the same definition of domains, categories, specific 
measures, and rewards for performance across all programs to the 
greatest extent possible, taking into account meaningful differences in 
affected parties.

F. Shared Savings Determination

1. Background
    Section 1899 of the Act, as added by section 3022 of the Affordable 
Care Act, establishes the general requirements for payments to 
participating ACOs. Specifically, section 1899(d)(1)(A) of the Act 
provides that ACO participants will continue to receive payment ``under 
the original Medicare fee-for-service program under Parts A and B in 
the same manner as they would otherwise be made.'' However, section 
1899(d)(1)(A) of the Act also provides for ACOs to receive payment for 
shared Medicare savings provided that the ACO meets both the quality 
performance standards established by the Secretary, as discussed in 
section II.E. of proposed rule, and demonstrates that it has achieved 
savings against a benchmark of expected average per capita Medicare FFS 
expenditures. Additionally, section 1899(i) of the Act authorizes the 
Secretary to use other payment models in the place of the one-sided 
model outlined in section 1899(d) of the Act. This provision authorizes 
the Secretary to select a partial capitation model or any other payment 
model that the Secretary determines will improve the quality and 
efficiency of items and services furnished to Medicare beneficiaries 
without additional program expenditures.
    In the November 17, 2010 Federal Register, we solicited public 
comment on a number of issues regarding ACOs and the Shared Savings 
Program, including the types of additional payment models we should 
consider in addition to the model laid out in section 1899(d) of the 
Act, either under the authority provided in 1899(i) of the Act or using 
the Innovation Center authority under section 1115A of the Act. We

[[Page 19603]]

further asked about the relative advantages and disadvantages of any 
such payment models.
    We considered several options for structuring the Shared Savings 
Program. One option we considered was to offer a pure one-sided shared 
savings approach using the calculation and payment methodology under 
1899(d) of the Act. This option would have the potential to attract a 
large number of participants to the program and introduce value-based 
purchasing broadly to providers and suppliers, many of whom may never 
have participated in a value-based purchasing initiative. Another 
reason we considered this option was that a one-sided model with no 
downside risk might be more accessible and attract smaller group 
participation. However, as some commenters suggest, while such a model 
may provide incentive for participants to improve quality, it may not 
be enough of an incentive for participants to improve the efficiency of 
health care delivery and cost. Therefore, we considered whether we 
should instead focus on our authority under section 1899(i) of the Act 
to create a risk-based option in the Shared Savings Program. Such a 
model would have the advantage of providing an opportunity for more 
experienced ACOs that are ready to share in losses to enter a sharing 
arrangement that provides greater reward for greater responsibility.
    Another option would be to offer a hybrid approach. A hybrid 
approach would combine many of the elements of the one-sided model 
under section 1899(d) of the Act with a risk-based approach under 
section 1899(i) of the Act. The hybrid approach would have the 
advantage of providing an entry point for organizations with less 
experience with risk models, such as some physician-driven 
organizations or smaller ACOs, to gain experience with population 
management before transitioning to a risk-based model while also 
providing an opportunity for more experienced ACOs that are ready to 
share in losses to enter a sharing arrangement that provides greater 
reward for greater responsibility.
    Based on the input of commenters on the November 17, 2010 RFI, 
other stakeholders and policy experts we are proposing to implement a 
hybrid approach. Specifically, we are proposing that ACOs participating 
in the Shared Savings Program will have an option between two tracks:
    Track 1: Under Track 1, shared savings would be reconciled annually 
for the first 2 years of the 3-year agreement using a one-sided shared 
savings approach, with ACOs not being responsible for any portion of 
the losses above the expenditure target. However, for the third year of 
the 3-year agreement, we will use our authority under section 1899(i) 
of the Act to establish an alternative two-sided payment model. Under 
this model, an ACO would be required to agree to share any losses that 
may be generated as well as savings. The portion of shared losses that 
the ACO would be at risk for in the third year of the agreement is 
further described in section II.G. of this proposed rule. ACOs that 
enter the Shared Savings Program under Track 1 would be automatically 
transitioned to the two-sided model in the third year of their 
agreement period. In that year, the ACO's payments would be reconciled 
as if it was in the first year of the two-sided model. However quality 
scoring would still be based on the methods for the third year (that 
is, it would not revert back to the first year standard of full and 
accurate reporting). Thereafter, those ACOs that wish to continue 
participating in the Shared Savings Program would only have the option 
of participating in Track 2, that is, under the two-sided model.
    Track 2: More experienced ACOs that are ready to share in losses 
with greater opportunity for reward may elect to immediately enter the 
two-sided model (as discussed in section II.G. of this proposed rule). 
An ACO participating in Track 2 would be under the two-sided model for 
all three years of its agreement period. Under this model, the ACO 
would be eligible for higher sharing rates than would be available 
under the one-sided model.
    Unless specifically noted, the elements discussed in the rest of 
this section will apply to both the one-sided and two-sided models. 
Section II.G. of this proposed rule provides additional detail 
regarding aspects of the two-sided model that are not discussed in this 
section.
    We seek comment on our proposal and the alternatives discussed 
previously.
2. Overview of Shared Savings Determination
    The basic requirements for establishing and updating the benchmark, 
as well as determining whether an ACO has achieved savings against the 
benchmark, are outlined in section 1899(d)(1)(B) of the Act. Section 
1899(d)(1)(B)(i) of the Act establishes that an ACO shall be eligible 
for payment of shared savings ``only if the estimated average per 
capita Medicare expenditures under the ACO for Medicare FFS 
beneficiaries for Parts A and B services, adjusted for beneficiary 
characteristics, is at least the percent specified by the Secretary 
below the applicable benchmark * * * .'' We will take into account 
payments made from the Medicare Trust Fund for Parts A and B services, 
for assigned Medicare FFS beneficiaries, including payments made under 
a demonstration, pilot or time limited program when computing average 
per capita Medicare expenditures under the ACO. The statute further 
requires the Secretary to establish the percentage that expenditures 
must be below the applicable benchmark ``to account for normal 
variation in expenditures under this title, based upon the number of 
Medicare fee-for-service beneficiaries assigned to an ACO.'' We will 
refer to this percentage as the ``minimum savings rate'' (MSR).
    Section 1899(d)(1)(B)(ii) of the Act requires the Secretary to 
establish and update the ``benchmark for each agreement period using 
the most recent available 3 years of per-beneficiary expenditures for 
parts A and B services for Medicare fee-for-service beneficiaries 
assigned to the ACO.'' This section also requires the benchmark to ``be 
adjusted for beneficiary characteristics and such other factors as the 
Secretary determines appropriate and updated by the projected absolute 
amount of growth in national per capita expenditures for Parts A and B 
services under the original Medicare fee-for-service service program, 
as estimated by the Secretary.'' A new benchmark is to be established 
consistent with these requirements at the beginning of each new 
agreement period.
    Section 1899(d)(2) of the Act provides that, if the ACO meets the 
quality performance standards established by the Secretary, as 
discussed in section II.E. of this proposed rule ``a percent (as 
determined appropriate by the Secretary) of the difference between such 
estimated average per capita Medicare expenditures in a year, adjusted 
for beneficiary characteristics, under the ACO and such benchmark for 
the ACO may be paid to the ACO as shared savings and the remainder of 
such difference shall be retained by the program under this title.'' We 
will refer to this percentage as the ``sharing rate.'' This section 
also requires the Secretary to ``establish limits on the total amount 
of shared savings that may be paid to an ACO.'' We will refer to this 
limit as the ``sharing cap''.
    Thus, in order to implement the provisions of section 1899(d) of 
the Act for determining and appropriately sharing savings, we must make 
a number of determinations about the specific design of the shared 
savings

[[Page 19604]]

methodology described by the statute. First, we must establish an 
expenditure benchmark, which involves determining: (1) The patient 
population (that is, assigning patients to ACOs for purposes of quality 
and financial performance measurement) for whom the benchmark is 
calculated; (2) appropriate adjustments for beneficiary characteristics 
such as demographic factors and/or health status that should be taken 
into account in the benchmark; (3) whether any other adjustments to the 
3-year benchmark are warranted, such as to avoid potentially 
disadvantaging various types of providers (for example, hospitals that 
receive Medicare disproportionate share hospital payments (DSH 
hospitals) or teaching hospitals that receive indirect graduate medical 
education (IME) payments) or ACOs located in high cost, or low cost, 
areas; and (4) appropriate methods for trending the 3-year benchmark 
forward to the start of the agreement period, and subsequently for 
updating the benchmark for each of the 3 performance years of the 
agreement period with the ACO.
    Second, we must compare the benchmark to the assigned beneficiary 
per capita Medicare expenditures in each performance year under the 
agreement period in order to determine the amount of any savings.
    Third, we must establish the appropriate MSR, as required by the 
statute ``to account for normal variation in expenditures * * * based 
upon the number of Medicare fee-for-service beneficiaries assigned to 
an ACO'' and we must determine the appropriate sharing rate for ACOs 
that have realized savings against the benchmark above the MSR. 
Finally, we must determine the required sharing cap on the total amount 
of shared savings that may be paid to an ACO. We discuss all these 
issues, and our proposals for addressing them, in this section.
3. Establishing an Expenditure Benchmark
a. Background
    Section 1899(d)(1)(B)(ii) of the Act specifies several requirements 
with regard to establishing an ACO's benchmark.
     First, the law requires the Secretary ``to estimate a 
benchmark for each agreement period for each ACO using the most recent 
available 3 years of per-beneficiary expenditures for parts A and B 
services for Medicare fee-for-service beneficiaries assigned to the 
ACO.''
     Second, the law requires that ``[s]uch benchmark shall be 
adjusted for beneficiary characteristics and such other factors as the 
Secretary determines appropriate.''
     Third, the law requires that the benchmark be ``updated by 
the projected absolute amount of growth in national per capita 
expenditures for parts A and B services under the original Medicare 
fee-for-service program, as estimated by the Secretary.''
     Finally, the law requires that ``[s]uch benchmark shall be 
reset at the start of each agreement period.''
    A useful way to view the benchmark is as a surrogate measure of 
what the Medicare FFS Parts A and B expenditures would otherwise have 
been in the absence of the ACO. Once the savings realized by the ACO 
exceed a margin for normal variation in expenditures from year-to-year 
(what we call the MSR described in more detail later in this proposed 
rule), the difference between actual expenditures of the ACO's assigned 
beneficiaries during each year of the agreement period and its 
benchmark (updated, according to statute as described in more detail 
later in the document) should reflect how well the ACO is coordinating 
care for these beneficiaries and improving the overall efficiency of 
their care.
    An accurate benchmark estimate is important in order to ensure that 
an ACO that successfully coordinates care and achieves real savings is 
rewarded with shared savings. Similarly, an accurate benchmark estimate 
helps to ensure that shared savings are not inadvertently paid to an 
ACO that does not successfully coordinate care well or that has not 
achieved savings in excess of normal variation in annual expenditures.
    We have considered two legally permissible approaches to meeting 
the statutory language for estimating the benchmark, which we will call 
Option 1 and Option 2 in this proposed rule. Both approaches involve 
benchmarks that are derived from prior expenditures of assigned 
beneficiaries and adjusted for certain beneficiary characteristics, and 
other factors, the Secretary determines appropriate and updated by the 
projected absolute amount of growth in national per capita 
expenditures. Under both approaches, the benchmark would also be reset 
at the start of each agreement period. However, a key difference 
between these two approaches is the beneficiary population used to 
determine expenditures for purposes of the benchmark. Specifically, 
under Option 1, we would estimate an ACO's benchmark based on the Parts 
A and B FFS expenditures of beneficiaries who would have been assigned 
to the ACO in each of the 3 years prior to the start of an ACO's 
agreement period using the ACO participants' TINs. In contrast, under 
Option 2, the benchmark would be based on the Parts A and B FFS 
expenditures of beneficiaries, who are actually assigned to the ACO 
during each performance year, with the expenditures being those 
incurred in the 3 years immediately preceding the ACO's agreement 
period for those assigned beneficiaries. We describe these two options 
later in this document. In this proposed rule, we are proposing Option 
1 to establish each ACO's benchmark; however, we solicit comments on 
both options.
b. Option 1
    Under Option 1, we would estimate the benchmark for an ACO for an 
agreement period starting with the TINs of ACO participants identified 
at the start of the agreement period. The same rules that will be used 
to determine assignment of beneficiaries to ACOs during the agreement 
period would be applied to these data. Accordingly, consistent with the 
assignment methodology proposed in section II.D. of this proposed rule, 
we would use the claim records of these ACO participants to determine a 
list of beneficiaries who received a plurality of their primary care 
services from primary care physicians participating in the ACO in each 
of the prior 3 most recent available years.
    Using the per capita Parts A and B FFS expenditures for 
beneficiaries that would have been assigned to the ACO in each of these 
3 prior years, we will estimate a fixed benchmark that is adjusted for 
overall growth and beneficiary characteristics, including health status 
using prospective HCC adjustments (as discussed in section 3 later in 
this document). This benchmark would then be updated annually during 
the agreement period, according to statute, based on the absolute 
amount of growth in national per capita expenditures for Parts A and B 
services under the original Medicare FFS program.
     The first step in this process is to calculate annual 
Parts A and B FFS per capita expenditures for the beneficiaries who 
would have been assigned for each of the benchmark years. To minimize 
variation from catastrophically large claims, we would truncate an 
assigned beneficiary's total annual Parts A and B FFS per capita 
expenditures at the 99th percentile as determined for each benchmark 
year (for example roughly $100,000 in 2008). We would also truncate an 
assigned beneficiary's total annual Parts A and B FFS per capita 
expenditures at the 99th percentile as

[[Page 19605]]

determined for each subsequent performance year.
     Next, using our Office of the Actuary national Medicare 
expenditure data for each of the years making up the benchmark, we 
would determine an appropriate growth index and trend them to benchmark 
year 3 (BY3) dollars. Our proposed method for trending expenditures is 
discussed in section II.F.7.of this proposed rule.
     Using health status measures for the beneficiary 
population in each of the years making up the benchmark, we would 
establish health status indices for each year and adjust so they are 
restated to reflect BY3 risk. Our approach to account for health status 
is discussed section II.F.3. of this proposed rule.
     Next, we would compute a 3-year risk-and growth-trend 
adjusted per capita expenditure amount for the patient populations in 
each of the 3 benchmark years by combining the initial per capita 
expenditures for each year with the respective growth and health status 
indices. This yields risk adjusted per capita expenditures for 
beneficiaries historically assigned to the ACO in each of the 3 years 
used to establish the benchmark stated in BY3 risk and expenditure 
amounts.
     We propose to weight the most recent year of the 
benchmark, BY3 at 60 percent, BY2 at 30 percent and BY1 at 10 percent 
so that we can ensure the benchmark reflects more accurately the latest 
expenditure and health status of the ACO's assigned beneficiary 
population. This weighting allows us to establish lower MSRs since the 
weighting results in a more accurate benchmark.
     Last, as required by statute, for each performance year we 
would update this fixed benchmark by the projected absolute amount of 
growth in national per capita expenditures for Parts A and B services 
under the original Medicare FFS program using data from our Office of 
the Actuary. This approach for updating the benchmark avoids current 
law issues associated with Medicare expenditure projections since it 
uses the actual claims and expenditure experience for Medicare patients 
to calculate the factor used to update the benchmark for purposes of 
annual reconciliation. Consistent with the statutory requirement, the 
benchmark and its associated computations would only be rebased at the 
start of a new agreement period.
    As described in section II.C. of this proposed rule, if requested 
by the ACO, we are proposing to provide the ACO with aggregated data 
and information on beneficiaries that would historically have been 
assigned to the ACO and, as a result, have a likelihood of being 
assigned during the agreement period.
    It is possible that to the extent that an ACO's population or its 
composition of ACO providers/suppliers change over time, the assigned 
population could diverge from the benchmark population, potentially 
affecting the comparability of performance measurement. Modeling the 
PGP demonstration data using the proposed primary care based assignment 
methodology revealed that assignment of beneficiaries varies from year-
to-year, with about 25 percent of those assigned in one year not being 
assigned in the subsequent year (due to relocation, death, 
participation in MA, or changes in their choice of care professionals). 
This was consistent across organizations participating in the 
demonstration which were also geographically diverse. We believe the 
approach to establishing the benchmark described previously would 
provide a relatively accurate reflection of the average population of 
Medicare FFS beneficiaries that receive their care from the ACO 
participants during the ACO agreement period. However, because the FFS 
population served by the ACO changes from year to year, some of the 
beneficiaries whose expenditures would be included in the benchmark 
with this approach would not be reflected in the population assigned to 
the ACO during the years of the ACO agreement period. It is also 
possible that this benchmark approach could provide unwanted incentives 
to seek and/or avoid specific beneficiaries during the agreement period 
so that average expenditures would more likely be less than for their 
historical beneficiaries included in the benchmark. Therefore we also 
considered a second option that relies on developing a benchmark based 
on the populations of specific beneficiaries who are actually assigned 
to the ACO during the agreement period.
c. Option 2
    Under this option, for each beneficiary assigned to the ACO during 
the agreement period, we would calculate their per capita Parts A and B 
FFS expenditures during each of the 3 years immediately preceding the 
first year of the agreement period. These amounts would be trended to 
the start of the agreement period as was described for Option 1, that 
is, since Option 2 also requires risk adjustment, we will adjust the 
benchmark for health status using the same prospective CMS-Hierarchal 
Condition Category (CMS-HCC) risk adjuster and apply it to calculate 
the benchmark in the same manner as described for Option 1.
    To meet the statutory requirement to adjust the benchmark for 
``beneficiary characteristics'' we would adjust the annual per capita 
expenditures to account for changes in health status.
    For beneficiaries without 3 full years of immediately-prior 
Medicare eligibility (such as beneficiaries who were not 68 in their 
first year assigned to the ACO), a further adjustment would be 
necessary under this option.
     For those beneficiaries with less than one full year of 
prior Medicare experience, we would either--
    ++ Use a substitute for their own expenditures in the update amount 
within the benchmark, that is, substitute the average per capita FFS 
expenditures for all Medicare beneficiaries during the year they are 
first assigned to the ACO, adjusted for health status (as described 
later in the document in section 3); or
    ++ Exclude their experience from the shared savings computations.
     For those assigned beneficiaries with more than 12 months 
prior Medicare experience but less than 36 months we also have two 
choices:
    ++ Compute a weighted-average (using number of months as the 
weight) that blends.

--Their prior expenditure experience and
--The average per capita Parts A and B FFS expenditures for all 
Medicare beneficiaries during the year before the first year they are 
assigned to the ACO, adjusted for health status; or

    ++ Use only their prior expenditure experience.
    We seek comments about these adjustment approaches and solicit 
other approaches we might consider.
    After the benchmark is adjusted for beneficiary health status, the 
benchmark would also be updated by the applicable projected amount of 
growth in national per capita expenditures for Parts A and B services 
under the original Medicare FFS program as was described for Option 1.
    For the second and third year of the agreement period, we would 
make no further adjustments for assigned beneficiaries who were also 
assigned in the first year of the ACO agreement period. However, in the 
second and third year of the agreement, there will also be newly-
assigned beneficiaries as well as previously-assigned beneficiaries who 
are no longer assigned to the ACO. The benchmark would be adjusted to 
account for these changes. We would adjust the benchmark by adding the 
experience of the newly-assigned beneficiaries (as discussed previously 
for the first year) for the 3 years prior to the agreement period, and

[[Page 19606]]

by removing the prior experience of the no-longer assigned 
beneficiaries. In the case of a beneficiary who was assigned during the 
first year, not assigned during the second year, and then again 
assigned during the third year of the ACO's agreement period, the prior 
expenditure experience that would be used to adjust the benchmark in 
the third year would be the same amount initially used for their first 
year of assignment. These adjustments would yield a benchmark for each 
ACO that is estimated using beneficiary expenditures for the three 
years prior to the agreement period for only those beneficiaries that 
were actually assigned to the ACO during that year of the agreement 
period.
    Additionally, Option 2 would require an adjustment for assigned 
beneficiaries who die during an agreement year. We know that 
approximately 5 percent of all Medicare beneficiaries die in a single 
year, and that their average monthly expenditures are often higher 
during this last year of life compared to the immediately preceding 
years. For these beneficiaries, the benchmark might therefore not be a 
fair basis for comparison with actual expenditures for purposes of 
determining shared savings, which could create incentives for ACOs to 
avoid assignment of beneficiaries who may be in their last year of life 
or treat such beneficiaries differently. This would not be the case for 
Option 1 as that benchmark approach would include the average per 
capita costs of beneficiaries who died during the benchmark period. We 
are therefore considering one of two methods to adjust for this 
beneficiary characteristic within Option 2.
    Under the first method for adjusting for decedents, we would 
propose to exclude the expenditures of deceased beneficiaries from 
actual expenditures during the agreement period. We believe this 
approach would best avoid concerns about creating incentives for ACOs 
to avoid assignment of beneficiaries in their last year of life or 
treat such beneficiaries differently. In a second method for adjusting 
for decedents, we would compare average expenditures for each deceased 
beneficiary during the agreement year to the average expenditures for 
beneficiaries included in the benchmark.
     If the agreement year's expenditures were 5 percent or 
less above the benchmark, we would make no adjustment;
     If the agreement year's expenditures were greater than 5 
percent above the benchmark, we would need to decide upon an acceptable 
method to adjust the accumulated expenditures for deceased 
beneficiaries.
    Of these two methods for adjusting for decedents during the course 
of the performance year under Option 2, our preference is for the first 
method. However, we invite comments on both of these methods, and any 
others that might be suggested for adjusting for decedents during the 
course of the performance year under Option 2.
    The second method is intended to address the implications of 
changes to an ACO's population over time, but this option would require 
additional data adjustments and computations that are not required 
under the first method.
    However, to the extent that average per capita expenditures for all 
beneficiaries differs from the average for the geographic area in which 
an ACO operates, the first method previously discussed would 
effectively be imputing a value that is likely to be somewhat higher or 
lower than would actually be expected for that ACO. Alternatively, 
excluding the experience of beneficiaries with less than 1 full year of 
experience from the shared savings computations as contemplated in the 
second method previously discussed, would reduce the size of an ACO's 
beneficiary population, increasing the MSR that would be needed before 
an ACO would be eligible to share savings. This could have the effect 
of discouraging participation among smaller ACOs, for example, in rural 
areas. Likewise, we would expect a similar impact on an ACO's MSR if 
deceased beneficiaries were excluded from the shared savings 
computations as is previously proposed.
d. Summary
    We believe both Option 1 and Option 2 are legally permissible 
approaches to setting the expenditure benchmark, adjusting for 
beneficiary characteristics, and updating by the projected absolute 
amount of growth in national per capita expenditures. We also believe 
that both approaches can establish viable benchmarks to measure ACO 
performance over time and provide incentives for ACOs to improve their 
processes and outcomes during the agreement period.
    We are proposing to adopt Option 1 for establishing ACO benchmarks, 
but seek comments on the merits and limitations of both options, 
particularly with respect to how each approach might affect the 
willingness of ACOs or particular types of ACO to participate in the 
Shared Savings Program, create incentives for ACOs to seek or avoid 
certain kinds of beneficiaries, and impact Medicare expenditures. 
Moreover, we will continue to examine the merits and potential effects 
of both options over the next several months. If, based on our findings 
and the comments received in response to this proposal, we determine 
that Option 2 would be a more appropriate method for establishing a 
benchmark, we would expect to adopt that option in the final rule.
4. Adjusting the Benchmark and Average per Capita Expenditures for 
Beneficiary Characteristics
    Section 1899(d)(1)(B)(i) of the Act stipulates that an ACO is 
eligible for shared savings ``only if the estimated average per capita 
Medicare expenditures under the ACO for Medicare fee-for-service 
beneficiaries for Parts A and B services, adjusted for beneficiary 
characteristics'' is below the applicable benchmark. Likewise, section 
1899(d)(1)(B)(ii) of the Act specifies that the benchmark ``shall be 
adjusted for beneficiary characteristics and such other factors as the 
Secretary determines appropriate * * *.'' This requirement to adjust 
for ``beneficiary characteristics'' implicitly recognizes that, under a 
shared savings model, the realization of savings against a benchmark 
could be a function of two factors. One factor is reduced expenditure 
growth as a result of greater quality and efficiency in the delivery of 
health care services. The other factor could be changes in the 
characteristics of the beneficiaries who are under the care of the ACO. 
Thus, in the absence of risk adjustment, some organizations may realize 
savings merely because of treating a patient mix with better health 
status than the patient population reflected in the benchmark. On the 
other hand, some organizations may share in savings on a risk adjusted 
basis but would not have shared in savings if expenditures were not 
risk adjusted.
    Beneficiary health status can be measured using various tools, 
under which beneficiaries are typically assigned ``risk scores'' that 
reflect their demographic and diagnostic conditions and offer an 
estimate of the relative extent to which they are likely to utilize 
medical services compared to other beneficiaries. Performance payments 
are a function of the ACO's success in controlling expenditure growth 
and changes in the health status of the assigned population, thus they 
are sensitive to changes in risk scores. However, an ACO's ability to 
share in savings can be affected not only by changes in the health 
status of a population but also by changes in coding intensity and 
changes in the mix of specialists and other providers within

[[Page 19607]]

an ACO, which in turn could affect the characteristics of its assigned 
beneficiary population, relative to the benchmark period. Our goal is 
to measure improvements in care delivery of an ACO and to make 
appropriate adjustments to reflect the health status of assigned 
patients as well as changes in the ACOs organizational structure that 
would affect the case mix of assigned patients rather than apparent 
changes arising from the manner in which ACO providers/suppliers code 
diagnoses. Thus, when applying a risk adjustment model, it is necessary 
to guard against changes that result from more specific or 
comprehensive coding as opposed to improvements in the coordination and 
quality of health care.
    The statute clearly calls for the characteristics of the 
beneficiaries assigned to an ACO to be taken into account in estimating 
both an ACO's benchmark and its expenditures during the agreement 
period. This requirement helps to ensure that quality and efficiency in 
the delivery of health care services are the basis for realizing and 
sharing savings under the Shared Savings Program. Because we want to 
create an environment where ACOs are encouraged to effectively 
coordinate care for beneficiaries with complex illnesses, and not 
create an environment where ACOs have incentive to avoid these types of 
beneficiaries, we believe that relative health status is one such 
beneficiary characteristic that should be reflected in the calculation 
of average per capita expenditures for purposes of both the benchmark 
and actual expenditures during the agreement period. We have considered 
two basic options for risk adjusting the average per capita 
expenditures in order to reflect beneficiary characteristics.
    One option is to employ a method that considers only patient 
demographic factors, such as age, sex, Medicaid status, and the basis 
for Medicare entitlement (that is, age, disability or ESRD), without 
incorporating diagnostic information. The second option is to employ a 
methodology that incorporates diagnostic information, specifically the 
CMS-HCC prospective risk adjustment model that has been used under the 
MA program. In addition to demographic variables, the CMS-HCC 
prospective risk adjustment model uses beneficiaries' prior year 
diagnoses to develop risk scores that are then applied to their current 
year expenditures. The model is widely accepted by payers and 
providers, and risk scores are annually calculated for all Medicare 
beneficiaries by us, so readily available data can be incorporated into 
the Shared Savings Program. Additional information on the CMS-HCC model 
can be found in the Advance Notice of Methodological Changes for 
Calendar Year (CY) 2011 for Medicare Advantage (MA) Capitation Rates, 
Part C and Part D Payment Policies and 2011 Call Letter, which can be 
found at http://www.cms.gov/MedicareAdvtgSpecRateStats/Downloads/Advance2011.pdf and http://www.cms.gov/MedicareAdvtgSpecRateStats/Downloads/Announcement2011.pdf.
    As discussed previously, a key issue when using a risk adjustment 
model that incorporates diagnosis data is that risk scores can be 
affected not just by changes in the health status of the population but 
also by changes in coding intensity and by the mix of specialists and 
providers furnishing services. The experience in MA clearly shows that 
health plans can significantly increase the HCC score of their 
populations by focusing on more complete coding. Similarly, our 
experience with the PGP demonstration shows that participating sites 
have an incentive to code more fully or intensely because of the 
potential impact on performance payments, to provide more accurate 
measurement and reporting of quality measures, as well as to provide 
for more complete and accurate information that can be used for 
population management.
    If we adopt a risk adjustment methodology in the Shared Savings 
Program that incorporates diagnostic data, we expect that ACOs would 
have a similar incentive to code more fully for purposes of population 
management, quality reporting and to optimize their risk scores for the 
purpose of achieving shared savings. Because they are responsible for 
the delivery of care, and can control the information included in Parts 
A and B claims, the ACO providers/suppliers could potentially increase 
the risk scores for their FFS patients by more completely reporting 
diagnoses. The practical effect of increasing risk scores would be to 
decrease the actual annual expenditures compared to the benchmark, 
because the benchmark would be increased to reflect changes in the 
ACO's risk score, while actual expenditures would not change. As a 
result, the ACO's chances of demonstrating savings and receiving a 
shared savings payment would improve. Behaviors such as these could 
allow an ACO to achieve apparent savings by coding changes alone and 
without improved methods of beneficiary care.
    We have made adjustments to account for the upward trend in risk 
scores in other programs. For example, for the MA program we make 
adjustments to account for the upward trend in FFS diagnostic coding 
and CMS-HCC model changes through normalization factors and coding 
intensity adjustments. Another approach to addressing this upward trend 
in diagnostic coding would be to incorporate an annual cap in the 
amount of risk score growth we would allow for each ACO. One option for 
setting the annual cap could be setting a fixed growth percentage for 
all ACOs, and any increase in risk score growth above the cap would be 
negated. A challenge to this approach would be determining a generally 
acceptable sized cap. A second option would be to establish a risk 
score for the ACO's assigned population during the agreement period 
based on the calculated risk score of beneficiaries who were used to 
calculate the ACO's benchmark. This would establish an annual cap, that 
is based on experience specific to each individual ACO and would thus 
result in an individually calculated cap for each ACO. Yet another 
alternative we considered for addressing the upward trend in coding 
intensity would be to use a methodology similar to the MA methodology 
that would reduce the amount of growth in the risk scores for 
beneficiaries assigned to the ACOs, but continue to allow increases. 
However, modeling this approach showed that it would reward those 
organizations with exceptionally high risk score growth while 
penalizing organizations that do not engage in efforts to more 
completely and accurately code since their risk score growth could go 
negative if they did not code sufficiently intensively.
    A model that uses beneficiary demographic factors alone would avoid 
this issue, and may be simpler administratively precisely because it 
employs a more restricted range of factors. We have therefore also 
considered implementing the MA ``new enrollee'' demographic risk 
adjustment model. This model includes adjustments for age, sex, 
Medicaid enrollment status and originally disabled status. Such a 
model, however, would not take into account the health status of the 
assigned beneficiaries which could have a particularly adverse effect 
on ACOs that include providers and suppliers that typically treat a 
comparatively sick beneficiary population, including academic medical 
centers and tertiary care centers. Therefore, we are proposing to 
adjust Medicare expenditure amounts by employing the CMS-HCC model used 
in the MA program.
    The CMS-HCC model more accurately predicts health care expenditures 
than the demographic-

[[Page 19608]]

only model as it accounts for variation in case complexity and 
severity. In addition, incorporating diagnosis data in the risk 
adjustment model will encourage ACOs to maintain complete and accurate 
medical documentation which could result in better information for 
population management, care coordination, and quality improvement. ACOs 
will have an incentive to code more completely and accurately, as is 
the case with MA plans, and behaviors such as these could allow an ACO 
to achieve apparent savings by coding changes alone and without 
improved methods of beneficiary care. We do not want to create an 
environment that rewards ACOs for achieving apparent savings by coding 
changes alone. Additionally, we expect the ACO's average population 
risk scores to be stable over time, given that there is stability in 
ACO participants and therefore case mix and we will have calculated the 
benchmark risk adjustment score for the ACO's historically assigned 
beneficiary population under conditions when the ACO providers/
suppliers would not have an incentive to increase coding. As a result, 
we believe the benchmark risk adjustment score for the ACO's 
historically assigned beneficiary population will be a reasonable 
approximation of the actual risk score for the beneficiary population 
assigned to the ACO during the agreement period, while avoiding any 
distortion due to changes in coding practices. Therefore, we propose to 
calculate a single benchmark risk score for each ACO. The same risk 
score will then be applied throughout the agreement period to the 
annual assigned patient populations per capita expenditures for 
assigned beneficiaries. The benchmark risk score will be calculated by 
applying the CMS-HCC model to the assigned beneficiary population 
attributed in each year of the 3-year benchmark. However, changes in 
the assigned beneficiary population risk score from the 3-year 
benchmark period during the performance year will not be incorporated. 
By not incorporating the effects of changes in coding intensity during 
the performance years (versus the benchmark), we will protect the 
program from costs due to greater diagnosis coding intensity in ACOs.
    We welcome comments on this proposal including comments on 
alternative approaches such as using the MA ``new enrollee'' 
demographic risk adjustment model for risk adjusting in the Shared 
Savings Program or applying a coding intensity cap on annual growth in 
the risk scores of an ACO's assigned beneficiary population.
    We intend to monitor and evaluate the issue of more complete and 
accurate coding as we gain experience with the Shared Savings Program, 
and would consider making revisions and adaptations to the final risk 
adjustment model through future rulemaking if they are warranted. 
Further, to assure the appropriateness of ACO coding practices and our 
methodology for risk adjusting, we are also proposing to retain our 
option to audit ACOs especially those ACOs with high levels of risk 
score growth relative to their peers and adjust the risk scores used 
for purposes of establishing the 3-year benchmark accordingly. We seek 
comment on this proposal.
5. Technical Adjustments to the Benchmark: Impact of IME and DSH
    Section 1899(d)(1)(B)(ii) of the Act states that ``Such benchmark 
shall be adjusted for beneficiary characteristics and such other 
factors as the Secretary determines appropriate * * *.'' Several 
factors in the Medicare FFS payment systems can affect an ACO's ability 
to realize savings by adjusting payment rates and thus affecting both 
expenditures during the benchmark period and each subsequent 
performance year. Additionally, changes in these payment factors, 
between the benchmark and performance years can also influence whether 
an ACO realizes savings or incurs losses under the program.
    Teaching hospitals receive additional payment to support medical 
education through an indirect medical education (IME) adjustment. In 
addition, hospitals that serve a disproportionate share of low-income 
beneficiaries also receive additional payments, referred to as the 
Medicare disproportionate share hospital (DSH) adjustment. Many 
hospitals, especially academic medical centers, receive both these 
adjustments, which can provide substantial increases in their Medicare 
payments compared to hospitals that do not qualify for these 
adjustments. The higher payments provided to these types of hospitals 
could provide ACOs with a strong incentive to realize savings simply by 
avoiding referrals to hospitals that receive IME and DSH payments.
    We have considered whether it would be appropriate to remove IME 
and DSH payments or a portion of these payments from the benchmark and 
the calculation of actual expenditures for an ACO. However, section 
1899(d)(1)(B)(i) of the Act only provides authority to adjust 
expenditures in the performance period for beneficiary characteristics 
and does not provide authority to adjust for ``other factors''. 
Therefore, while we may adjust the benchmark under this provision by 
removing IME and DSH payments, we could not also do so in our 
calculation of performance year expenditures. If we were to remove IME 
and DSH payments from the benchmark, the benchmark would be set 
artificially lower relative to the performance period, thus making it 
more difficult for an ACO to overcome and achieve savings under this 
program. In addition, excluding these payments would result in an 
artificial and incomplete representation of actual spending of Medicare 
Trust Fund dollars. Further, section 1899(d)(1)(B)(ii) of the Act 
requires that we update an ACO's benchmark during each year of the 
agreement period based on a national standard (``the projected absolute 
amount of growth in national per capita expenditures for parts A and B 
under the original Medicare fee-for-service program''), which would 
necessarily include the effects of these payments. Additionally, we 
believe all relevant Medicare costs should be included in an ACO's 
benchmark to maintain sufficient incentives for ACOs to ensure their 
assigned beneficiaries receive care in the most appropriate settings. 
For example, ACOs that include teaching and/or DSH hospitals in their 
network might be more interested in joining the program if we do not 
remove these payments from the calculations. This is because including 
these payments would result in higher benchmarks against which such 
ACOs would work to achieve savings, and such ACOs may be able to earn 
back a portion of forgone IME/DSH payments in the form of shared 
savings in cases where a referral to a less intensive setting is most 
appropriate for the beneficiary.
    Thus, we are not proposing to remove IME and DSH payments from the 
per capita costs included in the benchmark for an ACO. However, we 
invite comments on this issue, especially on how including or excluding 
these payments in the benchmark could likely affect access to medically 
necessary services provided at teaching/DSH hospitals. We will consider 
comments on this issue carefully, and in the light of these comments, 
we could adopt a policy in the final rule of adjusting the benchmark 
calculation in order to prevent any adverse effects on access to 
services at these hospitals.

[[Page 19609]]

6. Technical Adjustments to the Benchmark: Impact of Geographic Payment 
Adjustments on the Calculation of the Benchmark
    Similarly, another factor in the Medicare FFS payment systems that 
could affect an ACO's ability to realize savings is the geographic 
payment adjustment (for example, the IPPS wage index adjustments and 
the physician fee schedule geographic practice cost index (GPCI) 
adjustments) that is generally made to payments under these systems. 
These adjustments increase and decrease payments under these systems to 
account for the different costs of providing care in different areas of 
the country. Further, there have been a number of temporary legislative 
adjustments to the wage indexes for various parts of the country during 
recent years. In some cases these have been extended on virtually an 
annual basis while others have been updated more intermittently. The 
timing of these adjustments could result in changes being made during 
an ACO's agreement period and between the benchmark and the performance 
years, thus influencing an ACO's ability to realize savings under the 
program.
    As in the case of IME and DSH adjustments, we have considered 
removing these geographic payment adjustments from the calculation of 
the benchmark and actual expenditures. However, as with IME and DSH 
payments, we only have statutory authority under section 1899(d)(1)(B) 
of the Act to remove them from the benchmark and thus we cannot remove 
them from performance period expenditure calculations. Consistent with 
our proposed treatment of IME and DSH payments, we are not proposing to 
remove geographic payment adjustments from the calculation of benchmark 
expenditures. Again, we welcome comments on this issue and will 
especially consider comments on the likely impact of this proposal in 
areas that are affected by temporary geographic adjustments. After 
consideration of the comments, we could adopt a policy in the final 
rule of adjusting the benchmark calculation to remove the effects of 
these geographic payment adjustments.
7. Technical Adjustments to the Benchmark: Impact of Bonus Payments and 
Penalties on the Calculation of the Benchmark and Actual Expenditures
    Medicare bonus payments are available and penalties may be imposed 
through value-based purchasing initiatives such as the Physician 
Quality Reporting System and the Health Information Technology for 
Economic and Clinical Health (HITECH) Act, which encourages hospital 
and physician adoption of electronic health records (EHR), and provides 
for penalties in subsequent years for those that do not demonstrate 
meaningful use of EHR. Incentive payments for programs such as these 
can affect actual expenditures and the benchmark, and thus an ACO's 
ability to realize savings. For example, an ACO's chances to share in 
savings or the level of savings that would be shared with the ACO would 
be reduced when an ACO professional or hospital participating in the 
ACO fails to receive an incentive payment (or is penalized with a 
payment reduction) under one of these programs during a benchmark year 
and subsequently receives an incentive payment from that program in an 
ACO performance year. This is because, all else being equal-- (1) the 
ACO's expenditures in the performance year would be higher than they 
would have been in the absence of the incentive; and (2) the ACO's 
expenditures during the benchmark year would be relatively lower than 
they would have been had an incentive been received. Conversely, an ACO 
would be more likely to share in savings if it received an incentive 
payment under one of these other programs in a benchmark year and 
received no incentive or was penalized during a performance year. As 
such, the effect of including these incentive payments in the 
calculation of the benchmark and actual expenditures could create 
perverse incentives with the result that participation in the Shared 
Savings Program has the potential to adversely affect the performance 
of providers of services and suppliers with respect to other important 
Medicare efforts, such as the value-based purchasing and HITECH 
initiatives.
    Section 1899(b)(3)(D) of the Act provides authority for the 
Secretary to incorporate, as the Secretary determines appropriate, the 
reporting requirements and incentive payments related to the Physician 
Quality Reporting System, eRx, EHR, and other similar initiatives under 
section 1848 of the Act. The statute provides that these incentive 
payments ``shall not be taken into consideration when calculating any 
payments otherwise made under subsection (d).'' Additionally, we 
believe it is important to ensure that these various programs' 
incentives are properly aligned so that their interactions support 
rather than impede each of the programs' goals.
    Thus, consistent with our statutory authority, we are proposing to 
exclude Medicare expenditures or savings for incentive payments and 
penalties under section 1848 of the Act for value-based purchasing 
initiatives such as Physician Quality Reporting System, eRx, and the 
EHR incentives for eligible professionals under the HITECH Act from the 
computations of both benchmark and actual expenditures during the 
agreement period. We believe that excluding these costs and savings 
will reduce the chances that incentives that were intended to encourage 
and reward participation in one Medicare program would discourage full 
participation in another. We seek comments on this proposal.
    Section 1899(b)(3)(D) of the Act does not, however, provide 
authority for the Secretary to exclude Medicare expenditures or savings 
for incentive payments and penalties not under section 1848 of the Act 
from benchmark and actual expenditures. Therefore, payments that are 
reflected in Part A and B claims for services furnished to assigned FFS 
beneficiaries, such as EHR incentive payments to hospitals and the 
Hospital Inpatient Value-Based Purchasing Program, which are made under 
section 1886 of the Act, and EHR incentive payments to CAHs, which are 
made under section 1814 of the Act, (or any incentive payments not made 
under section 1848 of the Act) would be counted in both the computation 
of actual expenditures and benchmark expenditures for Part A and B 
costs.
8. Trending Forward Prior Years' Experience To Obtain an Initial 
Benchmark
    Section 1899(d)(1)(B)(ii) of the Act requires the use of ``the most 
recent 3 years of per-beneficiary expenditures for parts A and B 
services'' to estimate a benchmark for each ACO. As the statute 
requires the use of historical expenditures, the per capita costs for 
each year must be trended forward to current year dollars and then 
averaged using the weights previously described to obtain the benchmark 
for the first agreement period. This benchmark is subsequently updated 
for each year of the agreement period based on the ``projected absolute 
amount of growth in national per capita expenditures for parts A and B 
services'' under the FFS program as estimated by the Secretary.
a. Flat Dollar vs Growth Rate as a Benchmark Trending Factor
    The statute does not specify the trending factor to be used in 
estimating the initial benchmark. Typically, prior years would be 
increased using a percentage growth factor. We considered two options 
for trending forward the most recent 3 years of per

[[Page 19610]]

beneficiary expenditures for Parts A and B services in order to 
estimate the benchmark for each ACO. The first option is to trend these 
expenditures forward using growth rates in expenditures for Parts A and 
B services for FFS beneficiaries. The second option is to trend these 
expenditures forward using a flat dollar amount equivalent to the 
absolute amount of growth in per capita expenditures for Medicare Parts 
A and B under the FFS program.
    An advantage of the first option is that the use of a growth rate, 
as opposed to a flat dollar amount, would more accurately reflect each 
ACO's historical experience. That is, in contrast to a flat dollar 
amount, this option would neither raise the bar for ACOs in 
historically higher growth rate areas nor lower it for ACOs in lower 
growth areas. At the same time, it could be argued that this option 
perpetuates current regional differences in medical expenditures. An 
advantage of the second option, using the flat dollar amount equivalent 
to the absolute amount of growth in per capita expenditures for 
Medicare Parts A and B under the FFS program, is that it is more 
consistent with the method designated by the under section 
1899(d)(1)(B)(ii) of the statute for updating the benchmark (as 
described later in this proposed rule) during the agreement period. 
This option also provides a stronger incentive for ACO development in 
areas with historically lower expenditures and growth rates. 
Conversely, potential ACOs in areas with historically higher growth 
rates could be reluctant to participate in the program because the 
challenge to reduce their growth rate would be greater in these areas 
relative to low expenditure, low growth ones.
    On balance, we believe that for purposes of establishing an initial 
expenditure benchmark, expenditures should be trended forward in a 
relatively neutral and comparable way across geographic areas. 
Therefore, we are proposing to trend forward the most recent 3 years of 
per-beneficiary expenditures using growth rates in per beneficiary 
expenditures for Parts A and B services. For example, we would use 
2011, 2012 and 2013 claims year data to set the benchmark for an ACO 
starting its agreement period in 2014. The 2011 and 2012 data would be 
trended forward using the factor described later in this proposed rule 
so that all benchmark dollars would be in 2013 dollars. We welcome 
comments on this proposal, and especially on whether the other option 
that we considered to trend the benchmark by the flat dollar amount 
would be more consistent with our proposal to update the benchmark as 
specified under section 1899(d)(1)(B)(ii), as discussed in the next 
section.
b. National vs Local Growth Rate as a Benchmark Trending Factor
    Under the option described previously, we could trend per 
beneficiary expenditures forward using national or local growth 
factors. Using the national growth rate in Medicare A and B FFS 
expenditures would appear to be more consistent with the methodology 
that, as specified in section 1899(d)(1)(B)(ii) of the Act incorporates 
the absolute amount of growth in per capita expenditures for Medicare 
Parts A and B nationwide under the FFS program in updating each ACO's 
benchmark. A national growth rate would allow a single growth factor to 
be applied to all ACOs regardless of their size or geographic area. 
However, a national rate could also disproportionately encourage the 
development of ACOs in areas with historical growth rates later in this 
proposed rule the national average that would benefit from having a 
relatively higher base, which increases the chances for shared saving, 
while relatively discouraging development of ACOs in areas with 
historically higher growth rates above the national average that would 
have a relatively lower base.
    In contrast, trending expenditures based on State or local area 
growth rates in Medicare A and B expenditures may more accurately 
reflect the experience in an ACO area and mitigate differential 
incentives for participation based on location. Therefore, we 
considered an option to trend the benchmark by the lower of the 
national projected growth rate or the State or the local growth rate. 
This option would balance providing a more accurate reflection of local 
experience with not rewarding historical growth higher than the 
average. This method also instills strong saving incentives for ACOs in 
both high-cost growth and low-cost growth areas.
    After considering both of these alternatives, we are proposing to 
employ the national growth rate in Medicare Parts A and B expenditures 
for FFS beneficiaries for trending forward the fixed benchmark. We 
believe this approach will help to ensure that ACOs in both high 
spending, high growth and low spending, low growth areas will have 
appropriate incentives to participate in the Shared Savings Program, 
while also moving toward establishing a national standard for 
calculating and measuring ACO financial performance. We seek comment on 
this proposal and on the alternatives to using a national growth rate 
as outlined previously.
9. Updating the Benchmark During the Agreement Period
    Section 1899(d)(1)(B)(ii) states that the benchmark shall be 
``updated by the projected absolute amount of growth in national per 
capita expenditures''. We believe that Congress demonstrated an 
interest in mitigating some of the regional differences in Medicare 
spending among ACOs by requiring the use of a flat dollar amount 
equivalent of the absolute amount of growth in national FFS 
expenditures to update the benchmark for the agreement period. In 
effect, in the second and third years of an agreement period, using a 
flat dollar increase, which would be the same for all ACOs, provides a 
relatively higher expenditure benchmark for low growth low spending 
ACOs and a relatively lower benchmark for high growth high spending 
ACOs. All else being equal, an ACO can more likely share in savings 
when its actual expenditures are judged against a higher, rather than a 
lower benchmark. Thus, with a flat dollar increase to the benchmark, 
ACOs in high cost high growth areas must reduce their rate of growth 
more to bring their costs more in line with the national average.
    However, we also considered our authority under Section 1899(i) for 
an alternative option. Specifically, we considered an option to update 
the benchmark by the lower of the national projected absolute amount of 
growth in national per capita expenditures or the local/State projected 
absolute amount of growth in per capita expenditures. Incorporating 
more localized growth factors reflects the expenditure and growth 
patterns within the geographic area served by ACO participants and ACO 
providers/suppliers, potentially providing a more accurate estimate of 
the updated benchmark based on the area from which the ACO derives its 
patient population. Capping the update at the projected absolute amount 
of growth in national per capita expenditures prevents the update from 
disproportionately allowing relatively larger dollar-amount updates for 
high-spending areas that potentially have a stronger ability to improve 
care coordination and efficiency from current levels. Not using the 
national flat-dollar update for low-spending, low-growth areas ensures 
that the Medicare Shared Savings Program instills strong saving 
incentives for ACOs in low-cost areas, as well as for those in high-
cost areas. Also, as noted in section V.C.1. of this proposed rule, 
using the national flat-dollar update as specified in section 
1899(d)(1)(B)(ii) for all ACOs could contribute to selective

[[Page 19611]]

program participation that could result in Medicare costs due to an 
increase in the amount of bonus payments for unearned savings.
    In keeping with section 1899(d)(1)(B)(ii) of the Act, we are 
proposing to update the benchmark by the projected absolute amount of 
growth in national per capita expenditures. We believe this approach 
will help to ensure that ACOs in both high spending, high growth and 
low spending, low growth areas will have appropriate incentives to 
participate in the Shared Savings Program. We seek comment on this 
proposal and on the alternative to update by the lower of the national 
projected absolute amount of growth in national per capita expenditures 
or the local/State projected absolute amount of growth in per capita 
expenditures under section 1899(i) of the Act.
10. Minimum Savings Rate (MSR) and Sharing Rate
    Section 1899(d)(1)(B)(i) of the Act provides that ``an ACO shall be 
eligible to receive payment for shared savings under paragraph (2) only 
if the estimated average per capita Medicare expenditures under the ACO 
for Medicare fee-for-service beneficiaries for parts A and B services, 
adjusted for beneficiary characteristics, is at least the percent 
specified by the Secretary below the applicable benchmark * * *.'' That 
provision further states that the ``Secretary shall determine the 
appropriate percent * * * to account for normal variation in 
expenditures under this title, based upon the number of Medicare fee-
for-service beneficiaries assigned to an ACO.'' Section 
1899(d)(1)(B)(ii) of the Act provides that, if an ACO has savings in 
excess of the MSR and meets the quality standards established by the 
Secretary, ``a percent (as determined appropriate by the Secretary) of 
the difference between such estimated average per capita Medicare 
expenditures in a year, adjusted for beneficiary characteristics, under 
the ACO and such benchmark for the ACO may be paid to the ACO as shared 
savings and the remainder of such difference shall be retained by the 
program under this title.''
    A goal of the Shared Savings Program is to use a portion of the 
savings (the difference between the ACO's actual expenditures and the 
benchmark) to encourage and reward participating ACOs for coordinating 
the care for an assigned beneficiary population in a way that controls 
the growth in Medicare expenditures for that patient population while 
also meeting the established quality performance standards. However, 
observed savings can also occur as a result of normal year-to-year 
variations in Medicare beneficiaries' claims expenditures in addition 
to the ACO's activities. Thus, even if an ACO engages in no activities 
to improve the quality and efficiency of the services it delivers, in 
certain cases, differences between the benchmark expenditures (updated 
according to statute) and assigned patients' expenditures would be 
observed during some performance periods merely because of such normal 
variation. Consequently, the statute requires us to specify a MSR to 
account for the normal variations in expenditures, based upon the 
number of Medicare FFS beneficiaries assigned to the ACO. The MSR 
should be set in a way that gives us some assurance that the ACO's 
performance is a result of its interventions, not normal variation. 
However, we also do not want an outcome where savings that have been 
earned are not recognized.
    Establishing an MSR on the basis of standard inferential statistics 
that take into account the size of an ACO's beneficiary population 
provides confidence that, once the savings achieved by the ACO exceed 
the MSR, the change in expenditures represents actual performance 
improvements by the ACO as opposed to normal variations.
    Under the PGP demonstration, the MSR was initially set at a flat 2 
percent of the benchmark, regardless of number of assigned 
beneficiaries, and PGP practices received back 80 percent of the 
savings achieved in excess of the MSR. However, in establishing a MSR, 
section 1899(d)(1)(b)(i) of the Act calls on us to take into account 
``the number of fee-for-service beneficiaries assigned to an ACO.'' As 
such, we would need to apply statistical sampling techniques to 
determine a MSR based on the number of assigned beneficiaries with some 
level of statistical confidence.
    The MSR in combination with the savings rate will determine the 
amount of shared savings that an ACO can receive. For example, fewer 
savings would be shared if the MSR were set at a higher percentage. 
Conversely, shared savings would be higher if the MSR were set at a 
lower percentage. There are several policy implications associated with 
the methodology used to set the MSR. A higher MSR would provide greater 
confidence that the shared savings amounts reflect the real quality and 
efficiency gains, and offer greater protection to the Medicare Trust 
Funds. However, due to the larger barrier to achieve savings, a higher 
MSR could also discourage potentially successful ACOs, especially 
physician organized ACOs and smaller ACOs in rural areas, from 
participating in the program. In contrast, a lower MSR would encourage 
more potential ACOs to participate in the program, but would also 
provide less confidence that savings are a result of improvements in 
quality and efficiency made by an ACO.
    We believe that the most appropriate policy concerning 
determination of the ``appropriate percent'' for the MSR would achieve 
a balance between the advantages of making incentives and rewards 
available to successful ACOs and prudent stewardship of the Medicare 
Trust Funds. For the one-sided model we are proposing a sliding scale 
confidence interval (CI) based on the number of assigned beneficiaries. 
The MSR would be established for each ACO based on increasing nominal 
confidence intervals for larger ACOs so that an ACO with the minimum 
5,000 assigned beneficiaries would have an MSR based on a 90 percent 
CI; an ACO with 20,000 assigned beneficiaries would have a MSR based on 
a 95 percent CI and an ACO with 50,000 assigned beneficiaries would 
have an MSR based on a 99 percent CI. In addition, the MSR would not be 
allowed to fall below 2 percent for larger ACOs.
    An ACO that exceeds its MSR would be eligible to share up to 50 
percent of the savings in the one-sided model (based on quality 
performance), as discussed in section II.E. of this proposed rule. 
Table 6 displays the minimum savings rate an ACO would have to achieve 
before savings could be shared based on the number of its assigned 
beneficiaries.
    In order to improve the opportunity for groups of solo and small 
practices to participate in the Shared Savings Program, we are 
proposing to vary confidence intervals by the size of the ACO, which is 
determined based on the number of assigned beneficiaries. In response 
to our November 17, 2010 RFI, many commenters recognized the prevalence 
of solo and small practices and the importance of these providers for 
rural areas and for the treatment of specific patient populations, for 
example, individuals with mental health and substance abuse disorders 
or beneficiaries residing in skill nursing facilities. Many of these 
commenters urged us to consider policies and models that encourage the 
participation of solo and small practices and to address barriers they 
face in forming ACOs such as access to up-front capital to invest in 
the infrastructure and resources required to redesign care. One option 
that would help accomplish this would be to vary the confidence

[[Page 19612]]

intervals used to establish MSRs so that smaller practices would have 
relatively lower MSRs. Conversely, in recognition that they are likely 
to be already established, possess prior experience, and thus better 
able to achieve savings, larger ACOs would have their MSRs based on a 
higher confidence interval, resulting in a relatively higher MSR.
    The MSRs are estimated to provide confidence that an ACO with a 
given number of beneficiaries and assumed to be of average national 
baseline per-capita expenditure and expenditure growth rate would be 
unlikely to achieve a shared savings payment by random chance alone. A 
specific MSR is a function of both the number of assigned beneficiaries 
and a chosen confidence interval. Recognizing the higher uncertainty 
regarding expenditures for smaller ACOs and the desire to encourage 
participation by smaller ACOs, for the one-sided model, we propose to 
set the confidence interval to 90 percent for ACOs of 5,000 
beneficiaries, resulting in an MSR of 3.9 percent. For ACOs with 20,000 
and 50,000 beneficiaries, we propose to set the confidence interval to 
95 percent and 99 percent, respectively, resulting in MSRs of 2.5 
percent and 2.2 percent. As ACO size increases from 5,000 to 20,000 (or 
similarly from 20,000 to 50,000), we propose blending the MSRs between 
the two neighboring confidence intervals, resulting in the MSRs as 
shown in Table 6. We specify an MSR at both the high and low end of 
each range of ACO population size. A particular ACO would be assigned a 
linearly-interpolated MSR given their exact number of beneficiaries. 
For example, an ACO with 7,500 beneficiaries would be assigned an MSR 
of 3.3 percent because it lies at the midpoint between 7,000 and 7,999 
beneficiaries, sizes at which the MSR would be 3.4 percent and 3.2 
percent, respectively. For ACOs serving more than 60,000 aligned 
beneficiaries, we propose that the MSR would not be allowed to fall 
below 2 percent. This lower bound is designed to protect the shared 
savings formula from expenditure reduction due to random chance that 
can occur in group claims due to factors that persist regardless of a 
group's size. This lower bound is also consistent with the flat 2 
percent MSR we propose to use in the two-sided model and is the minimum 
level that was used in the PGP Demonstration for groups regardless of 
size which also provided a lower MSR for smaller physician groups 
participating in the demonstration.
    We considered using a flat 95 percent confidence interval for 
organizations which is a recognized standard for measuring statistical 
differences, but as previously noted, because we believe that many 
smaller physician-driven and rural ACOs have the potential to improve 
the quality and efficiency of care, we were concerned about the impact 
on the ability of these ACOs to participate in the Shared Savings 
Program. We also wanted to protect the Medicare Trust Funds against 
large organizations coming together solely for purposes of aggregating 
their number of assigned beneficiaries in order to have smaller MSRs to 
be able to achieve the minimum required savings levels and share in 
savings with little or no actual improvement in the quality and 
efficiency of care provided to beneficiaries.
    The proposed confidence intervals were determined assuming that the 
variation in the per capita expenditure growth for a particular ACO is 
equal to the variation in per capita expenditure growth nationally. 
This is not the case for the majority of ACOs, however, as regional 
growth rates tend to vary from the national average due to a number of 
variables. Therefore, the confidence intervals generated using only the 
national expenditure growth variation overstate the relative confidence 
associated with an increasing group size. This is compensated for in 
two ways: (1) The 2 percent floor; and (2) increasing the confidence 
interval as group size increases.
[GRAPHIC] [TIFF OMITTED] TP07AP11.025

[[Page 19613]]

    We welcome comments on the most appropriate means to establish the 
MSR for an ACO, including the appropriate confidence intervals.
11. Net Sharing Rate
    Section 1899(d)(2) calls for us to share ``a percent (as determined 
appropriate by the Secretary) of the difference between such estimated 
average per capita Medicare expenditures in a year, adjusted for 
beneficiary characteristics under the ACO and such benchmark for the 
ACO.'' Section 1899(i) of the Act permits the Secretary to consider 
other payment models if she determines that they will ``improve the 
quality and efficiency of items and services furnished under this 
title'' and will not result in additional expenditures. Thus, in 
considering the amount of savings ACOs under the one-sided model could 
be eligible to receive, we considered several options in addition to 
the methodology outlined in section 1899(d)(2) of the Act.
    The first option we considered is the one required under section 
1899(d)(2) of the Act, which would permit the ACO to share on first 
dollar savings once the MSR was exceeded. This option would maximize 
the reward that an ACO could realize. This amount could provide 
critical financial support for ACOs that serve a smaller population 
(for example, less than 10,000 assigned beneficiaries), which may be 
physician only and/or predominantly care for underserved populations, 
or ACOs whose beneficiaries rely upon safety net providers for care or 
ACOs which serve rural areas. However, given the normal variation in 
expenditures, we have concerns that sharing on first dollar could 
result in sharing on unearned savings rather than on savings achieved 
by the ACO for redesigned care processes.
    Therefore, we considered another alternative which would be to 
limit the amount of savings by requiring ACOs to exceed the MSR and 
then share with the ACO only those savings in excess of the MSR. As 
discussed in the previous section, one challenge to appropriate sharing 
of savings under this program is that observed savings can occur as a 
result of normal year-to-year variations in Medicare beneficiaries' 
claims expenditures in addition to the ACO's activities. This concern 
is heightened in the one-sided model, because absent initial 
accountability for losses, ACOs have less motivation to eliminate 
unnecessary expenses and may be more likely to be rewarded as a result 
of methodological requirements. Sharing only in savings which exceed 
the MSR is consistent with the design of the original PGP demonstration 
and would reduce the probability that shared savings are earned as a 
result of chance or lower pre-existing expenditure trends due to 
existing efficiencies, and not newly enhanced care coordination and/or 
redesigned delivery of care. Further, such a requirement would 
encourage ACOs to strive to generate greater levels of savings.
    A third option we considered would be to require all ACOs to exceed 
the MSR to be eligible for savings, but only share savings in excess of 
a certain threshold. ACOs meeting certain criteria could be exempted 
from this provision and be allowed to share in first dollar savings. 
This option would balance the need to have assurance that savings are 
not a result of random variation with the need to provide critical 
financial support for under-funded ACOs, particularly ACOs that serve a 
smaller population, safety net providers, or physician-only 
participants. Additionally, we have experience with this model through 
the PGP demonstration.
    We are proposing the third option, that is, we propose that once an 
ACO has surpassed its MSR, the ACO would share in savings beyond a 
certain threshold. We further propose that, unless exempted, ACOs that 
exceed the MSR would be eligible to share in net savings above a 2-
percent threshold, calculated as 2 percent of its benchmark (updated 
according to statute). The sharing rate (earned quality performance 
sharing rate and additional increases for including FQHCs and/or RHCs) 
would be applied to net savings above this 2 percent threshold in order 
to determine the shared savings amount. We believe that this threshold 
protects the program from sharing unearned savings and helps to ensure 
that shared savings are due to enhanced care coordination and quality 
of care on the part of the ACO.
    As previously discussed, many smaller physician-driven ACOs and 
ACOs caring for underserved populations have the potential to improve 
the quality and efficiency of care, but may be especially challenged in 
accessing capital to meet their needs. We hope to encourage successful 
participation by these ACOs in the Shared Savings Program. 
Additionally, we acknowledge that providers/suppliers working in these 
environments face additional challenges in coordinating care and 
creating the infrastructure necessary to create a successful ACO, and 
therefore may not be equipped to assume the risk right away (and be 
eligible for greater reward) of the two-sided model. As such, we are 
proposing that ACOs that meet the following criteria would be exempt 
from the 2 percent net savings threshold and would instead share on 
first dollar savings under the one-sided model. We propose to exempt 
ACOs with less than 10,000 assigned beneficiaries in the most recent 
year for which we have complete claims data (for instance, 2012 for 
2014 program participation) and that meet one of the following:
     The ACO is comprised only of ACO professionals in group 
practice arrangements or networks of individual practices of ACO 
professionals.
     75 percent or more of the ACO's assigned beneficiaries 
reside in counties outside a Metropolitan Statistical Area (MSA) in the 
most recent year for which we have complete claims data.
     50 percent or more of the ACO's assigned beneficiaries 
were assigned to the ACO on the basis of primary care services received 
from a Method II CAH.
     50 percent or more of the beneficiaries assigned to the 
ACO had at least one encounter with an ACO participant FQHC and/or RHC 
in the most recent year for which we have complete claims data, that 
is, the ACO has met criteria for receiving full potential additional 
payment as described later in this proposed rule.
    We invite comment on these proposals and the other options 
considered.
12. Additional Shared Savings Payments for Including FQHCs and/or RHCs
    We are also proposing that an ACO in the one-sided model can 
receive an increase in its shared savings rate of up to 2.5 percentage 
points during the first 2 years of its agreement, for including a 
strong FQHC and/or RHC presence within the structure of the ACO. (See 
section II.G. of this proposed rule for details surrounding the two-
sided model which provides for a 5 percentage point increase for 
including FQHCs or RHCs or both.)
    FQHCs and RHCs have long delivered comprehensive, high-quality 
primary health care to patients regardless of their ability to pay, and 
increase access to health care through innovative models of community-
based, comprehensive primary health care that focus on outreach, 
disease prevention, and patient education activities. FQHCs provide 
high-quality care to rural and urban populations alike by focusing 
attention on improving public health through preventive care in 
addition to direct patient care. Not only do health centers provide 
critical, high quality primary care in the Nation's neediest areas, but 
reports have shown that the

[[Page 19614]]

health center model of care can reduce the use of costlier providers of 
care, such as emergency departments and hospitals. Currently, more than 
1,100 such health centers operate over 7,900 service delivery sites 
that provide care to nearly 19 million patients in every State, the 
District of Columbia, Puerto Rico, the U.S. Virgin Islands, and the 
Pacific Basin.
    Despite serving less healthy and more vulnerable populations, 
research indicates that these health centers have achieved considerable 
success in increasing access to care, improving health outcomes for 
patients, reducing health disparities, and containing health care 
costs. For example, regarding FQHCs, data show health center Medicaid 
patients were 11 percent less likely to be inappropriately hospitalized 
and 19 percent less likely to visit the emergency room inappropriately 
than Medicaid beneficiaries who had another provider as their usual 
source of care.\15\
---------------------------------------------------------------------------

    \15\ Falik M. et al. Comparative Effectiveness of Health Centers 
as Regular Source of Care. Journal of Ambulatory Care Management 
2006; 29(1): 24-35.
---------------------------------------------------------------------------

    RHCs improve access to primary care in underserved rural areas 
through the use of interdisciplinary team[middot] based care. 
Currently, more than 3,800 such RHCs provide care to more than 1.6 
million Medicare beneficiaries throughout the United States. RHCs 
provide critical, quality primary care to Medicare beneficiaries and 
others most in need in underserved areas. Research has shown that RHCs 
not only provide care at costs significantly less than other providers 
of care, such as emergency departments and hospitals, but also reduce 
use of those providers. Additionally, research on RHCs has shown that:
     Among older adults, the presence of an RHC in the county 
reduced ambulatory care sensitive (ACS) conditions admission rates, 
compared to counties in which an RHC was not present.\16\
---------------------------------------------------------------------------

    \16\ Probst, J.C., Laditka, J., and Laditka, S. (2009). 
``Community Health Center and Rural Health Clinic Presence 
Associated With Lower County-Level Hospitalization Rates for 
Ambulatory Care Sensitive Conditions.'' South Carolina Rural Health 
Research Center.
---------------------------------------------------------------------------

     RHCs offer financially accessible care to low income 
individuals; 96 percent of independent RHCs surveyed offer free care, 
sliding fee scales, or both.\17\
---------------------------------------------------------------------------

    \17\ Hartley, D., Gale, J. Leighton, A. and Bratesman, S. 
(2010). ``Are Rural Health Clinics Part of the Rural Safety Net?'' 
Muskie School of Public Service; Maine Rural Health Research Center.
---------------------------------------------------------------------------

    Accordingly, because FQHCs and RHCs are unable to participate 
independently in this program, we believe providing incentives to ACOs 
that include FQHCs and/or RHCs as ACO participants is in the interest 
of the Shared Savings Program as incorporation of these types of 
entities will promote care coordination and the delivery of efficient, 
high-quality health care. Therefore, we are proposing, for the one-
sided model, up to a 2.5 percentage point increase in the sharing rate 
for ACOs that include these entities as ACO participants. We propose 
establishing a sliding-scale payment, outlined in the following table, 
based on the number of Medicare FFS beneficiaries with one or more 
visit at an ACO's participant FQHC or RHC during the performance year.
[GRAPHIC] [TIFF OMITTED] TP07AP11.026

    We are also proposing that ACOs specifically identify their FQHC/
RHC participant TINs in their initial and annual reporting of ACO 
participant TINs, and disclose other provider identifiers as requested 
to assure proper identification of these organizations for the purpose 
of awarding the payment preference.
    The statutory definition of FQHCs at section 1861(aa)(4) of the Act 
includes FQHCs receiving grant support under section 330 of the Public 
Health Service Act, so-called FQHC look-a-likes, and outpatient health 
programs/facilities operated by tribal organizations. Our regulations 
at 42 CFR 405.2401(b) include this statutory definition of FQHCs. 
Similarly, Sec.  405.2401(b) reflects the statutory definition of RHCs 
in section 1861(aa)(2) of the Act. We therefore propose to define FQHCs 
and RHCs, for the purpose of awarding this payment preference, as these 
terms are defined in Sec.  405.2401(b) of our regulations. We seek 
comments on alternate options for establishing a payment preference 
with sliding scale for ACOs that include FQHCs or RHCs as ACO 
participants, including suggestions for the appropriate method to 
measure FQHC/RHC involvement and the appropriate level of incentives.
    We are also interested in encouraging providers who serve a large 
portion of dual eligible beneficiaries to participate in the Medicare 
Shared Savings Program. Medicare beneficiaries who are also eligible 
for Medicaid--that is, are ``dually eligible'' for these programs--are 
among the most vulnerable of Medicare beneficiaries. Dual eligible 
beneficiaries tend to have higher medical costs than other fee-for-
service beneficiaries, and, as a result, are expected to benefit even 
more than other beneficiaries from improvements in the quality and 
efficiency of their care resulting from the greater care coordination 
offered by an ACO. The Affordable Care Act recognizes the unique status 
of dual eligible beneficiaries and includes several provisions to 
address their special

[[Page 19615]]

needs. For instance, section 2602 of the Affordable Care Act 
established a Federal Coordinated Health Care Office within CMS to 
bring together officers and employees of the Medicare and Medicaid 
programs at CMS to: (1) more effectively integrate benefits under the 
Medicare and Medicaid programs; and (2) improve the coordination 
between the Federal government and States for individuals eligible for 
benefits under both such programs in order to ensure that these 
individuals receive full access to the items and services to which they 
are entitled under titles XVIII and XIX of the Act.
    Additionally section 1899(j) of the Act provides that ``[t]he 
Secretary may give preference to ACOs who are participating in similar 
arrangements with other payers.'' The statute prescribes neither the 
kind of preference that the Secretary should provide to such ACOs nor 
what other types of arrangements should be considered ``similar'' for 
purposes of such a preference. We believe that the more patients an ACO 
sees for which it is eligible to receive performance-based incentives, 
such as shared savings, the more likely it is that the ACO will adopt 
substantial behavior changes conducive to improved quality and cost 
savings.
    We are seeking comment on methods to provide preference to ACOs 
that serve a large dual-eligible population or that enter and maintain 
similar arrangements with other payers. Specifically we seek comment 
regarding suggestions to encourage accountability for dual-eligible 
beneficiaries and participation in similar arrangements with other 
types of payers.
13. Withholding Performance Payments To Offset Future Losses
    Over the course of the program, an ACO may earn performance 
payments in some years and incur losses in other years. The issue is 
whether the full amount of shared savings payments should be paid in 
the year they are accrued, or whether some portion should be withheld 
to offset potential future losses. For example, under the PGP 
demonstration, a flat 25 percent withhold applied to annual earned 
performance payments to guard against losses in future years as well as 
to provide an incentive for PGPs to continue in the demonstration since 
the withhold was only released at the end of the demonstration period 
or when the PGPs were rebased. Under the two-sided model discussed in 
section II.G. of this proposed rule, we propose that an ACO may use a 
withhold of their earned shared savings payment as one option for 
demonstrating an adequate repayment mechanism in the event they incur 
shareable losses. As discussed in sections II.B. and II.I. of this 
proposed rule, we believe the requirement that ACOs be willing to 
commit to a 3-year agreement to participate in the Shared Savings 
Program is necessary to ensure that the program achieves its long-term 
goal of redesigning health care processes, and our proposal here 
furthers that intent. Since we want to encourage ACOs to participate 
for all 3 years of their agreements, protect the Medicare program 
against losses, and ensure ACOs have an adequate repayment mechanism in 
the event they incur losses under either the one-sided or two-sided 
model, we are proposing a flat 25 percent withholding rate will be 
applied annually to any earned performance payment. Under the two-sided 
model as discussed in Section II.G. of this proposed rule, we propose 
that an ACO may withhold an additional portion of its earned 
performance payment as a mechanism to demonstrate an adequate repayment 
mechanism in the event they incur shareable losses. Furthermore, we 
propose that at the end of each agreement period, positive balances 
will be returned to the ACO. However, if the ACO does not complete its 
3-year agreement, the ACO would forfeit any savings withheld.
14. Performance Payment Limit
    Section 1899(d)(2) of the Act requires the Secretary to ``establish 
limits on the total amount of shared savings that may be paid to an ACO 
* * *.'' Therefore, we must propose the maximum performance payment an 
ACO may receive in any given performance year in this proposed rule. In 
determining what would constitute an appropriate limit, we believe that 
it should provide a significant opportunity for ACOs to receive shared 
savings generated from quality improvements and better coordination and 
management of Part A and B services, while avoiding creating incentives 
for excessive reductions in utilization which could be harmful to 
beneficiaries. Under the PGP demonstration, the limit was set at 5 
percent of the organization's Part A and Part B expenditure target.
    For purposes of the Shared Savings Program, we considered an option 
to vary the performance payment limit by the readiness of the ACO to 
take on greater responsibility and risk. ACOs seeking to participate in 
the Shared Savings Program will vary with respect to their readiness to 
function under a risk model with respect to their organizational and 
systems capacity and structure. Accordingly, some ACOs might more 
quickly be able to demonstrate quality improvements and savings than 
will others. Applying differential payment limits based on an ACO's 
readiness to take on risk could be another means to encourage and 
reward successful ACO participation.
    In light of our experience with the PGP demonstration, we 
considered a limit of 5 percent. We also considered whether a higher 
limit, such as 10 percent or 15 percent, would be appropriate to 
provide an even stronger incentive for ACOs to develop the quality and 
efficiency improvements that could result in greater shared savings. 
Depending on an ACO's composition, shared savings payments under such 
higher limits could represent an even larger portion of Medicare 
payments to ACO participants for care furnished to assigned 
beneficiaries since the cap is a percentage of the ACO's benchmark for 
Medicare Part A and B expenditures for assigned beneficiaries, which 
reflects all care furnished to those beneficiaries, regardless of 
whether it was provided in the ACO. For example, an ACO that does not 
include a hospital would have the opportunity to realize a relatively 
higher proportion of shared savings as a percentage of its Medicare 
revenue by reducing Part A expenditures for its assigned beneficiaries. 
However, opportunities to earn greater savings could also raise 
questions about whether the quality of care is improving, which is a 
goal as important as achieving savings in the Shared Savings Program. 
Providing an incentive for ACOs to invest to improve quality and 
efficiency of care needs to be balanced against providing an overly 
large incentive where an ACO may be encouraged to generate savings 
resulting from inappropriate limitations on necessary care. A higher 
cap on total shared savings could provide such an incentive to limit 
care. While all ACOs may have this incentive to some degree, ACOs 
without Part A providers could have greater incentive to do so, 
depending on where the cap is established.
    A lower limit, such as the 5 percent limit under the PGP 
demonstration, would reward ACOs for improving quality and efficiency 
and potentially generate more savings for the Medicare program without 
creating incentives to limit care that is appropriate and necessary. On 
the other hand, a lower limit might be an insufficient incentive for 
some potential ACOs to participate in the program. In contrast, a 
higher percentage limit, such as 10 or 15 percent of an ACO's Part A 
and B expenditure benchmark, would provide

[[Page 19616]]

greater incentives for organizations to participate in the program and 
to achieve the quality and efficiency gains that are the goals of the 
Shared Savings Program. Many health care researchers believe that the 
rate of unnecessary health care is more than the approximate 10 percent 
which would be implied by establishing a 5 percent cap on ACO shared 
savings. (Since the maximum shared savings potentially realized by an 
ACO under the one-sided model is 52.5 percent, a 7.5-percent limit on 
the ACO share implies an expectation that overall savings may be as 
high as approximately 14 percent; a 10-percent limit implies a savings 
expectation of approximately 19 percent.) On the other hand, such a 
higher limit may provide some incentive for ACO providers/suppliers to 
reduce utilization inappropriately, which could potentially be harmful 
to beneficiaries
    We believe that the considerations in favor of both a lower (for 
example, 5 percent) and a higher (for example, 10 percent) limitation 
on shared savings with an ACO have merit. Accordingly we are proposing 
to establish the payment limit at 7.5 percent of an ACO's benchmark for 
the first 2 years of the agreement under the one-sided model. Following 
suggestions by MedPAC, in order to encourage ACOs to assume risk and 
participate in the two-sided model, as described in section II.G. of 
this proposed rule, we are proposing, for the two-sided model, to 
establish the payment limit at 10 percent of an ACO's benchmark for 
those ACOs that either elect the two-sided model initially for all 3 
years or are transitioned from the one-sided model during the third 
year of their agreement period. (Since the maximum shared savings 
potentially realized by an ACO under the two-sided model is 65 percent, 
a 10-percent limit on the ACO share implies an expectation that overall 
savings may be as high as approximately 15 percent). We are soliciting 
comments on these proposed payment limits and on whether a higher 
limit--for example, 10 percent for all ACOs--would be more appropriate 
in the light of the considerations discussed previously and other 
considerations that commenters may wish to raise. We also seek comments 
on whether differential limits should be established based on an ACO's 
readiness, as discussed previously, including the criteria we would 
apply and the methods by which we would assess readiness and how 
differential limits should be structured. We will consider this 
information and the implications for a differential cap based on ACO 
readiness in future rulemaking cycles.
    Regardless of what limit is adopted in the final rule, we plan to 
monitor beneficiary access and utilization of services, and the 
potential contribution of the performance limit to any inappropriate 
reductions in services. Our proposals related to monitoring and 
addressing ACO performance can be found in Section II.H. of this 
proposed rule. Furthermore, as we gain more experience with the Shared 
Savings Program and are able to evaluate how well the incentive 
structure under the Shared Savings Program is operating to generate 
greater quality and efficiency without inappropriately reducing 
utilization of services, we may undertake additional rulemaking to 
revise the performance payment limits we establish in the final rule.

G. Two-Sided Model

    Section 1899 of the Act implements a voluntary program that 
provides incentives for group of providers of services and suppliers to 
work together to improve the quality and efficiency of care for a FFS 
beneficiary population in exchange for a share in any savings generated 
from their effort. Section 1899(i) of the Act authorizes the Secretary 
to use other payment models in addition to the shared savings model 
outlined in section 1899(d) of the Act under which we only share 
savings with ACOs. This provision authorizes the Secretary to select a 
partial capitation model or any other payment model that the Secretary 
determines would improve the quality and efficiency of items and 
services furnished to Medicare fee-for-service beneficiaries. In 
addition, section 1115A of the Act, as amended by 3021 of the 
Affordable Care Act, authorizes the Center for Medicare and Medicaid 
Innovation (Innovation Center) to test innovative payment and service 
delivery models, which could include alternative ACO payment models.
    In the November 17, 2010 Federal Register, we solicited public 
comment on a number of issues including the types of alternative 
payment models we should consider in addition to the model laid out in 
section 1899(d) of the Act, either in the Shared Savings Program under 
the authority provided in 1899(i) of the Act or using the Innovation 
Center authority under section 1115A of the Act. We further asked about 
the relative advantages and disadvantages of any such payment models.
    Most comments received in response to this question favored our use 
of alternative payment models. A number of commenters suggested risk-
based models such as partial capitation (an up-front fixed dollar 
amount for a sub-set of Medicare services rendered by a provider per 
beneficiary per period of time) or global payment (an up-front fixed 
dollar amount for all Medicare-covered services required per 
beneficiary per period of time). Commenters proposed both one-sided 
shared savings models (to ease providers of services and suppliers into 
this payment model) and models that would allow ACOs to share in 
savings and be held accountable for losses (two-sided models).
    Taking these comments into account, we are proposing that ACOs 
could elect the two-sided model for their initial agreement period, to 
become accountable for losses and in order to be eligible for higher 
sharing rates than would be available under the one-sided model, 
beginning in their first performance year. In addition, we are also 
proposing that ACOs that initially elect the one-sided model would be 
reconciled annually for the first 2 years of the 3-year agreement using 
the one-sided model and automatically transitioned to the two-sided 
model for the third year of their agreement. This approach gives ACOs 
an option of two tracks for their initial agreement period, thereby 
providing an opportunity for organizations more experienced with care 
coordination and risk models, that are ready to accept risk to enter a 
sharing arrangement that provides greater reward for greater 
responsibility in year 1, while also providing an entry point for 
organizations with less experience with risk models, such as some 
physician-driven organizations or smaller ACOs, to gain experience with 
population management before transitioning to more risk.
1. Risk-Based Payment Models
    In section II.F of this proposed rule, we describe in detail the 
one-sided model, under which ACOs share in savings but are not 
accountable for repaying any losses if actual expenditures exceed the 
benchmark. While we believe this model holds promise for creating 
substantial improvement in quality and cost, many commenters on the 
November 17, 2010 RFI, and other stakeholders urged us to include risk-
based arrangements where ACOs would also be accountable for downside 
risk. Policy experts have also suggested that incorporating downside 
risk-based models into the Shared Savings Program would provide a 
stronger lever than a one-sided model for encouraging ACOs to achieve

[[Page 19617]]

efficiencies and attain the program's transformative goals.\18\
---------------------------------------------------------------------------

    \18\ See e.g., Robert A. Berenson, ``Shared Savings Program for 
Accountable Care Organizations: A Bridge to Nowhere?'' The American 
Journal of Managed Care, Vol 16, No. 10 (October 2010).
---------------------------------------------------------------------------

    Risk-based arrangements may take many forms. Two models considered 
for inclusion in the Shared Savings Program were two-sided risk 
arrangements (shared savings and losses) and partial capitation. Real-
world examples of these models vary widely, according to the terms of 
specific provider-payer initiatives they encompass. Partial capitation 
refers to a payment system that incorporates elements of both 
capitation and FFS. Section 1899(i) of the Act defines partial 
capitation as a model ``* * * in which an ACO is at financial risk for 
some, but not all, of the items and services covered under Parts A and 
B, such as at risk for some or all physicians' services or all items 
and services under Part B.'' Our intent is to design and test partial 
capitation models in the Innovation Center first in order to gain more 
experience, introduce them to providers of services and suppliers, and 
refine them before adopting them more widely in the Shared Savings 
Program.
    In a two-sided model based around FFS within the Shared Savings 
Program, ACOs would accept the downside risk for losses once the 
minimum loss rate is exceeded (the equivalent of the minimum savings 
rate that must be exceeded in order to share in savings under the 
Shared Savings Program). ACOs' exposure to downside risk could also be 
limited by the creation of risk corridors that establish a maximum 
shared loss cap. We are proposing to make available a two-sided model 
in the Shared Savings Program to foster ACOs' accountability for 
greater risk with a greater opportunity for reward. ACOs may elect to 
enter the one-sided model (Track 1) or elect the two-sided model (Track 
2). An ACO that elects Track 1 would automatically be transitioned to 
the two-sided model for the third year of its agreement. Thus, in the 
third year of the ACO's agreement under Track 1, the methodology used 
to reconcile ACOs under the first year of the two-sided model would 
apply except ACOs must meet the quality performance standard that 
applies in the third year (as opposed to the first year standard of 
full and accurate reporting). A key attribute of FFS is beneficiary 
freedom of choice to choose any provider they wish which will be 
maintained under both the one-sided and two-sided models.
    There are pros and cons of risk-based arrangements. Providers of 
services and suppliers engaged in a risk-based payment arrangement, 
compared to a one-sided shared savings structure, have a stronger 
incentive to control spending and achieve efficiencies. This is 
consistent with the antitrust perspective that participants in 
financially integrated organizations have the incentive to cooperate in 
controlling costs and improving quality by managing the provision of 
services; such that to demonstrate financial integration, participants 
in a collaboration must share substantial financial risk, as discussed 
in section II.B of this proposed rule. Risk-based arrangements offer 
payers a chance to control spending, either through the recoupment of 
excess expenditures (losses) in two-sided risk arrangements, or through 
capitated payments. However, since providers of services and suppliers 
have an increased motivation to control spending and achieve 
efficiencies under a risk-based model, it would be reasonable to 
anticipate an increase in negative incentives such as incentives to 
stint on care or undersupply services, shift costs (for instance 
through changes in referral patterns), as well as increased incentives 
for providers of services and suppliers to avoid at risk beneficiaries. 
In the 1990's, California providers' willingness to take risk led to 
the rapid expansion and failure of many under-capitalized risk-bearing 
physician organizations. This experience illustrates that risk-bearing 
arrangements have broad implications for provider relationships (namely 
leading to the integration of providers through mergers and 
acquisitions); the financial solvency of provider organizations and 
therefore the stability of health care markets and patients' access to 
care; as well as leverage between providers and private payers.\19\ For 
these reasons, risk-based arrangements require greater assurance of 
providers' financial solvency in order to repay Medicare for excess 
expenditures that may be incurred, as well as greater beneficiary 
protections, for example by heightened monitoring to detect 
inappropriate short-cutting of care and avoidance of at-risk 
beneficiaries. In addition, proper safeguards may be needed to address 
the risk of conduct violating fraud and abuse laws.
---------------------------------------------------------------------------

    \19\ See Robert A. Berenson, Paul B. Ginsburg and Nicole Kemper, 
``Unchecked Provider Clout in California Foreshadows Challenges To 
Health Reform'' Health Affairs, April 2010; James C. Robinson & Emma 
L. Dolan, ``Accountable Care Organizations in California: Lessons 
for the National Debate on Delivery System Reform'' Integrated 
Healthcare Association, White Paper (2010).
---------------------------------------------------------------------------

    Incorporation of downside risk into the Shared Savings Program, 
while retaining a FFS base, has been encouraged by commenters on the 
November 17, 2010 RFI (including MedPAC), other stakeholders and policy 
experts as an entry point for moving ACOs to risk-based arrangements. 
MedPAC suggested offering a two-sided risk model in addition to the 
one-sided model, and over time, making the two-sided model the dominant 
or only option available to program participants. Further, to encourage 
ACOs to participate in the two-sided model, MedPAC recommended that it 
could be distinguished from the one-sided model by features such as a 
larger share of savings and risk corridors to protect ACOs from high 
levels of losses.\20\
---------------------------------------------------------------------------

    \20\ Letter from Glenn M. Hackbarth, Chairman MedPAC, to Dr. 
Donald M. Berwick, Administrator, Centers for Medicare and Medicaid 
Services, November 22, 2010 (File Code CMS-1345-NC).
---------------------------------------------------------------------------

    A relevant example of a two-sided risk arrangement in a FFS setting 
is Blue Cross Blue Shield of Massachusetts' (BCBSMA) Alternative 
Quality Contract, an initiative that engages groups of providers for 
HMO or PPO beneficiaries. Under this contract, providers continue to be 
paid on a FFS basis. Each group's yearly expenditures are compared 
against a predetermined global budget, factoring in the level of risk 
the group has agreed to take on; the group is paid any surplus or 
repays BCBSMA for any deficit. Groups can earn bonuses based on quality 
performance targets, and achieved savings, and also earn significant 
quality bonuses.\21\
---------------------------------------------------------------------------

    \21\ Michael E. Chernew et al. ``Private-Payer Innovation In 
Massachusetts: The `Alternative Quality Contract' '' Health Affairs 
(January 2011).
---------------------------------------------------------------------------

    Given these considerations, we believe payment models where ACOs 
bear a degree of financial risk hold the potential to induce more 
meaningful systematic change in the behavior of groups of providers of 
services and suppliers compared to a one-sided model. We propose to 
develop an option for an ACO to either enter into a two-sided model 
within the Shared Savings Program initially or enter into the one-sided 
model within the Shared Savings Program initially and be transitioned 
to the two-sided model in year 3 of its initial 3-year agreement. We 
believe this proposal strikes a balance between stakeholders' requests 
for risk-based arrangements with the implications for beneficiary 
protections and market stability posed by capitated models and the 
operational complexity of creating

[[Page 19618]]

these arrangements in a FFS environment. As we develop experience with 
other risk-based models, for example through the Innovation Center, we 
expect to consider incorporating additional payment models into the 
Shared Savings Program through future rule making.
2. Two Tracks Provide Incremental Approach to Incorporating Risk
    We considered several options about how to incorporate a two-sided 
model into the Shared Savings Program. The major options we considered 
are as follows:
     Basing the program on a two-sided model, thereby requiring 
all participants to accept risk from the first program year.
     Allowing applicants to choose between program tracks, 
either a one-sided model or two-sided model, for the duration of the 
agreement.
     Allowing a choice of tracks, but requiring ACOs electing 
the one-sided model to transition to the two-sided model during their 
initial agreement period.
    Requiring all ACOs to initially take downside risk would likely 
inhibit the participation of some interested entities. Potential Shared 
Savings Program applicants will likely include providers and suppliers 
with different levels of experience with risk-based payment 
arrangements and with different levels of financial footing, reflecting 
the heterogeneity of providers and suppliers and provider arrangements 
that exist in the nation's health care system. The comments on the 
November 17, 2010 RFI reflect this diversity, but in sum, favored our 
adoption of a flexible approach that recognizes the different levels of 
ACOs' readiness to take on risk. For instance, organizations 
experienced with integrated care and risk-based arrangements, with 
available financial reserves, may be ready and willing to accept risk 
beginning in the first program year. Others urged against program 
requirements which could preclude small/solo practices and safety net 
providers, from entering the Shared Savings Program. These comments 
underscored the scenario in which ACOs, otherwise capable of meeting 
the program's requirements, may initially lack the experience and 
capital to accept significant downside risk.
    However, allowing ACOs to choose from either a one-sided model or a 
two-sided model also creates some concerns. Some ACOs capable of taking 
risk may take advantage of the option that allows for gain by realizing 
savings without any risk for incurring added costs. We believe it 
important that all Shared Savings Program participants quickly move to 
taking on downside risk. We believe that payment models where ACOs bear 
a degree of financial risk have the potential to induce more meaningful 
systematic change in providers' and suppliers' behavior. Additionally, 
by introducing a risk model, we believe we will elicit applicants to 
the program who are more serious about their commitment to achieving 
the program's goals around accountability for the care of Medicare 
beneficiaries and the three-part aim of enhancing the quality of health 
care, improving patient satisfaction with their care, and better 
controlling the growth in health care costs.
    We propose that applicants will have the option of choosing between 
a one-sided model and a two-sided model initially. Under Track 1, ACOs 
enter the program under the one-sided model and must transition to the 
two-sided model for the third year of their initial agreement period. 
Thereafter, those ACOs can only participate under the two-sided model 
for any subsequent agreement periods. Alternatively, under Track 2, an 
ACO may enter the two-sided model option immediately for a full 3-year 
agreement period. Those ACOs must also participate in the two-sided 
model thereafter in subsequent agreement periods. Thus an ACO may only 
participate for a maximum of two years under the one-sided model, 
during its first agreement period, before it must transition and 
participate thereafter in the Shared Savings Program under the two-
sided model. We believe that this approach addresses the concerns we 
have identified. Incorporating both a one-sided and two-sided model 
into the Shared Savings Program provides a path forward for diverse 
organizations to gain experience with redesigning care processes and 
assuming accountability for the quality of care and financial outcomes 
of the populations they serve. Requiring those who enter the program on 
Track 1 to migrate to the two-sided model encourages organizations to 
take on greater risk with the opportunity for greater reward. We invite 
comments on this proposal and other options for incorporating a two-
sided model into the Shared Savings Program, including mechanisms for 
transitioning ACOs to two-sided risk arrangements.
3. Elements of the Two-Sided Model
    In developing the elements of a two-sided model under the Shared 
Savings Program, we propose to employ, as feasible and appropriate, the 
elements of the one-sided model that we have described in detail in the 
rest of this proposed rule. At the same time, it will be necessary to 
develop some policies for the two-sided model that would not be 
necessary under a one-sided model, for example, a methodology for 
determining shared losses. In addition, we believe that it is also 
appropriate to adapt some of the elements of the one-sided model to the 
somewhat different circumstances and incentives under which ACOs 
sharing two-sided risk would operate. Specifically, in light of the 
greater potential for a two-sided model to bring about positive changes 
in the operation of the FFS system by improving both the quality and 
efficiency of medical practice, we believe that it is both appropriate 
and essential to provide greater incentives for organizations that 
participate in the two-sided model. For example, as we describe below, 
we believe that it is appropriate to provide a higher shared savings 
rate for organizations participating in the Shared Savings Program 
under the two-sided model than for those organizations participating 
under the one-sided model.
    In the discussion that follows, it can be assumed that the features 
of the one-sided model we have proposed in this rule would also apply 
under the two-sided model, unless we specifically state otherwise. In 
general, we are proposing the same eligibility requirements and 
methodologies for the two-sided model as we have proposed for the one-
sided model. That is, we propose to use the same eligibility criteria, 
beneficiary assignment methodology, benchmark and update methodology, 
quality performance standards, data reporting requirements, data-
sharing provisions, monitoring for avoidance of at-risk beneficiaries, 
and transparency requirements under the two-sided model that we have 
described under the one-sided model. However, as we discuss below, we 
are adding some requirements in order to provide further assurance 
about the ability of an ACO which will be operating under the two-sided 
model to repay the Medicare program in the case of incurred losses.
    The following table provides a summary comparison of the program's 
two models:
BILLING CODE 4120-01-P

[[Page 19619]]

[GRAPHIC] [TIFF OMITTED] TP07AP11.027

BILLING CODE 4120-01-C
a. Beneficiary Notification and Protections
    Because we believe participants in risk models have an increased 
incentive to lower costs, we also recognize there may also be an 
increased incentive for ACOs to avoid at-risk beneficiaries. We believe 
that the monitoring procedures that we are proposing as discussed in 
section II.H. of this proposed rule, in combination with our proposed 
use of a retrospective beneficiary assignment methodology and proposed 
beneficiary notification requirements, are sufficient to guard against 
the prospects that two-sided model ACOs might try to avoid at-risk 
beneficiaries in order to minimize the possibilities of realizing 
losses against their benchmarks. However, we invite comments on the 
sufficiency of these proposed monitoring procedures as well as 
additional areas and mechanisms for monitoring two-sided model ACOs.
b. Eligibility Requirements
    We believe the eligibility requirements for ACOs we are proposing 
for the one-sided model, as discussed in section II.B. of this proposed 
rule, in combination with the proposed requirement that ACOs entering 
the two-sided model receive our approval of their repayment

[[Page 19620]]

mechanisms, are sufficient to ensure the ability of ACOs to pay CMS in 
the event they incur losses. We invite comments on whether additional 
eligibility requirements are necessary for ensuring that ACOs entering 
the two-sided model would be capable of repaying us if actual 
expenditures exceed their benchmark.
c. Quality Performance Measurement and Scoring
    We believe that the comprehensive quality performance standards 
that we have proposed for the one-sided model are also appropriate for 
the two-sided model. However, it is worth emphasizing in this context 
that we place great importance on the quality aspects of the Shared 
Savings Program, and that the quality standards take on even greater 
importance for ensuring high quality of care for beneficiaries since we 
are proposing to incorporate a requirement that all ACOs participating 
in the Shared Savings Program accept risk either beginning in year 1 or 
year 3 of their initial agreement period. Therefore, in order to 
provide greater incentives for organizations to participate under the 
two-sided model, we are proposing higher shared savings rates under the 
two-sided model. Specifically, we are proposing a sharing rate of up to 
60 percent (based on quality performance) under this model, compared to 
a sharing rate of up to 50 percent under the one-sided model, as 
discussed in section II.E. of this proposed rule. We propose that each 
of the 5 quality measure domains in Table 2 would continue to be 
equally weighted. Thus, each domain would be worth 12 percent of the 
savings generated by the ACO. That is, 5 domains x 12 percent equals 60 
percent of the total savings generated by the ACO. Under this model, 
high performers in quality scoring would continue to earn more than 
lower quality performers. As discussed in section II.E. of the proposed 
rule, Table 3 illustrates our proposed sliding scale for determining 
points earned for each measure; we are proposing that under the two-
sided model ACOs, like one-sided model ACOs, could earn a maximum of 2 
points per measure.
    As discussed in section II.E. of this proposed rule, the quality 
performance standard for the first year of the Shared Savings Program 
will be set at full and accurate reporting. For the purposes of 
determining the shared savings rate for Track 2 ACOs, ACOs which meet 
this standard will obtain the maximum savings rate for quality 
performance (60 percent). As previously proposed, under Track 1, ACOs 
will be reconciled using the methodology under the one-sided model for 
the first and second year of the agreement. In the third year of the 
ACO's agreement under Track 1, the methodology used to reconcile ACOs 
under the first year of the two-sided model would apply for payment 
purposes. With respect to the quality performance standard, Track 1 
ACOs in the third year of their agreement must meet the quality 
performance standard that applies in the third program year, as opposed 
to the first year standard of full and accurate reporting.
    We considered a number of alternatives to incorporating features 
that mirror the quality performance standard proposed for the one-sided 
model into determining the shared savings and shared losses under the 
two-sided model. That is, as proposed, under the two-sided model ACOs 
could increase their share of savings or decrease their amount of 
losses with higher quality scores. Alternatives track to the options 
considered for establishing the quality performance standard discussed 
in section II.E. of this proposed rule. An alternative is to take a 
threshold approach to measuring quality performance for the purpose of 
determining the amount of shared savings or losses. A third option is 
to use a blend of these two options, by allowing ACOs to increase their 
share of savings with higher quality scores but use a threshold 
approach when calculating losses, so that higher quality does not 
reduce an ACO's share of any losses. We seek comment on these alternate 
approaches.
d. Shared Savings Methodology
    As discussed in Section II.F. of this proposed rule, we are 
proposing that ACOs choosing to participate in the one-sided model 
could share savings if they exceed a minimum savings rate (MSR). For 
those ACOs whose savings exceed the MSR in the one-sided model, we are 
proposing a savings sharing rate of up to 50 percent of total savings, 
above a 2 percent savings threshold, with a payment cap of 7.5 percent 
of an ACO's benchmark. We are also proposing an additional increase of 
up to 2.5 percentage points for including FQHCs and/or RHCs as ACO 
participants, as discussed in section II.F of this proposed rule. Thus, 
under our proposal, an ACO participating in the one-sided model could 
realize a maximum shared savings rate of 52.5 percent.
    For purposes of the two-sided model, we are proposing to adopt the 
same methodology for determining shared savings, with some changes and 
incentives outlined below. In comparison to the one-sided model, the 
ACOs participating in the two-sided model would: (1) Have increased 
incentive payments for the same quality performance and including FQHCs 
and/or RHCs as ACO participants; (2) would be subject to a fixed 
minimum savings rate and minimum loss rate of 2 percent and would share 
in gross savings once the MSR is exceeded; and (3) would be responsible 
for a portion of the excess expenditures above the benchmark based on 
their quality performance and inclusion of FQHCs and/or RHCs. ACOs with 
excess expenditures within the minimum loss rate would not be 
responsible for repaying Medicare. ACOs with expenditures exceeding the 
minimum loss rate would be responsible for paying excess expenditures 
calculated by multiplying the amount of excess above the benchmark by 
one minus the final sharing rate. The final sharing rate is defined as 
the quality performance sharing rate plus the percentage points for 
including FQHCs and/or RHCs as ACO participants. ACOs would be 
responsible for paying the percentage of excess expenditures up to the 
annual loss cap which is measured as a percentage of the benchmark: 5 
percent, 7.5 percent and 10 percent respectively across the first 3 
years for Track 2 ACOs; an ACO in Track 1 who has entered the third 
year of its initial agreement period would be liable for an amount not 
to exceed the percentage of the first year of the two-sided model, that 
is, it would not exceed 5 percent.
(1) Minimum Savings Rate
    We believe that the MSR remains important under the two-sided model 
to guard against normal variation in costs, so that ACOs share savings 
or losses with the program only under those circumstances in which we 
can be confident that such savings or losses are the result of the 
ACO's behavior rather than normal variation. At the same time, we 
believe that it is more appropriate to employ a fixed minimum savings 
rate under this model. First, the greater predictability of a fixed 
minimum savings rate is more likely to attract organizations to 
participate under this model. Second, greater protection to the 
Medicare trust fund is afforded by ACOs accepting the risk of paying 
Medicare back for losses. Therefore, based on our experience with the 
Physician Group Practice demonstration and consistent with the lowest 
applicable MSR under the one-sided model, we are proposing to adopt a 
fixed 2 percent MSR for organizations operating under this model, in 
place of the variable

[[Page 19621]]

minimum savings rate for organizations operating under the one-sided 
model.
(2) Additional Shared Savings Payments
    In the one-sided model described previously in this proposed rule, 
we propose to increase an ACO's share in savings for including FQHCs 
and/or RHCs as ACO participants. To further increase the ACO's reward 
for taking risk, we are proposing to double this amount, awarding a 
sliding scale increase of up to 5 percentage points for including FQHCs 
and/or RHCs as ACO participants in an ACO participating in the two-
sided model, compared to 2.5 percentage points available under the one-
sided model.
(3) Net Sharing Rate
    As discussed in section II.F. of this proposed rule, we considered 
several options for the amount of savings an ACO could receive under 
the one-sided model. These options included requiring the ACO to exceed 
the MSR and then sharing either on a first dollar basis or sharing with 
the ACO savings in excess of a threshold amount. We proposed that for 
the first 2 years of the agreement for the one-sided model that ACOs 
which exceed the MSR would be eligible to share in savings net of a 2 
percent threshold, calculated as 2 percent of their benchmark. We 
further proposed that small ACOs under the one-sided model which meet 
certain criteria (namely, physician-driven ACOs, rural ACOs, and ACOs 
caring for underserved populations) which generate savings that exceed 
the MSR will be eligible to share in savings on a first dollar basis.
    We considered the same options on limiting the amount of savings an 
ACO could receive under the two-sided model. A number of factors 
favored allowing two-sided model ACOs to share on first dollar savings. 
For one, ACOs participating in the two-sided model are assuming the 
risk of losses due to normal year-to-year variations in Medicare 
beneficiaries' claims expenditures. Second, sharing first dollar 
savings with two-sided model ACOs would provide greater reward for ACOs 
that choose to participate in the program's two-sided model as compared 
to the one-sided model. Therefore, we propose that two-sided model ACOs 
which generate savings that exceed the MSR will be eligible to share in 
savings on a first dollar basis. Thus, under the two-sided model, the 
final sharing rate (quality performance sharing rate and any additional 
increases for including FQHCs and/or RHCs) would be applied to an ACO's 
total savings that exceed its benchmark.
(4) Calculating Sharing in Losses
    In addition to a methodology for determining shared savings, the 
two-sided model requires a methodology for determining shared losses in 
those cases where an ACO realizes a loss as opposed to a savings 
against its benchmark in any performance year. As discussed previously, 
we considered several options for calculating the amount of shared 
losses, tracking the options considered for establishing the quality 
performance standard. While a methodology for determining shared losses 
is obviously not necessary under a one-sided model, we have mirrored 
the structure and features of the shared savings methodology as much as 
possible to the determination of loss sharing. Thus, for purposes of 
the loss-sharing methodology, we propose adopting a similar structure 
of minimum loss rate (the equivalent of minimum savings rate on the 
savings side), shared loss cap, and adjustments to the shared loss 
percentage based on the ACO's quality performance and inclusion of 
FQHCs and/or RHCs.
    As noted previously, we are proposing a minimum loss rate for 
purposes of computing shared losses when an ACO's actual expenditures 
exceed its benchmark. As in the case of shared savings, we believe that 
losses must exceed some minimum percentage around the benchmark in 
order to provide sufficient confidence that the losses experienced 
during a given performance year are not simply the result of random 
variation. Further, we are also proposing a cap on the loss sharing 
rate under the two-sided model, as we discuss later in this proposed 
rule.
    In addition, as in the determination of shared savings, we are 
proposing to adjust the loss sharing rate by considering several 
factors related to performance and behavior. These factors would 
include: (1) Performance on quality measures; and (2) any additional 
adjustment for including FQHCs and/or RHCs as ACO participants. 
However, in order to recognize these factors appropriately in the 
determination of the shared loss rate, these factors must operate as 
decreases in the ACO's shared loss rate, rather than as the increases 
that they represent in the determination of the shared savings rate.
    For example, a two-sided model ACO that realizes savings against 
its benchmark may qualify for a final sharing rate of up to 65 percent 
if it is eligible for the maximum adjustments. In this case, the 65 
percent final sharing rate is comprised of the savings rate of up to 60 
percent for quality performance, plus 5 percentage points for including 
FQHCs and/or RHCs as ACO participants.
    On the other hand, a two-sided model ACO that experiences actual 
expenditures in excess of its benchmark may qualify for a shared loss 
rate as low as 35 percent of total losses if it is eligible for the 
maximum adjustments to its shared loss rate. So, for example, if the 
ACO obtained maximum points for its quality performance, and also 
received the maximum adjustment for including FQHCs and/or RHCs as ACO 
participants, it would have a sharing rate of 65 percent for purposes 
of sharing in savings. But since there are losses, the quality 
performance and inclusion of FQHCs and/or RHCs should be taken into 
consideration when calculating losses owed to the program. Accordingly, 
under our proposed methodology we would multiply the total losses by 1 
minus the 65 percent final sharing rate, or 35 percent, making the ACO 
responsible for only 35 percent of the amount of losses.
    As discussed in section II.E. of this proposed rule, the quality 
performance standard for the first year of the Shared Savings Program 
will be set at full and accurate reporting. Therefore, for the purposes 
of determining the loss sharing rate, two-sided model ACOs which meet 
this standard will obtain the maximum savings rate for quality 
performance (60 percent), making them responsible for 40 percent of any 
losses under the methodology previously described, absent any increases 
in the sharing rate for FQHC/RHC participation.
(5) Maximum Shared Savings and Shared Loss Caps
    We are proposing a maximum shared loss cap, so that the shared 
losses that an ACO might be required to return to the Medicare program 
under this model could not exceed a designated percentage of an ACO's 
benchmark in any performance year. However, in order to provide a 
greater incentive for organizations to participate in the Shared 
Savings Program under the two-sided model, we are proposing to phase in 
this shared loss cap over a 3-year period. Specifically, we are 
proposing a shared loss cap of 5 percent of the benchmark in the first 
year of the Shared Savings Program, 7.5 percent in the second year, and 
10 percent in the third year.
    ACOs electing the one-sided model that are transitioned to the two-
sided model in the third year of their agreement would be subject to 
the 5 percent cap on losses since they would be considered to be in 
their first year under the two-sided model.

[[Page 19622]]

    Additionally, as discussed previously, we are proposing a higher 
maximum shared savings cap under the two-sided model, so that shared 
savings payment under this model could not exceed 10 percent of an 
ACO's benchmark, compared to 7.5 percent under the one-sided model.
    An example of estimating an ACO's maximum potential downside risk 
and estimating the ACO's yearly losses is as follows. If the ACO's 
annual average per capita benchmark for assigned beneficiaries is 
$8,000 the maximum amount of losses an ACO would be responsible for the 
first year is 5 percent of its benchmark, 7.5 percent the second year, 
and 10 percent the third year. Therefore, the ACO's maximum per capita 
liability could range from $400 to $800 per assigned beneficiary. 
Actual liability depends on the ACO's actual final sharing rate which 
incorporates its quality performance and any increases for inclusion of 
FQHCs and/or RHCs.
    Continuing this example, if an ACO with a benchmark of $8,000 per 
capita has actual costs for its assigned beneficiaries of $8,800, it 
would have a per capita loss of $800. The following table presents how 
much of the loss the ACO would be responsible to pay back under the 
program based on its final sharing rate, as determined by its quality 
performance, and assuming no additional increases for FQHC/RHC 
participation.
[GRAPHIC] [TIFF OMITTED] TP07AP11.028

(e) Ensuring ACO Repayment of Shared Losses
    Ensuring that ACOs entering the two-sided model will be capable of 
repaying us for costs that exceed their benchmark is a critical program 
requirement. Financial protection requirements for other entities with 
which CMS does business provide examples of potential mechanisms for 
recouping payment. In order to enroll in and bill the Medicare program, 
some Durable Medical Equipment, Prosthetics, Orthotics, and Supplies 
(DMEPOS) suppliers are required to obtain a surety bond. Home Health 
Agencies (HHA) entering into the Medicare program must have available 
sufficient ``initial reserve operating funds'' at the time of 
application submission--and at all times during the enrollment process 
up to the expiration of the 3-month period following the conveyance of 
Medicare billing privileges. CMS, through an intermediary, determines 
the amount of the HHA's required initial reserve operating funds using 
reported cost and visit data from submitted cost reports for the first 
full year of operation from at least three HHAs that the intermediary 
serves that are comparable to the HHA.
    As discussed in section II.F. of this proposed rule, we propose a 
flat 25 percent withholding rate will be applied annually to an ACO's 
earned performance payment. We propose that this withholding serve as a 
component of the repayment mechanism ACOs will need to establish to 
ensure their ability to repay Medicare for incurred losses. We propose 
that we would apply the withheld amount towards repayment of an ACO's 
losses. However, we recognize that the 25 percent withholding of shared 
savings may be inadequate to cover the total amount of shared losses, 
particularly if a Track 2 ACO experiences losses in its first year. In 
order to more fully ensure that the Medicare program is paid back in 
the event that an ACO incurs losses, we have considered a number of 
options, including the following:
     Recoup funds from the ACO and require the ACO to obtain 
reinsurance, place ACO funds in escrow, obtain surety bonds, or 
establish a line of credit as evidenced by a letter of credit that the 
Medicare program can draw upon.
     Recoup funds from an ACO via the ACO's participants. We 
would require the ACO to disclose on its application the percentage of 
shared losses that each ACO participant would be responsible for, and 
the ACO would provide copies of signed agreements with its ACO 
participants, establishing their liability. We would require ACO 
participants to agree to have their future Medicare payments reduced by 
the amount reflected in the agreement. We note that such arrangements, 
to the extent they involve remuneration between referral sources and 
those seeking referrals, may raise liability issues under the physician 
self-referral law and anti-kickback statute. CMS and the OIG have 
solicited comments on how best to approach this issue in the Medicare 
Program; Waiver Designs in Connection with the Medicare Shared Savings 
Program and the Innovation Center, also released today.
     Withhold an additional portion of any annual shared 
savings payments (on top of the proposed flat 25 percent withhold 
discussed in section II.F. of this proposed rule in order to guard 
against losses in subsequent years. This could be done in combination 
with other alternatives in order to guard against any losses incurred 
by ACOs that have not previously received shared savings sufficient to 
offset such losses.
     Permit ACOs to specify how they would repay us, for 
example through one or more of the previously noted recoupment options.
    We further considered requiring an ACO to establish a self-
executing method of repaying losses, using one or more of the 
aforementioned options, to demonstrate its ability to repay a 
prescribed portion of its possible losses. Another option we considered 
was to require ACOs to use only one of these repayment mechanisms. In 
that regard, we considered requiring ACOs to obtain a letter of credit 
in an amount not less than the maximum potential downside exposure for 
the ACO in any given performance year (for example 5 percent of the 
benchmark in the first performance year for an ACO entering Track 2, or 
for a Track 1 ACO entering its third performance year of its initial 
agreement period).
    After considering these options, we propose to require that an ACO 
establish a self-executing method for repaying losses to the Medicare 
program by indicating that funds may be recouped from Medicare payments 
to the ACO's participants, obtaining reinsurance, placing funds in 
escrow, obtaining

[[Page 19623]]

surety bonds, establishing a line of credit as evidenced by a letter of 
credit that the Medicare program can draw upon, or establishing another 
repayment mechanism, such as those previously discussed. This proposal 
assures operational simplicity without establishing eligibility 
requirements that might discourage ACOs with limited risk-bearing 
experience from entering Track 2.
    We considered several options for determining the adequacy of an 
ACO's recoupment mechanism. One option would be to require ACOs to 
demonstrate an ability to repay the maximum amount of possible losses, 
for example 5 percent of the benchmark in the first performance year 
for an ACO entering Track 2, or for a Track 1 ACO entering its third 
performance year of its initial agreement period. Such a requirement 
could be prohibitively burdensome given that ACOs may need to 
demonstrate their ability to repay a large amount of capital and 
potentially excessive given that ACOs' loss rates would be reduced to 
account for quality performance and inclusion of FQHCs and/or RHCs and 
ACOs have a limited probability of incurring the maximum possible 
losses. Another option, potentially equally as effective as the first 
but less onerous, would be to require ACOs to demonstrate their ability 
to repay losses, defined as a percentage of the benchmark but below the 
annual loss cap. Either option would require the ACO to estimate 
anticipated losses, and for CMS to confirm this amount against the 
ACO's benchmark (once available). Given the anticipated variation in 
ACO composition and regional variations in cost, there may be numerous 
ways of accurately estimating an ACO's maximum potential downside risk. 
We further recognize that an ACO's assigned number of beneficiaries may 
vary from year to year. Given the potential for fluctuation in the size 
of an ACO's assigned population, and the increase in the cap on shared 
losses in the second and third years under Track 2, the sufficiency of 
the ACO's repayment mechanism would need to be periodically reassessed 
to ensure its adequacy.
    We propose that an ACO must demonstrate having established a 
repayment mechanism, using one or more of the recoupment methods 
proposed previously, sufficient to ensure repayment of losses equal to 
at least 1 percent of per capita expenditures for its assigned 
beneficiaries from the most recent year available. We further propose 
that we will determine the adequacy of an ACO's repayment mechanism 
prior to its entrance into a period of participation in the Shared 
Savings Program. We also propose that an ACO must demonstrate the 
adequacy of this repayment mechanism annually, prior to the start of 
each performance year in which it takes risk, to ensure that it is 
adequate to cover the anticipated number of assigned Medicare 
beneficiaries. An ACO must maintain this repayment mechanism, ensuring 
adequate capitalization of funds in the case of some recoupment methods 
(such as adequately funded escrow accounts or reinsurance coverage), 
for the duration of the performance year and up until the time when we 
would need to be reimbursed for the ACO's losses. We would ensure that 
an ACO maintains an adequate repayment mechanism through monitoring 
activities. We invite comments on this proposal and on the other 
options we have considered, as well as alternate suggestions for 
assuring risk-bearing ACOs have an appropriate amount of available 
funds to repay potential losses.
    We further propose that an ACO would be required, as part of its 
application, to submit documentation of such a repayment mechanism for 
approval by us. This documentation would include details supporting the 
adequacy of the mechanism for repaying the ACO's maximum potential 
downside risk exposure. An ACO applying for Track 2 would be required 
to submit this documentation as part of its initial application. An ACO 
applying for Track 1 would also be required to submit this 
documentation as part of its Shared Savings Program application since 
Track 1 ACOs will be required to transition to the two-sided model in 
the third year. We believe it is important that ACOs electing Track 1 
can demonstrate that they can fulfill the requirements for the full 
three year agreement period and that we do not create an incentive for 
ACOs to terminate their agreements prior to the start of the third year 
under Track 1. As a result, it is important to ensure that prior to 
entry into the Shared Savings Program, the ACO has an appropriate plan 
for how it will repay any losses incurred during the third year of its 
agreement when it is automatically transitioned to the two-sided model.
    To the extent that an ACO's repayment mechanism does not enable us 
to fully recoup the losses for a given performance year, we propose to 
carry forward unpaid losses into subsequent performance years (to be 
recouped either against additional financial reserves, or by offsetting 
shared savings earned by the ACO). We invite comments on this proposal 
and on other options that we have considered, as well as alternate 
suggestions for assuring that any losses by ACOs participating in the 
two-sided model can be recouped, the processes for recouping losses 
from these ACOs and/or their ACO participants, and the appropriate 
amount of available funds a risk-bearing ACO should be required to 
have.
(f) Future Participation of Under-Performing Organizations
    As discussed in section II.C. of this proposed rule, we propose 
that an ACO which experiences a net loss during its first 3-year 
agreement period may not reapply to participate in the Shared Savings 
Program because it has been unsuccessful in lowering the growth in 
Medicare expenditures and/or its activities contributed in increases in 
Medicare expenditure growth. We believe this proposal is a means for 
ensuring that under-performing organizations do not continue to 
increase Medicare expenditure growth. We seek comment on this proposal 
and whether denying continued participation in the Shared Savings 
Program for ACOs that under-perform would create disincentives for the 
formation of ACOs. We are specifically interested in whether this 
requirement will create disincentives for participation among smaller 
ACOs.
(g) Public Reporting
    We believe that the public reporting requirements proposed under 
the one-sided model should also apply to the two-sided model. One such 
proposed requirement is for ACOs to report publicly on the shared 
savings received by ACOs. Given that the purpose of this proposed 
requirement is to enhance transparency of the program we further 
propose that ACOs under the two-sided model publicly report on their 
amount of losses, if any. We invite comments on this proposed public 
reporting requirement and whether, for the purpose of ensuring 
transparency, there is any additional information that would be 
important for two-sided model ACOs to publicly report.
(h) Impact on States
    Finally, we emphasize that, under our proposal for a two-sided 
model under the Shared Savings Program, the Medicare program retains 
the insurance risk and responsibility for paying claims for the 
services furnished to Medicare beneficiaries, and that the agreement to 
share risk against the benchmark would be solely between the Medicare 
program and the ACO. We do not intend that any of our proposals 
concerning the Shared Savings Program would render States

[[Page 19624]]

responsible for bearing any costs resulting from the operation of this 
program. However, we note that each State has its own insurance and 
risk oversight programs and that some States may regulate risk bearing 
entities, such as the ACOs participating in the two-sided model under 
the Shared Savings Program. Accordingly, we seek comment on whether any 
of our proposals for the two-sided model in particular, or the Shared 
Savings Program in general, would trigger the application of any State 
insurance laws, the adequacy of those provisions that we have set 
forth, and the ways that we can work with ACOs and States to minimize 
the burden of any additional regulation.
4. Verification of Savings and Losses
    We will notify an ACO in writing regarding whether the ACO 
qualifies for a shared savings payment, and if so, the amount of the 
payment due. Similarly, we will provide written notification to an ACO 
of the amount of shared losses, if any, that it must pay to the 
program. We propose that an ACO must make payment in full to CMS of any 
shared losses within 30 days of receipt of notification. Because we 
will calculate amounts due to, or owed by, the ACO on the basis of 
information submitted by the ACO, we propose that the ACO must certify 
the accuracy, completeness, and truthfulness of such information. We 
propose that, as a condition of receiving a shared savings payment, the 
ACO must submit to us a written request for the shared savings payment 
amount. The written request must certify the ACO's compliance with 
program requirements for the relevant performance period as well as the 
accuracy, completeness, and truthfulness of any information submitted 
to us by the ACO, or its ACO participants, or the ACO providers/
suppliers, or another entity, including the accuracy, completeness, and 
truthfulness of TINs used to assign patients, any quality data or other 
information or data relied upon by us in determining the ACO's 
eligibility for, and the amount of, the shared savings payment. In the 
case of an ACO participating in the two-sided model that has incurred 
shared losses, we propose to require submission of a similar 
certification at such time that would provide us with assurance of the 
ACO's compliance with program requirements for the relevant performance 
period and the accuracy, completeness, and truthfulness of any data or 
other information submitted by the ACO upon which we rely in 
calculating the amount of shared losses.

H. Monitoring and Termination of ACOs

    Section 1899(d)(3) of the Act, as added by section 3022 of the 
Affordable Care Act, authorizes the Secretary to ``impose an 
appropriate sanction'' on an ACO, including ``termination from the 
program,'' if the Secretary determines an ACO ``has taken steps to 
avoid patients at risk in order to reduce the likelihood of increasing 
costs to the ACO.'' We discuss later in the document our proposal to 
monitor ACOs for avoidance of at-risk beneficiaries and to take 
appropriate corrective actions when ACOs are found to have engaged in 
this prohibited conduct, including termination where necessary.
    Section 1899(d)(4) of the Act authorizes the Secretary to terminate 
an agreement with an ACO that does not meet the established quality 
performance standards. As discussed later in the document, we propose 
to monitor ACO performance with respect to our proposed quality 
standards. Subsequently, we discuss our proposal to terminate ACOs that 
fail to meet quality performance standards which are described in 
section II.E. of this proposed rule.
    Section 1899 of the Act sets forth a number of requirements for 
ACOs, and authorizes the Secretary to promulgate additional criteria 
that ACOs must satisfy in order to be eligible to participate in the 
Shared Savings Program. The statute does not prescribe procedures for 
monitoring nor what factors we should consider in imposing sanctions 
against an ACO, including termination of its 3-year agreement for 
reasons beyond avoiding patients at risk and not meeting established 
quality standards. Based on our experience with other Medicare 
programs, as discussed this proposed rule, we believe it is important 
for patient protection and to effectuate the Shared Savings Program 
that we monitor an ACO to determine if it meets additional Shared 
Savings Program requirements not set forth in section 1899 of the Act 
and take actions such as termination with ACOs that are not in 
compliance with additional Shared Savings Program requirements that are 
not set forth in section 1899 of the Act. We discuss our proposal to 
monitor ACO performance with respect to these requirements and to 
terminate or otherwise sanction ACOs that are not in compliance with 
the requirements of the Shared Savings Program.
    In implementing other Medicare programs, including the MA and the 
Medicare Prescription Drug programs, we have gained extensive 
experience in monitoring organizational, provider, and supplier 
behavior with respect to compliance with Medicare program and program 
integrity requirements, quality measurement, and avoidance of 
particular types of beneficiaries. For purposes of the Shared Savings 
Program, we propose to employ many of the methods we have developed for 
purposes of the MA and Medicare prescription drug programs to monitor 
and assess ACOs and their participating providers and suppliers. In 
general, the methods we could use to monitor ACO performance may 
include, but are not limited to the following:
     Analysis of specific financial and quality data as well as 
aggregated annual and quarterly reports.
     Site visits.
     Assessment and following up investigation of beneficiary 
and provider complaints.
     Audits (including, for example, analysis of claims, chart 
review, beneficiary surveys, coding audits).
    If based upon the monitoring activities described previously we 
conclude that an ACO's performance may subject the ACO to termination 
from the Shared Savings Program, we are proposing that CMS in its sole 
discretion, may take any or all of the following actions prior to 
termination of the ACO from the Shared Savings Program:
     Provide a warning notice to the ACO of the specific 
performance at issue.
     Request a corrective action plan (CAP) from the ACO.
     Place the ACO on a special monitoring plan.

We are seeking comment on additional actions that may be appropriate 
prior to termination.
    A number of factors may trigger heightened oversight of ACOs by us, 
including conditions specified as the bases for terminating the 
agreement described in this proposed rule. Further, we anticipate close 
examination of ACOs that incur large losses to the Medicare program.
    In order to ensure that we have the information necessary to 
conduct appropriate monitoring and oversight of ACOs, it will be 
necessary for ACOs, ACO participants, and ACO providers/suppliers, and 
other contracted entities performing services and functions on behalf 
of the ACO to retain records of their activities under the Shared 
Savings Program for a sufficient period of time to allow the government 
to conduct the appropriate audits, evaluations, and inspections of 
their activities. A ``contracted entity performing services or 
functions on behalf of the ACO'' would include any party that enters 
into

[[Page 19625]]

an arrangement with an ACO to provide services (including 
administrative, management, or clinical services) to the ACO or health 
care services to the beneficiaries assigned to the ACO. It also 
includes any party that enters into an arrangement with an entity is in 
an arrangement with the ACO down to the level of the ultimate provider 
of services.
    We are proposing that an ACO, ACO participant, ACO providers/
suppliers, and contracted entities performing services and functions on 
behalf of the ACO, will be required to maintain and give us, the 
Department of Health and Human Services (DHHS), the Comptroller 
General, the Federal Government or their designees, the right to 
inspect all books, contracts, records, documents, and other evidence 
(including data related to Medicare utilization and costs, quality 
performance measures, shared savings distributions, and other financial 
arrangements related to ACO activities) sufficient to enable the audit, 
evaluation, and inspection of the ACO's compliance with Shared Savings 
Program requirements and the ACO's right to any shared savings payment. 
We propose that such books, contracts, records, documents, and other 
evidence be maintained by the ACO for a period of 10 years from the end 
of the agreement period or from the date of completion of any audit, 
evaluation, or inspection, whichever is later, unless we determine 
there is a special need to retain a particular record or group of 
records for a longer period and notify the ACO organization at least 30 
days before the normal disposition date. If there has been a 
termination, dispute, or allegation of fraud or similar fault by the 
ACO organization or its members, we propose that the retention may be 
extended to 6 years from the date of any resulting final resolution of 
the termination, dispute, fraud, or similar fault. We further propose 
that if we determine that there is a reasonable possibility of fraud or 
similar fault, we may inspect, evaluate, and audit the ACO organization 
at any time. If as a result of any inspection, evaluation, or audit, we 
determine that the amount of shared savings due to the ACO or the 
amount of shared losses owed by the ACO has been determined in error, 
we reserve the right to reopen the initial determination and issue a 
revised initial determination.
    We further propose that ACOs include terms in their agreements with 
ACO participants, ACO providers/suppliers, and the ACO and contracted 
entities performing services and functions on behalf of the ACO 
requiring them to comply with the same record retention requirements 
and to make such books, contracts, records, documents, and other 
evidence available to the government upon request. Notwithstanding any 
arrangements between or among an ACO, ACO participants, ACO providers/
suppliers, and contracted entities performing services and functions on 
behalf of the ACO, the ACO shall have ultimate responsibility for 
adhering to and otherwise fully complying with all terms and conditions 
of its agreement with CMS, including the record retention requirement.
1. Monitoring Avoidance of At-Risk Beneficiaries
    As noted previously, section 1899(d)(3) of the Act authorizes the 
Secretary to ``impose an appropriate sanction'' on an ACO, including 
``termination from the program,'' if the Secretary determines an ACO 
``has taken steps to avoid patients at risk in order to reduce the 
likelihood of increasing costs to the ACO.'' While the statute does not 
define what constitutes ``patients at-risk'', we believe such patients 
are those beneficiaries who have a high risk score on the CMS-HCC risk 
adjustment model, are considered high cost due to having two or more 
hospitalizations or emergency room visits each year, are dually 
eligible for Medicare and Medicaid, have a high utilization pattern, 
have one or more chronic conditions (such as, for example, diabetes, 
heart failure, coronary artery disease, chronic obstructive pulmonary 
disease, depression, dementia, end stage renal disease) or 
beneficiaries who have a recent diagnosis (for example, newly diagnosed 
cancer) that is expected to result in an increased cost.
    Such beneficiaries might be appropriately targeted by an ACO to 
implement care improvement strategies to coordinate their care more 
efficiently. However, high-cost beneficiaries are also potentially at-
risk for inappropriate avoidance by an ACO because the ACO may believe 
that it will be more likely to realize shared savings against its 
benchmark costs if it can avoid having higher-cost patients assigned to 
it during a performance year. We seek comment on this definition of 
``at-risk beneficiary'' and whether other beneficiary characteristics 
should be considered in determining whether a beneficiary is ``at-
risk.''
    To identify ACOs that could be avoiding at-risk beneficiaries, we 
propose to use a combination of methods that would begin with an 
analysis of claims and examination of other beneficiary-level 
documentation (for example, beneficiary satisfaction surveys, medical 
record audits, beneficiary and provider complaints) to identify trends 
and patterns suggestive of avoidance of at-risk beneficiaries. The 
results of these analyses could lead to further investigation and 
follow-up with the beneficiary or the ACO (including ACO participants 
and ACO providers/suppliers) in order to determine whether avoidance of 
at-risk beneficiaries has occurred. If as a result of our analysis we 
conclude that an ACO has been avoiding at-risk beneficiaries during a 
performance year, we propose to notify the ACO of our determination and 
to require the ACO to submit a corrective action plan (CAP) for our 
approval. The CAP must address actions the ACO will take to ensure that 
the ACO, ACO participants, and ACO providers/suppliers cease avoidance 
of at-risk beneficiaries and must be implemented as approved. In 
addition, we propose that the ACO will be re-evaluated both during and 
at the end of the CAP. If we determine that the ACO has continued to 
avoid at-risk beneficiaries, the ACO would be terminated from the 
Shared Savings Program. We also propose that the ACO would not receive 
shared savings payments while it is under the CAP regardless of the 
period of performance in question and that the ACO would not be 
eligible to earn any shared savings for the period during which it is 
under the CAP for avoiding at-risk beneficiaries.
    We solicit comments on whether lesser sanctions may be appropriate 
when an ACO avoids at-risk beneficiaries, such as the cessation of, or 
a reduction in, the assignment of new beneficiaries to the ACO, a 
reduction in the amount of the shared savings payment, or a fine for 
each instance of at-risk beneficiary avoidance.
2. Monitoring Compliance With Quality Performance Standards
    Section 1899(d)(4) of the Act further authorizes the Secretary to 
terminate an agreement with an ACO that does not meet the established 
quality performance standards. To identify ACOs that are not meeting 
the quality performance standards, we will review the ACO's submission 
of quality measurement data. We may request additional documentation 
from an ACO or its ACO participants or ACO providers/supplier, as 
appropriate. In those instances where an ACO fails to meet the minimum 
attainment level for one or more domains, we propose to give the ACO a 
warning and to re-evaluate the following year. If the ACO continues to 
underperform on the quality performance standards in the

[[Page 19626]]

following year, the agreement will be terminated. We also propose that 
if an ACO fails to report one or more measures, we would send the ACO a 
written request to submit the required data by a specified date and to 
provide a reasonable written explanation for its delay in reporting the 
required information. If the ACO fails to report by the requested 
deadline and does not provide a reasonable explanation for delayed 
reporting, we would immediately terminate the ACO for failing to report 
quality measures. We further propose that ACOs that exhibit a pattern 
of inaccurate or incomplete reporting or fail to make timely 
corrections following notice to resubmit may be terminated from the 
program. We note that since meeting the quality standard is a condition 
for sharing in savings, the ACO would be disqualified from sharing in 
savings in each year in which it underperforms.
3. Terminating an ACO Agreement
    There are a number of important program requirements that ACOs must 
satisfy in order to be eligible to participate in the Shared Savings 
Program. As a result, in addition to the statutory provisions at 
section 1899(d)(3) and (d)(4) of the Act regarding termination for 
avoidance of at-risk beneficiaries and for failure to meet the quality 
standards, we believe the agreement with an ACO should be contingent 
upon that ACO continuing to meet the requirements for eligibility to 
participate in the Shared Savings Program. Accordingly, we propose that 
an ACO's failure to continue to meet the eligibility requirements for 
participation in the Shared Savings Program should also result in an 
ACO's termination from the Shared Savings Program. As described in 
section II.F. of this proposed rule, termination of an ACO from the 
Shared Savings Program by us or at the ACOs request for any reason will 
result in loss of the mandatory 25 percent withhold of shared savings.
    Therefore, we are proposing that based upon monitoring and 
assessing ACO operations (including ACO participants and ACO providers/
suppliers), we may terminate an agreement with an ACO before the end of 
the 3-year agreement period for any of the following reasons:
     Avoidance of at-risk beneficiaries as described 
previously.
     Failure to meet the Shared Savings Program's quality 
performance standard as described previously.
     Any material change impacting ability to meet eligibility 
requirements, including but not limited to the following:
    ++ Changes in ACO participants that are the basis for beneficiary 
assignment.
    ++ Increase in ACO provider/supplier composition that results in a 
reviewing Antitrust Agency to state it is likely to challenge or 
recommend challenging the ACO.
    ++ Changes in the ACO's leadership and management structure that 
result in an inability to perform the functions discussed in section 
II.B. of this proposed rule.
    ++ Sanctions or other actions taken against the ACO, its ACO 
participants, and ACO providers/suppliers, or contracted entities 
performing services or functions on behalf of the ACO, by an 
accrediting organization, or by a State, Federal or local government 
agency.
     Failure of the ACO to effectuate required regulatory 
changes during the agreement period after given the opportunity for a 
CAP.
     Failure of an ACO to demonstrate that it has adequate 
resources in place to repay losses and to maintain those resources for 
the agreement period.
     Noncompliance with requirements regarding beneficiary 
notification of provider/supplier participation in an ACO.
     Failure to completely and accurately report or failure to 
make timely corrections.
     Material noncompliance, or a pattern of noncompliance, 
with public reporting and other CMS reporting requirements.
     Limiting or restricting internally compiled beneficiary 
summary of care or medical records from providers and suppliers both 
within and outside of the ACO, to the extent permitted by law (for 
example, not sharing beneficiary medical records with providers or 
suppliers not participating in the ACO from whom the beneficiary 
chooses to receive care).
     Failure to offer beneficiaries the option to opt out of 
sharing claims information.
     Improper use or disclosure of claims information received 
from us in violation of the HIPAA Privacy Rule, Medicare Part D Data 
Rule, Privacy Act, the data use agreement, or other applicable laws or 
regulations.
     Violation of physician self-referral prohibition, civil 
monetary penalty laws, anti-kickback statute, other antifraud laws, 
antitrust laws, or other applicable Medicare laws, rules, or 
regulations that are relevant to ACO operations.
     Submission to us of false, inaccurate, or incomplete data 
and or information, including but not limited to, information provided 
in the Shared Savings Program application, quality data, financial 
data, and information regarding the distribution of shared savings.
     Failure to submit payment due to us in a timely manner.
     Use of marketing materials or activities or other 
beneficiary communications subject to approval that have not been 
approved by us as discussed in section II.B.11.of this proposed rule.
    Furthermore, we believe it is appropriate that an ACO should 
provide notice if it elects to terminate its participation in the 
Shared Savings Program. Accordingly, we are proposing to require an ACO 
to provide us with a 60-day notice if it chooses to terminate its 
agreement. The ACO would be required to notify us of its decision to 
terminate its participation in the Shared Savings Program and would 
also be required to notify all of its ACO participants and ACO 
providers/suppliers, who would in turn be required to notify 
beneficiaries in a timely manner of the ACO's decision to withdraw from 
the Shared Savings Program. As described in section II.F.of this 
proposed rule, the ACO would forfeit its mandatory 25 percent withhold 
of shared savings.
    Finally, we propose that an ACO that has been terminated from the 
Shared Savings Program may apply to participate in the Shared Savings 
Program again at the end of the original 3-year agreement period. To be 
eligible to participate in the Shared Savings Program, the ACO must 
demonstrate in its application that it has corrected the deficiencies 
that caused it to be terminated from the Shared Savings Program and has 
processes in place to ensure that it will remain in compliance with the 
terms of the new participation agreement. We have proposed in section 
II.G. of this proposed rule, that ACOs may only have one agreement 
period involving the one-sided model, thus ACOs with corrected 
deficiencies that wish to reenter the program only have the option to 
do so under the two-sided model.
    For violations that we consider minor in nature and pose no 
immediate risk or harm to beneficiaries or impact on care, we propose 
to allow ACOs the opportunity to submit a corrective action plan (CAP) 
before termination. We further propose that the ACO must submit a CAP 
for our approval by the deadline indicated on the notice of violation. 
The CAP must address what actions the ACO will take to ensure that the 
ACO, ACO participants, ACO providers/suppliers, and entities performing 
services or functions on

[[Page 19627]]

behalf of the ACO will correct any deficiencies to remain in compliance 
with Shared Savings Program requirements. The CAP must be implemented 
as approved. The ACO's performance will be monitored during the CAP 
process. Failure of the ACO to submit, obtain approval for, or 
implement a CAP may result in termination of the agreement. Failure of 
the ACO to demonstrate improved performance upon completion of the CAP 
may result in termination. We seek comments on our proposal, including 
any additional conditions that could merit the termination of an ACO 
agreement.
4. Reconsideration Review Process
    Section 1899(g) of the Act, as added by section 3022 of the 
Affordable Care Act, states that there shall be no administrative or 
judicial review of the following actions:
     Specification of criteria for meeting quality performance 
standards under section 1899(a)(1)(B) of the Act.
     Assessment of quality of care furnished by an ACO and the 
establishment of quality performance standards under section 1899(b)(3) 
of the Act.
     Assignment of Medicare FFS beneficiaries to an ACO under 
section 1899(c) of the Act.
     Determination of whether an ACO is eligible for shared 
savings under section 1899(d)(2) of the Act), the amount of shared 
savings, including the determination of the estimated average per 
capita Medicare expenditures under the ACO for Medicare FFS 
beneficiaries assigned to the ACO and the average benchmark for the ACO 
under section 1899(d)(1)(B) of the Act.
     Percent of shared savings specified by the Secretary under 
section 1899(d)(2) of the Act and any limit on the total amount of 
shared savings.
     Termination of an ACO under section 1899(d)(4) of the Act 
for failure to meet quality performance standards.
    The statute is otherwise silent regarding an ACO's right to contest 
decisions on such matters as eligibility to participate in the Shared 
Savings Program or termination for avoidance of at-risk beneficiaries. 
Accordingly, we believe it is important to establish a fair 
administrative process by which ACOs may request review of decisions, 
such as the denial of an ACO application or the termination of an 
existing ACO agreement for reasons other than those exempted by 
statute. An administrative reconsideration process provides an 
opportunity to resolve disputes quickly and efficiently, and creates an 
administrative record that can serve as the basis for any further 
review of the agency's decision.
    Based on our experiences with the Medicare durable medical 
equipment prosthetics orthotics and supplies (DMEPOS) competitive 
bidding program and the MA Part C and D programs, we are proposing to 
implement reconsideration review procedure similar to the review 
process used by those programs for initial determinations that are not 
precluded from administrative or judicial review by statute. These 
initial determinations would include the denial of an ACO application 
or the termination of an ACO participation agreement. Under this 
proposal, if we deny a Shared Savings Program application, the 
applicant would be able to request reconsideration of our determination 
from a CMS reconsideration official. This process would not apply to 
applicants who are rejected on the grounds that their certified 
application was not submitted by the required deadline, because in this 
situation no valid application would have been submitted. In the case 
where an ACO has entered a 3-year agreement and subsequently met 
criteria for termination, we will give the ACO notification of our 
initial determination to terminate the agreement. The ACO would be able 
to request an independent review from a CMS reconsideration official 
who will reconsider the initial determination.
    We propose that if an ACO or ACO applicant wants to request a 
review by a CMS reconsideration official of an adverse initial 
determination, it must submit a written request by an authorized 
official for receipt by CMS within 15 days of the adverse initial 
determination. If the 15th day is a weekend or a Federal holiday, then 
the timeframe is extended until the end of the next business day. 
Failure to submit a request for a reconsideration review within 15 days 
will result in denial of the request for a review.
    Reconsideration reviews are scheduled at the discretion of the 
review official and may be held orally (that is, in person, by 
telephone or other electronic means) or on the record (review submitted 
documentation). The ACO or ACO applicant will receive acknowledgement 
of the reconsideration request that will outline the review procedures. 
The burden of proof would be on the ACO or ACO applicant to demonstrate 
to the reconsideration official with convincing evidence that the 
termination or application denial is not consistent with CMS' 
regulations or statutory authority. The ACO or ACO applicant may not 
use the reconsideration process to submit required documentation as 
evidence for the record that was not previously submitted to CMS by the 
applicable deadline. Furthermore, the reconsideration official will 
only consider evidence for the record that is submitted in the required 
format and in the timeframes indicated in the acknowledgement 
notification, unless additional information is requested by the 
official. Following the review, the reconsideration official will issue 
a recommended decision.
    We further propose that if the ACO or ACO applicant disagrees with 
the recommendation of the reconsideration official, it will have an 
opportunity to request a record review of the initial determination and 
recommendation of the reconsideration official by an independent CMS 
official who was not involved in the initial determination or the 
reconsideration review process. An ACO or ACO applicant that wishes to 
request an on the record review of the reconsideration official's 
recommendation must submit an explanation of why it disagrees with the 
recommendation in the timeframe and in the format indicated in the 
recommendation letter. The CMS official may also review the 
recommendation of the reconsideration official on his or her own 
motion. The on the record review process will be based only on evidence 
presented for the reconsideration review. The CMS official will review 
the recommendation of the reconsideration official and the supporting 
materials and make a final agency determination.
    If an ACO applicant requests a review of a decision to deny its 
application, and our initial determination is upheld, the application 
will be considered to have been denied based on the effective date of 
the original notice of denial. An ACO that requests a reconsideration 
review of an initial determination to terminate its participation in 
the Shared Savings Program will be permitted to continue to participate 
during the review process. However, if our initial determination to 
terminate the agreement with the ACO is upheld, the decision to 
terminate the agreement is effective as of the date indicated in the 
initial notice of termination.
    An ACO whose Shared Savings Program application has been denied or 
whose Shared Savings Program agreement has been terminated due to a 
determination made by a reviewing antitrust agency may not contest the 
merits of the antitrust agency's determination through the 
reconsideration review process proposed in this rule. Furthermore, the

[[Page 19628]]

reconsideration review process proposed in this rule shall not be 
construed to negate, diminish, or otherwise alter the applicability of 
existing laws, rules, and regulations or determinations made by other 
government agencies.
    We invite public comment, in general, on the structures and 
procedure of an appropriate review process for ACOs terminated for 
avoidance of at-risk beneficiaries or other reasons not exempted from 
review by statute.

I. Coordination With Other Agencies

    As mentioned previously, in developing the Shared Savings Program, 
and in response to stakeholder concerns, we have worked very closely 
with agencies across the Federal Government to facilitate participation 
in the Shared Savings Program and to ensure a coordinated and aligned 
inter- and intra-agency effort in the implementation of the program. 
The result of this effort is the release of three documents with which 
potential participants are strongly encouraged to become familiar. 
These documents include: (1) A joint CMS and DHHS Office of Inspector 
General (OIG) Medicare Program; Waiver Designs in Connection with the 
Medicare Shared Savings Program and the Innovation Center addressing 
proposed waivers of the civil monetary penalties (CMP) law, Federal 
anti-kickback statute, and the physician self-referral law; (2) an 
Internal Revenue Service (IRS) notice soliciting comments regarding the 
need for additional tax guidance for tax-exempt organizations, 
including tax-exempt hospitals, participating in the Shared Savings 
Program; (3) a proposed Antitrust Policy Statement issued by the FTC 
and DOJ (collectively, the Antitrust Agencies). In addition, we are 
proposing to preserve the benefits of competition for Medicare 
beneficiaries by precluding newly formed ACOs with market power from 
participating in the Shared Savings Program.
1. Waivers of CMP, Anti-Kickback, and Physician Self-Referral Laws
    Certain arrangements between and among ACOs, ACO participants, 
other owners, ACO providers/suppliers, and third parties may implicate 
the CMP law (section 1128A(b)(1) and (2) of the Act), the Federal anti-
kickback statute (section 1128B(b)(1) and (2) of the Act), and/or the 
physician self-referral prohibition (section 1877 of the Act). Section 
1899(f) of the Act authorizes the Secretary to waive certain fraud and 
abuse laws as necessary to carry out the provisions of the Shared 
Savings Program. Accordingly, pursuant to section 1899(f) of the Act, 
CMS and OIG have jointly published elsewhere in this Federal Register a 
Medicare Program, Waiver Designs in Connection with the Medicare Shared 
Savings Program and the Innovation Center, which describes and solicits 
public input regarding possible waivers of the application of certain 
CMP law provisions, the Federal anti-kickback statute, and the 
physician self-referral law to specified financial arrangements 
involving ACOs under the Shared Savings Program. In addition, section 
1115A(d)(1) of the Act, as added by section 3021 of the Affordable Care 
Act, authorizes the Secretary to waive the same fraud and abuse laws, 
among others, as necessary solely for the purposes of carrying out the 
provisions of section 1115A of the Act with respect to the testing of 
certain innovative payment and service delivery models by the 
Innovation Center. The notice with comment period published elsewhere 
in this Federal Register also solicits public input regarding that 
separate waiver authority.
    We expect that the waivers applicable to ACOs participating in the 
Shared Savings Program will be issued concurrently with our publication 
of the Shared Savings Program final rule. The requirements of the 
Shared Savings Program final rule will bear on the scope of any waivers 
granted for the Shared Savings Program. Because of the close nexus 
between the final regulations governing the structure and operation of 
ACOs under the Shared Savings Program and the development of waivers 
necessary to carry out the provisions of the Shared Savings Program, 
CMS and OIG may, when crafting waivers applicable to the Shared Savings 
Program, consider comments submitted in response to this Shared Savings 
Program proposed rule and the provisions of the Shared Savings Program 
final rule. Conversely, we may consider comments received in response 
to the joint notice with comment period when drafting the Shared 
Savings Program final rule. Members of the public submitting comment on 
this proposed regulation should consider commenting on the proposed 
waivers, as well.
2. IRS Guidance Relating to Tax-Exempt Organizations
    Nonprofit hospitals and other health care organizations recognized 
by the IRS as tax-exempt organizations are likely to participate in the 
development and operation of ACOs in the Shared Savings Program. 
Accordingly, the IRS intends to solicit public comment on whether 
existing guidance relating to the Internal Revenue Code provisions 
governing tax exempt organizations is sufficient for those tax-exempt 
organizations planning to participate in the Shared Savings Program 
through ACOs, and if not, what additional guidance is needed. The IRS 
also intends to solicit comments concerning what guidance, if any, is 
necessary for tax-exempt organizations participating in ACOs that 
conduct activities unrelated to the Shared Savings Program.
    We plan to continue to work with the IRS to ensure a coordinated 
and aligned interagency effort in the implementation of the program. 
Nothing in this proposed rule should be construed to modify, impair, or 
supersede the applicability of any of the Federal tax laws. For further 
guidance, tax-exempt organizations and ACOs should review the IRS 
notice and solicitation of public comment.
3. Antitrust Policy Statement
    Concurrently with the issuance of this Shared Savings Program 
proposed rule, the Antitrust Agencies have issued a proposed Statement 
of Antitrust Enforcement Policy Regarding Accountable Care 
Organizations Participating in the Medicare Shared Savings Program 
(Antitrust Policy Statement). The Antitrust Policy Statement applies to 
collaborations among otherwise independent providers and provider 
groups formed after March 23, 2010 that have otherwise been approved to 
participate, or seek to participate, as ACOs in the Shared Savings 
Program.
    The Antitrust Policy Statement sets forth an antitrust ``Safety 
Zone'' for certain ACOs. Specifically, the Antitrust Policy Statement 
provides that the Antitrust Agencies, absent extraordinary 
circumstances, will not challenge an ACO that otherwise meets the CMS 
criteria to participate in the Shared Savings Program if ACO 
participants that provide the same service (common service) have a 
combined share of 30 percent or less of each common service in each ACO 
participant's Primary Service Area (PSA), wherever two or more ACO 
participants provide that service to patients from that PSA. Also, 
under the Rural Exception set forth in the Antitrust Policy Statement, 
ACOs may qualify for the Safety Zone under certain circumstances even 
if their combined PSA share for common services would be greater than 
30 percent. The Antitrust Policy Statement further provides that an ACO 
outside the Safety Zone may proceed without scrutiny by the Antitrust 
Agencies if its combined PSA share for each common service, wherever 
two or more ACO

[[Page 19629]]

participants provide that service to patients from that PSA, is less 
than or equal to 50 percent. An ACO in this category is also highly 
unlikely to present competitive concerns if it avoids certain specified 
conduct. The Antitrust Policy Statement explains, however, that for 
ACOs that do not meet the Rural Exception, a combined PSA share for 
common services of more than 50 percent provides a valuable indication 
of an ACO's potential for competitive harm.
    The Antitrust Policy Statement outlines a methodology by which ACOs 
can calculate their shares of common services (that is, the same 
services provided by two or more ACO participants) provided to patients 
from the same PSA. The common services consist of physician 
specialties, major diagnostic categories (``MDCs'') for inpatient 
settings, and outpatient categories for outpatient settings. We will 
make public the information necessary to designate common services and 
to calculate the pertinent PSA shares.
    We plan to continue to work with the Antitrust Agencies to 
determine the extent to which additional action may be appropriate with 
regard to ACOs in the Shared Savings Program. Nothing in this proposed 
rule should be construed to modify, impair, or supersede the 
applicability of any of the Federal antitrust laws. For further 
guidance, ACOs should review the Antitrust Policy Statement.

4. Prohibition Against Shared Savings Program Participation by ACOs 
With Market Power

a. Coordinating the Shared Savings Program Application With the 
Antitrust Agencies
    In light of the Antitrust Agency Policy Statement, we propose to 
require that, except for an ACO that qualifies for the rural exception 
articulated in the Policy Statement, an ACO with a PSA share above 50 
percent for any common service that two or more ACO participants 
provide to patients from the same PSA must submit to us, as part of its 
Shared Savings Program application, a letter from the reviewing 
Antitrust Agency confirming that it has no present intent to challenge 
or recommend challenging, the proposed ACO. Absent such a letter, the 
proposed ACO will not be eligible to participate in the Shared Savings 
Program. In addition, the Antitrust Policy Statement explains that ACOs 
that are outside the Safety Zone and below the 50 percent mandatory 
review threshold frequently may be procompetitive. It highlights how 
ACOs in this category that do not impede the functioning of a 
competitive market and that engage in procompetitive activities will 
not raise competitive concerns and may proceed without Agency scrutiny. 
However, to provide additional antitrust guidance, the Antitrust Policy 
Statement identifies five types of conduct that an ACO can avoid to 
significantly reduce the likelihood of an antitrust investigation. An 
ACO in this category that desires further certainty regarding the 
application of the antitrust laws to its formation and planned 
operation also can seek an expedited review from the Antitrust 
Agencies, similar to the mandatory review described previously. Such an 
ACO will not be eligible to participate in the Shared Savings Program 
if the reviewing Antitrust Agency reviews the ACO and determines that 
it is likely to challenge or recommend challenging the ACO as 
anticompetitive. Finally, we propose that an ACO that falls within the 
Safety Zone would not be required to obtain an Antitrust Agency review 
as a condition of participation. As noted in the Antitrust Policy 
Statement, the Antitrust Agencies are committed to providing expedited 
reviews for ACOs that exceed the 50 percent threshold and for those 
ACOs that fall below the 50 percent threshold and seek greater 
antitrust certainty. The procedures for obtaining such review are set 
forth in the Antitrust Policy Statement.
[GRAPHIC] [TIFF OMITTED] TP07AP11.029

[[Page 19630]]

    Additionally, we recognize there may be instances during the 3-year 
agreement period where there is a material change (as discussed in 
section II. C.) in the participant and/or provider/supplier composition 
of an ACO. When this occurs, we have proposed that the ACO must notify 
us of the change within 30 days and that the ACO must recalculate and 
report at that time their PSA shares for common services that two or 
more independent ACO participants provide to patients from the same 
PSA. We propose that if any revised PSA share is calculated to be 
greater than 50 percent, the ACO will be subject to mandatory review or 
re-review by the Antitrust Agencies in order to maintain the benefits 
of competition for Medicare beneficiaries and eligibility to 
participate in the Shared Savings Program. Finally, we propose that if 
the ACO fails to obtain a letter from the reviewing Antitrust Agency 
confirming that it has no present intent to challenge or recommend 
challenging the ACO, the ACO will be terminated from the Shared Savings 
Program.
    The purpose of requiring Antitrust Agency confirmation that it has 
no present intent to challenge or recommend challenging the ACO as a 
condition of participation is two-fold. First, the proposal ensures 
that ACOs participating in the Shared Savings Program will not present 
competitive problems that could subject them to antitrust challenge 
that may prevent them from completing the term of their 3-year 
agreement with us. Section 1899(b)(2)(B) of the Act provides that ACOs 
shall enter into an agreement with the Secretary to participate in the 
program for not less than a 3-year period. We believe the requirement 
that ACOs be willing and able to commit to a 3-year agreement to 
participate in the Shared Savings Program is necessary to ensure that 
the program achieves its long-term goal of redesigning health care 
processes, and our proposal here furthers that intent.
    Second, the proposal maintains competition for the benefit of 
Medicare beneficiaries by reducing the potential for the creation of 
ACOs with market power. As discussed in more detail later in the 
document, we believe that competition in the marketplace benefits 
Medicare and the Shared Savings Program because it promotes quality of 
care for Medicare beneficiaries and protects beneficiary access to a 
variety of providers. Furthermore, competition benefits the Shared 
Savings Program by allowing the opportunity for the formation of two or 
more ACOs in an area, which could accelerate advancements in quality 
and efficiency. All of these benefits to Medicare patients would be 
reduced or eliminated if we allow ACOs to participate in the Shared 
Savings Program when their participation would create market power.
b. Competition and Quality of Care
    Because Medicare prices are regulated, ACOs participating in the 
Shared Savings Program will not compete on the basis of price. 
Nevertheless, economic theory and competition policy suggest that these 
ACOs will compete to serve Medicare beneficiaries on the basis of 
nonprice dimensions such as quality of care, innovations that improve 
care, and choice in treatment options. Empirical studies of the 
Medicare program confirm this theory and demonstrate that, where prices 
are fixed, competition among health care providers produces higher 
quality for consumers.\22\ The most prominent study of markets with 
fixed prices examined the impact of market concentration on mortality 
for Medicare heart attack patients. The study found that mortality was 
significantly higher for patients in more concentrated markets.\23\ A 
later study had similar findings in that high-risk Medicare patients' 
heart attack mortality was higher in highly concentrated markets, while 
there was no such effect for low-risk patients.\24\ Overall, the 
evidence suggests that competition in the presence of regulated prices 
fosters improved quality.
---------------------------------------------------------------------------

    \22\ See Daniel P. Kessler & Mark B. McClellan, Is Hospital 
Competition Socially Wasteful? 115 Quarterly Journal of Econ. 577 
(2000); Daniel P. Kessler & Jeffrey J. Geppert, The Effects of 
Competition on Variation in the Quality and Cost of Medical Care, 14 
Journal of Econ. and Mgmt. Strategy 575 (2005). See also Abigail Tay 
Assessing Competition in Hospital Care Markets: The Importance of 
Accounting for Quality Differentiation 34 RAND Journal of Econ. 786 
(2003).
    \23\ Daniel P. Kessler & Mark B. McClellan, Is Hospital 
Competition Socially Wasteful? 115 Quarterly Journal of Econ., 577 
(2000).
    \24\ Daniel P. Kessler & Jeffrey J. Geppert, The Effects of 
Competition on Variation in the Quality and Cost of Medical Care 14 
Journal of Econ. and Mgmt. Strategy, 575 (2005).
---------------------------------------------------------------------------

    The means by which competition fosters improvements in quality, 
innovation, and choice for Medicare patients can vary. For example, 
competition among ACOs can:
     Motivate innovation in the use of existing treatment and 
care protocols and the development of new protocols. ACOs with better 
quality would be expected to attract more patients, and ACOs with both 
better quality and lower costs would obtain a greater percentage of 
shared savings.
     Accelerate the development of evidence-based best 
practices. In some instances, physicians may differ on the best course 
of treatment in a given case. In the early stages of developing 
evidence-based best practices, there may be no way to know which 
practice or care protocols among several alternatives would be most 
effective. An ACO with market power may have less incentive to test 
alternative practices or care protocols.
     Raise the likelihood of preserving alternatives in the 
market, ultimately leading to the emergency of better procedures and 
treatments.
     Provide better benchmarks for quality improvements. For 
example, although a single ACO might claim that environmental or 
demographic factors limit what it can achieve in the treatment of 
certain illnesses, a comparison among multiple ACOs in the same service 
area could better ensure that the best standards possible under 
prevailing conditions are being met.
c. Competition, Price, and Access To Care
    A concern with potential ACO market power in the commercial (as 
well as the Medicare) market is warranted, because recent commentary 
suggests that health care providers are more likely to create ACOs 
under the Shared Savings Program if they can use the same ACOs to serve 
both Medicare beneficiaries and patients covered by commercial 
insurance.\25\ If we permitted the creation of ACOs with market power 
to operate in the Shared Savings Program, those ACOs would likely 
operate in the commercial market as well. In the commercial market, 
however, prices are not regulated, so newly created ACOs with market 
power could raise prices to private purchasers and payers of health 
care insurance above competitive levels.
---------------------------------------------------------------------------

    \25\ Federal Trade Commision & Department of Health and Human 
Services, Medicare Program; Workshop Regarding Accountable Care 
Organizations, and Implications Regarding Antitrust, Physician Self-
Referral, Anti-kickback, and Civil Monetary Penalty (CMP) Laws, 75 
FR 57039.
---------------------------------------------------------------------------

    Higher commercial prices create disparities in payment rates 
between commercial purchasers and payers compared to Medicare rates. As 
reported in a study by MedPAC staff, hospitals with high payments from 
private payers had high levels of overall profitability.\26\ Similarly, 
ACOs may wish to increase the profitable private patients they serve 
and, as a result, reduce the number of

[[Page 19631]]

Medicare beneficiaries they serve. In this way, commercial price 
increases resulting from newly created ACOs with market power could 
limit access to care for Medicare beneficiaries. Our proposal to 
require ACOs that exceed the 50 percent threshold to undergo a 
mandatory antitrust review seeks to ensure that there are sufficient 
providers to allow the formation of competing ACOs to serve Medicare 
beneficiaries.
---------------------------------------------------------------------------

    \26\ Report to Congress: Medicare Payment Policy, 111th Cong. 
(2010), available at http://www.medpac.gov/documents/Mar10_EntireReport.pdf.
---------------------------------------------------------------------------

    In summary, we believe that it is reasonable and appropriate to 
make approval of an ACO's Shared Savings Program application and 
continuation in the program contingent on the absence of a 
determination by the reviewing Antitrust Agency that it is likely to 
challenge or recommend challenging the ACO, or in the case of an ACO 
that exceeds the 50 percent threshold, on the ACO's submission of 
written confirmation from the reviewing Antitrust Agency that it has no 
present intent to challenge or recommend challenging the ACO.
    We plan to continue to work with the Antitrust Agencies to 
determine the extent to which additional actions may be appropriate 
with regard to ACOs participating in the Shared Savings Program. We 
will also work closely with the Innovation Center (which is charged 
with considering whether the models it tests demonstrate effective 
linkage with other public and private sector payers) and will use the 
results from the ACO models it tests to inform possible future 
rulemaking that may be necessary in order to maintain ACO competition 
for the benefit of Medicare beneficiaries. Nothing in these regulations 
shall be construed to modify, impair, or supersede the applicability of 
the antitrust laws.

J. Overlap With Other CMS Shared Savings Initiatives

1. Duplication in Participation in Medicare Shared Savings Programs
    The statute includes a provision that precludes duplication in 
participation in shared savings programs. Section 1899 of the Act 
states that providers of services or suppliers that participate in 
certain programs are not eligible to participate in the Shared Savings 
Program. Section 1899(b)(4)(A) and (B) of the statute, as added by 
section 3022 of the Affordable Care Act, states these exclusions are 
``(A) a model tested or expanded under section 1115A [the Innovation 
Center] that involves shared savings under this title or any other 
program or demonstration project that involves such shared savings; (B) 
the independence at home medical practice pilot program under section 
1866E.''
    Other shared savings programs that include the opportunity for 
Medicare-enrolled TINs to earn payment, in the form of shared savings, 
for savings to Medicare for Part A and B services rendered to Medicare 
FFS beneficiaries would be considered duplicative. We have determined 
that the following existing shared savings programs overlap with the 
Shared Savings Program and therefore, a Medicare-enrolled TIN may not 
participate in both the Shared Savings Program and one of the 
following:
     Independence at Home Medical Practice Demonstration 
program, as established by section 3024 of the Affordable Care Act.
     Medicare Health Care Quality Demonstration Programs, as 
established by section 646 of the Medicare Modernization Act.
     Medical home demonstrations with a shared savings element: 
Currently, the only such Medicare demonstration that includes a shared 
savings component is the multi-payer advanced primary care 
demonstration
     Physician Group Practice Transition Demonstration.
    Additional programs, demonstrations, or models with a shared 
savings component may be introduced in the Medicare program in the 
future. Interested parties should check the CMS Web site for an updated 
list to ensure that a provider or supplier participating in the Shared 
Savings Program does not participate in another Medicare program or 
demonstarion involving shared savings.
    The prohibition against duplication in participation in shared 
savings programs applies only to programs that involve shared savings 
under Medicare, and the following are examples of such programs 
established by the Affordable Care Act which are unlikely to generate 
duplicative shared savings:
     State initiatives to provide health homes for Medicaid 
enrollees with chronic conditions as authorized under section 2703 of 
the Affordable Care Act.
     Program to establish community health teams to support 
patient-centered medical homes under section 3502 of the Affordable 
Care Act.
    We believe a principal reason underlying the prohibition against 
participation in multiple shared savings programs is to prevent a 
provider or supplier from being rewarded twice for achieving savings in 
the cost of care provided to the same beneficiary. As discussed in 
section II.D. of this proposed rule, we propose that beneficiaries will 
be assigned to an ACO based upon the TIN of the ACO participant from 
which they receive the plurality of their primary care services. 
Therefore, to ensure that a provider or supplier is rewarded only once 
with shared savings for the care of a beneficiary, an ACO participant 
may not also participate in another Medicare program or demonstration 
involving shared savings. However, in order to maintain as much 
flexibility as possible for ACO providers/suppliers to participate 
concurrently in multiple CMS shared savings programs, we do not believe 
it is appropriate to extend this prohibition to individual providers 
and suppliers. We explore alternative provider incentives, payment 
arrangements and care delivery mechanisms through its shared savings 
programs, often specific to subsets of Medicare or Medicaid 
beneficiaries. To further our understanding of the delivery of cost 
effective and high quality care, and to ensure beneficiaries receive 
the most appropriate care possible relative to their needs, individual 
practitioners should have the opportunity to concurrently participate 
in multiple shared savings programs. Accordingly, an ACO provider/
supplier who submits claims under multiple Medicare-enrolled TINs may 
participate in both the Shared Savings Program and another shared 
savings program if the patient population is unique to each program and 
if none of the relevant Medicare-enrolled TINs participate in both 
programs. For example, an ACO practitioner participating in the Shared 
Savings Program under an ACO participant practice TIN could also 
participate in the Independence at Home Demonstration under a different 
TIN that is not an ACO participant since there would be no duplication 
in beneficiary assignment; and therefore, no duplication in shared 
savings.
    We propose a process for ensuring that savings associated with 
beneficiaries assigned to an ACO participating in the Shared Savings 
Program are not duplicated by savings earned in another Medicare 
program or demonstration involving shared savings. If such a program 
assigns beneficiaries based upon the TINs of health care providers from 
whom they receive care, we will compare the participating TINs in the 
program with those in the Shared Savings Program to ensure that TINs 
used for beneficiary assignment to an ACO participating in the Shared 
Savings Program are unique and that beneficiaries are assigned to only 
one shared savings program. If the other program or demonstration 
involving shared savings does not assign beneficiaries based upon the 
TINs of the health care providers from whom they

[[Page 19632]]

receive care, but uses an alternate beneficiary assignment methodology, 
we propose working with the developers of the respective demonstrations 
and initiatives to devise an appropriate method to ensure no 
duplication in shared savings payment. Applications for participation 
in the Shared Savings Program that include TINs that are already 
participating in another Medicare shared savings program will be 
rejected.
2. Transition of the Physician Group Practice (PGP) Demonstration Sites 
Into the Shared Savings Program
    The PGP demonstration, authorized under section 1866A of the Act, 
was our first experience with a shared savings program in Medicare. The 
PGP demonstration serves as a model for many aspects of the Shared 
Savings Program. Section 1899(k) of the Act speaks directly to the 
treatment of the PGP demonstration. ``During the period beginning on 
the date of the enactment of this section and ending on the date the 
program is established, the Secretary may enter into an agreement with 
an ACO under the demonstration under section 1866A of the Act, subject 
to rebasing and other modifications deemed appropriate by the 
Secretary.'' As the final performance year of the initial five year PGP 
demonstration concluded in March 2010, this section of the Affordable 
Care Act authorizes the Secretary to extend the PGP demonstration.
    It is likely that the 10 physician groups in the PGP demonstration 
will be uniquely situated and qualified to be among the organizations 
which are ready to become early participants in the Shared Savings 
Program. As noted previously, consistent with section 1899(b)(4) of the 
Act, to be eligible to participate in the Shared Savings Program, a 
provider of services or supplier may not also be participating in a 
demonstration project that involves shared savings, such as the PGP 
demonstration. Thus, the PGP sites would be permitted to participate in 
either the PGP demonstration or the Shared Savings Program under 
section 1899 of the Act, but could not participate in both. Since 
assignment methodologies are similar between the Shared Savings Program 
and the PGP demonstration, we will provide for unique assignment of 
beneficiaries by ensuring there is no overlap in participating 
Medicare-enrolled TINs as mentioned previously.
    We believe it is appropriate to consider what transition process 
should be available for those PGP demonstration sites that wish to 
participate in the Shared Savings Program. We do not believe that 
automatically transferring the PGP demonstration sites into the Shared 
Savings Program is appropriate because we are concerned that some of 
the PGP demonstration participants may be incapable of meeting the 
Shared Savings Program's requirements, thereby jeopardizing the 
participant's ability to achieve the overall goals associated with the 
Shared Savings Program, including the ability to achieve shared 
savings. On the other hand, requiring the PGP sites to undergo the same 
application process as all other entities would not account for our 
familiarity with these organizations, and their experience with 
redesigning care processes and improving quality in a shared savings 
setting. In addition, requiring the sites to undergo the full 
application process could potentially deter qualified sites that are 
currently participating in the PGP demonstration from transitioning 
from the PGP demonstration to the Shared Savings Program.
    We propose that should a PGP site decide to apply for participation 
to the Shared Savings Program, we will give the site the opportunity to 
complete a condensed application form. The condensed application form 
would require the applicant to provide the information that is required 
for the standard Shared Savings Program application but that was not 
already obtained through its application for or via its participation 
in the PGP demonstration and, if necessary, to update any information 
contained in its application for the PGP demonstration that is also 
required on the standard Shared Savings Program application. For 
instance, the condensed application would ensure that the PGP site 
satisfies the eligibility requirements of the Shared Savings Program, 
as follows:
     Establishing a shared governance structure and leadership 
and management structure according to program requirements;
     Providing documentation around processes for quality 
management and patient engagement, and patient-centeredness criteria as 
described in section II.B of this proposed rule. However, it should be 
noted that some PGP sites applying to the Shared Savings Program may 
not constitute a newly created ACO and therefore would be exempt from 
the antitrust review described previously in the Coordination With 
Other Agencies section of this preamble.
3. Overlap With the Center for Medicare & Medicaid Innovation 
(Innovation Center) Shared Savings Models
    Section 1899(i) of the Act gives the Secretary the authority under 
the Shared Savings Program to use other payment models determined to be 
appropriate, including partial capitation and any additional payment 
model that the Secretary determines will improve the quality and 
efficiency of items and services furnished under Medicare. The purpose 
of the Innovation Center, established in section 1115A of the Act, as 
amended by section 3021 of the Affordable Care Act, is to test 
innovative payment and service delivery models to reduce expenditures 
under Medicare, Medicaid, and the CHIP, while preserving or enhancing 
the quality of care furnished to individuals under these programs. 
Preparations are currently underway to develop this capability. Within 
the Innovation Center, it may be possible to test different payment 
models, provide assistance to groups of providers and suppliers that 
wish to develop into an ACO, or enhance our understanding of different 
benchmarking methods. As the Innovation Center gains experience with 
different ACO payment models, we can use proven methods to enhance and 
improve the Shared Savings Program over time.
    As mentioned previously, section 1899(b)(4) of the Act also 
restricts providers of services and suppliers from participating in 
both the Shared Savings Program and other shared savings programs and 
demonstrations. We intend to coordinate our efforts to ensure that 
there is no duplication of participation in shared savings programs 
through provider or supplier participation in both the Shared Savings 
Program and any shared savings models tested by the Innovation Center. 
Similarly, we will also take steps to ensure there is a methodology to 
avoid duplication of payments for beneficiaries aligned with providers 
and suppliers in both the Shared Savings Program and any current or 
future models tested by the Innovation Center.
    Finally, the Innovation Center is seeking input on how it can best 
test different payment models that provide financial and technical 
assistance to groups of providers and suppliers that may wish to 
develop into an ACO.

III. Collection of Information Requirements

    As stated in section 3022 of the Affordable Care Act, Chapter 35 of 
title 44, United States Code, shall not apply to the Shared Savings 
Program.

[[Page 19633]]

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

IV. Response to Comments

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

V. Regulatory Impact Analysis

A. Introduction

    We have examined the impacts of this proposed rule as required by 
Executive Order 12866 on Regulatory Planning and Review (September 30, 
1993), Executive Order 13563 on Improving Regulation and Regulatory 
Review (January 18, 2011), the Regulatory Flexibility Act (RFA) 
(September 19, 1980, Pub. L. 96-354), section 1102(b) of the Act, 
section 202 of the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-
4), Executive Order 13132 on Federalism (August 4, 1999), and the 
Congressional Review Act (5 U.S.C. 804(2)).
    Executive Orders 12866 and 13563 direct agencies to assess all 
costs and benefits of available regulatory alternatives and, if 
regulation is necessary, to select regulatory approaches that maximize 
net benefits (including potential economic, environmental, public 
health and safety effects, distributive impacts, and equity). Executive 
Order 13563 emphasizes the importance of quantifying both costs and 
benefits, of reducing costs, of harmonizing rules, and of promoting 
flexibility. This rule has been designated an ``economically'' 
significant rule, under section 3(f)(1) of Executive Order 12866. 
Accordingly, the rule has been reviewed by the Office of Management and 
Budget.
    Section 202 of the Unfunded Mandates Reform Act of 1995 (UMRA) also 
requires that agencies assess anticipated costs and benefits before 
issuing any rule whose mandates require spending in any 1 year of $100 
million in 1995 dollars, updated annually for inflation. In 2011, that 
threshold is approximately $136 million. This proposed rule does not 
include any mandate that would result in spending by State, local or 
tribal governments, in the aggregate, or by the private sector in the 
amount of $136 million in any one year. We acknowledge that there will 
be costs borne by the private sector, as discussed in this regulatory 
impact section, in order to participate in this program; however, 
participation is voluntary and is not mandated.
    Executive Order 13132 establishes certain requirements that an 
agency must meet when it promulgates a proposed rule (and subsequent 
final rule) that imposes substantial direct requirement costs on State 
and local governments, pre-empts State law, or otherwise has Federalism 
implications. We do not believe that there is anything in this proposed 
rule that either explicitly or implicitly pre-empts any State law, and 
furthermore we do not believe that this proposed rule will have a 
substantial direct effect on State or local governments, preempt States 
law, or otherwise have a Federalism implication.

B. Statement of Need

    This proposed rule is necessary to implement section 3022 of the 
Affordable Care Act which amended Title XVIII of the Act (42 U.S.C. 
1395 et seq.) by adding a new section 1899 of the Act to establish a 
Shared Savings Program that promotes accountability for a patient 
population, coordinates items and services under parts A and B, and 
encourages investment in infrastructure and redesigned care processes 
for high quality and efficient service delivery. Section 1889(a)(1) of 
the Act requires the Secretary to establish this program not later than 
January 1, 2012. Also, section 1889(a)(1)(A) of the Act states that 
under this program, ``groups of providers of services and suppliers 
meeting criteria specified by the Secretary may work together to manage 
and coordinate care for Medicare fee-for-service beneficiaries through 
an accountable care organization (referred to as an `ACO');'' and 
section 1889(a)(1)(B) of the Act provides that ``ACOs that meet quality 
performance standards established by the Secretary are eligible to 
receive payments for shared savings * * *.''
    The Shared Savings Program is a new approach to the delivery of 
health care aimed at reducing fragmentation, improving population 
health, and lowering overall health care costs.
    The Shared Savings Program should provide an entry point for all 
willing organizations who wish to move in a direction of providing 
value-driven healthcare. Consequently, in accordance with the authority 
granted to the Secretary under sections 1899(d) and 1899(i) of the Act, 
we looked at creating both a shared savings model (one-sided) and a 
shared savings/losses model (two-sided). The sharing parameters under 
the two options are balanced so as to provide greater reward for 
organizations accepting risk while maintaining sufficient incentive to 
encourage providers to participate in the one-sided model, providing an 
entry point to risk-oriented models.
    As detailed in Table 10, we estimate a total aggregate median 
impact of $510 million in net Federal savings for CYs 2012 through 2014 
from the implementation of the Shared Savings Program. (An estimate 
produced by the Office of the Actuary on April 22, 2010 showed no net 
impact only because the statute by itself lacked enough detail to allow 
for scoring.) The 10th and 90th percentiles of the estimate 
distribution, for the same time period, show net savings of $960 
million and $170 million. These estimated impacts represent the effect 
on Federal transfers. The estimated aggregate cost for start-up 
investment and first year operating expenditures for ACOs in the Shared 
Savings Program range from $131,643,825 to $263,287,650, assuming 75 to 
150 ACOs participating in the Shared Savings Program. Furthermore, the 
Shared Savings Program would benefit beneficiaries since the program 
requires ACOs to be accountable for Medicare beneficiaries, improve the 
coordination of FFS items and services, encourage investment in 
infrastructure and redesigned care processes for high quality and 
efficient service delivery that demonstrate a dedication and focus 
toward patient-centered care. Accordingly, we have prepared a RIA that 
to the best of our ability presents the costs and benefits of this 
proposed rule. We solicit comment on the assumptions and analysis 
presented throughout this regulatory impact section.

[[Page 19634]]

[GRAPHIC] [TIFF OMITTED] TP07AP11.030

    As discussed in the preamble of this proposed rule, the Shared 
Savings Program establishes a program whereby groups of suppliers and 
providers can work together through ACOs that would assume 
responsibility for managing and coordinating the care of groups of 
traditional FFS Medicare patients. Participating ACOs will have the 
opportunity to earn shared savings payments by reducing Medicare 
expenditure growth for their assigned beneficiaries below specified 
target thresholds or benchmarks while simultaneously meeting quality 
performance measures. An ACO could initially opt for one of two program 
tracks. The first option (one-sided model) offers eligibility for 
shared savings payments in years 1 and 2 without the risk of being 
responsible for repaying any losses if actual expenditures exceed the 
benchmark, followed by a third year offering a higher percentage of 
shared savings but also risk for excess expenditures above the 
benchmark. The second option (two-sided model) provides an opportunity 
for receiving a higher percentage of shared savings for all 3 years, 
but with potential liability in each of the 3 years for annual 
expenditures that exceed the benchmark.
    There is substantial uncertainty as to the number of ACOs that will 
participate in the program, their characteristics, provider and 
supplier response to the financial incentives offered by the program, 
and the ultimate effectiveness of the changes in care delivery that may 
result as ACOs work to improve the quality and efficiency of patient 
care. These program design and other uncertainties complicate efforts 
to assess the financial impacts of the Shared Savings Program and 
result in a wide range of potential outcomes regarding the net impact 
on Medicare expenditures.
    To best reflect these uncertainties, we designed a stochastic model 
that incorporates assumed probability distributions for each of the key 
variables that will affect the overall financial impact of the Shared 
Savings Program. Using a Monte Carlo simulation approach, the model 
randomly draws a set of specific values for each variable, reflecting 
the expected covariance among variables, and calculates the program's 
financial impact based on the specific set of assumptions. We repeated 
the process for a total of 5,000 random trials, tabulating the 
resulting individual cost or savings estimates to produce a 
distribution of potential outcomes that reflects the assumed 
probability distributions of the incorporated variables, as shown in 
Table 10. In this way, we can evaluate the full range of potential 
outcomes based on all combinations of the many factors that will affect 
the financial impact, and with an indication of the likelihood of these 
outcomes. It is important to note that these indications do not 
represent formal statistical probabilities in the usual sense, since 
basis for the underlying assumptions for each of the factors in the 
model are based on reasonable judgments, using independent expert 
opinion when available.
    The median result from the distribution of simulated outcomes 
represents the ``best estimate'' of the financial effect of the Shared 
Savings Program, recognizing the uncertainty inherent in a new program 
with uncertain responses. The full distribution illustrates the 
uncertainty surrounding the mean or median financial impact from the 
simulation.
    As detailed in Table 11, the median estimate involves a combination 
of: (1) Reduced actual Medicare expenditures due to more efficient 
care; (2) shared savings payments to ACOs; and (3) payments to CMS for 
shared losses when actual expenditures exceed the benchmark, resulting 
in a projected total of $510 million in net savings over CYs 2012 
through 2014. Approximately 97 percent of the stochastic trials 
resulted in a net savings to the Medicare program, while the other 3 
percent produced a net cost. At the extremes, the greatest simulated 
savings was approximately $1,960 million, while the greatest simulated 
cost was $270 million.
    A net savings (costs) occurs when the payment of earned and 
unearned shared-savings bonuses (less penalties collected) resulting 
from-- (1) Reductions in spending; (2) program design; and (3) random 
group claim fluctuation, in total are less than (greater than) assumed 
savings from reductions in expenditures.
    As we finalize the Shared Savings Program provisions, and as the 
actual number of participating ACOs and their characteristics become 
known, the range of financial outcomes will narrow. Similarly, as data 
become available on the initial differences between actual expenditures 
and the target expenditures reflected in ACO benchmarks, it will be 
possible to evaluate the financial effects with greater certainty. The 
estimate distribution shown provides an objective and reasonable 
indication of the likely range of financial outcomes, given the chosen 
variables and their assumed distributions at this time in the program's 
development.

C. Anticipated Effects

1. Effects on the Medicare Program
    As a voluntary program involving an innovative and complex mix of 
financial incentives for quality of care and efficiency gains within 
FFS Medicare, the Shared Savings Program could result in a wide range 
of possible outcomes. While examples exist across the

[[Page 19635]]

healthcare marketplace for risk-sharing arrangements leading to 
efficiency gains, a one-sided model would presumably provide a weaker 
incentive to ACOs than other possible approaches. The optional two-
sided risk model, and the requirement for all other ACOs to accept 
downside risk in their third program year, both provide stronger 
incentives than a shared savings only approach. For example, under the 
one-sided model, a provider's worst-case outcome is the failure to earn 
shared-savings. A provider would operate under the significant 
possibility that there would be no impact on their Medicare 
reimbursement. The two-sided risk model, however, presents liability 
for excessive expenditures, significantly increasing a provider's 
perceived likelihood that aggregate Medicare revenue will depend on the 
level of efficiency with which they operate. In addition, the two-sided 
model offers a lower minimum savings rate and a greater sharing 
percentage, both of which enhance the incentive for efficiency. 
However, participating ACOs may be more likely to choose the one-sided 
model for the first 2 years and thereby avoid the potential for 
financial loss if expenditures experience a significant upward 
fluctuation or if efficiency improvements are less effective than 
planned.
    In the third year of their first agreement period, as noted 
previously, all ACOs that participate in the one-sided model during the 
first 2 years of the agreement period will be required to transition to 
the two-sided risk model. We believe certain participating ACOs may 
choose to terminate their agreement early after the first 2 years. For 
example, ACOs in Track 1 that failed to meet the expenditure growth 
targets in the first 2 years (but were protected from penalties by 
being in the one-sided model), would likely reconsider their continuing 
participation. Certain other ACOs, such as those in higher-cost areas 
of the country, could also terminate their agreement if they anticipate 
that the national growth formula, relative to their local baseline 
cost, puts them in jeopardy of experiencing losses in the third year. 
(Under section 2899(d) of the Act, we update ACO benchmarks by the 
estimated annual increase in the absolute amount of national average 
Medicare Part A and Part B expenditures, expressed as a flat dollar 
amount for each year. As a result, the updates to ACO benchmarks in 
percentage terms will be higher in low-cost areas of the country and 
lower in high-cost areas.) This scenario could contribute to selective 
program participation by ACOs favored by the national flat-dollar 
growth target.
    While shared FFS savings, even with optional liability for a 
portion of excess expenditures, offers less incentive to reduce costs 
or improve efficiency than, say, full capitation, it still represents a 
new incentive for efficiency. Shared-savings (and potential 
liabilities) will have varying degrees of influence on hospitals, 
primary physicians, specialty physicians, and other providers. The 
expectation is for different ACOs to comprise a varying mix of these 
providers and suppliers. And while certain care improvements might be 
achieved relatively quickly (for example, prevention of hospital 
readmissions and emergency-room visits for certain populations with 
chronic conditions), many potential ACOs might need more than 3 years 
to achieve comprehensive efficiency gains. Challenges include 
identification of assigned beneficiaries, managing care furnished by 
providers and suppliers outside the ACO, lack of similar contracts with 
other payers, achieving buy-in from ACO providers and suppliers, and 
the extent to which possible future shared savings or losses will 
affect the perceived value of immediate FFS revenue for providers and 
suppliers participating in the ACO.
a. Assumptions and Uncertainties
    We sought input from a wide range of external experts, including 
credentialed actuaries, consultants, and academic researchers, to 
identify the pertinent variables that could determine the efficacy of 
the program, and to identify the reasonable ranges for each variable. 
The assumptions identified and stochastically modeled include the 
following:
     Number of participating ACO provider groups.
     Size mix of participating ACOs.
     Type of ACO that would consider accepting risk under the 
two-sided risk option.
     Participating ACOs' current level of integration and 
preparedness for improving the quality and efficiency of care delivery.
     Baseline per-capita costs for prospective ACOs, relative 
to national average.
     Number and profile of providers and suppliers unavailable 
to participate in the Shared Savings Program due to participation in 
ACO models tested by the Innovation Center.
     Range of savings for participating ACOs within the first 
three years of the program.
     Local variation in expected claims cost growth relative to 
the national average.
     Quality reporting scores and resulting attained sharing 
(or loss) percentages.
    Overall we assumed 1.5 to 4 million Medicare beneficiaries would 
align with a participating ACO during the first three years of the 
program. We assumed ACOs to be more likely to participate from markets 
exhibiting baseline per-capita FFS expenditures above the national 
average. In addition, we assumed the level of savings generated by an 
ACO to positively correlate to the achieved quality performance score 
and resulting sharing percentage.
    Of particular relevance is the high degree of variability observed 
for local per-capita cost growth rates relative to the national average 
``flat dollar'' growth (used to update ACO benchmarks). The benchmark 
or expenditure target effectively serves as the only measure of 
efficiency for participating ACOs. Factors such as lower-than-average 
baseline per-capita expenditure and variation in local growth rates 
relative to the national average can trigger Shared Savings Program 
shared savings payments even in the absence of any efficiency gains. 
Similarly, some ACOs could find that in the determination of shared 
savings by factors such as prevailing per-capita expenditure growth in 
their service area that is higher than the national average overshadows 
their hard-fought efficiency gains.
b. Detailed Stochastic Modeling Results
    Table 11 shows the distribution of the estimated net financial 
impact for the 5,000 stochastically generated trials. (The amounts 
shown are in millions, with negative net impacts representing Medicare 
savings). The net impact is defined as the total cost of shared savings 
less--(1) any amount of savings generated by reductions in actual 
expenditures; and (2) any losses collected for ACOs that accepted risk 
and have actual expenditures exceeding their benchmark.
    The median estimate of the Shared Savings Program financial impact 
for calendar years 2012 through 2014 is a net savings of $510 million. 
This amount represents the ``best estimate'' of the 3-year financial 
impact of the Shared Savings Program initiative. It is important to 
note, however, the relatively wide range of possible outcomes. Overall, 
97 percent of the stochastic trials resulted in net program savings, 
and the other 3 percent represented cost increases. The 10th and 90th 
percentiles of the estimated

[[Page 19636]]

distribution show net savings of $960 million and $170 million, 
respectively, suggesting a 10 percent likelihood that the actual impact 
would fall outside respective percentile amounts. In the extreme 
scenarios, the results were as large as $2 billion in savings or $270 
million in costs.
    Our Office of the Actuary (OACT) prepared the stochastic model and 
resulting financial estimates. OACT believes that the median result of 
$510 million in savings is a reasonable ``point estimate'' of the 
impact of the Shared Savings Program provision in current law, as it 
would be implemented through this proposed rule. However, OACT 
emphasizes the possibility of outcomes that differ substantially from 
the median estimate, as illustrated by the estimate distribution. With 
the adoption of final program provisions and with additional data on 
the actual number and characteristics of participating ACOs, we can 
estimate the financial impact with greater precision.
    The projections assume the assignment of roughly 1.5 to 4 million 
beneficiaries to participating ACOs over the first 3 years. To the 
extent that the Shared Savings Program will result in net savings or 
costs to Part B of Medicare, revenues from Part B beneficiary premiums 
would also be correspondingly lower or higher. In addition, because MA 
payment rates depend on the level of spending within traditional FFS 
Medicare, Shared Savings Program savings or costs would result in 
corresponding adjustments to MA payment rates. Neither of these 
secondary impacts has been included in the analysis shown.
[GRAPHIC] [TIFF OMITTED] TP07AP11.031

    Table 12 shows the median estimated financial effects for the 
Shared Savings Program initiative, and the associated 10th and 90th 
percentile ranges, broken out for each of the first 3 years. For the 
first year, 2012, the median projection indicates a $100 million 
savings, primarily because the ACO cost-efficiency initiatives are 
generally not assumed to have matured, but a number of provider groups 
that benefit from favorable random claim fluctuations or from low 
baseline expenditure relative to the national average would receive 
shared saving payments. By the second and third years, 2013 and 2014, 
of the projection, the median estimates indicate net savings of $210 
million and $200 million, respectively, from increased cost-saving 
effectiveness offset in part by shared savings paid due to random 
variation and the (increasing) variation in the accuracy of updated 
national targets compared to actual local growth as well as 
participation and sharing percentage changes resulting from mandatory 
transition to two-sided risk in the third year. As a result, the 
projections for years 2 and 3 cover a wider range of possible outcomes, 
reflecting a growing dependence on uncertain assumptions for savings 
and expenditure growth variation relative to the national average.

[[Page 19637]]

[GRAPHIC] [TIFF OMITTED] TP07AP11.032

c. Further Consideration
    The impact analysis shown is only for the first 3-year agreement 
period. Beyond this initial period, there is additional uncertainty, in 
significant part because the rules governing subsequent Shared Savings 
Program agreement periods have not yet been developed. A risk exists 
that by ACOs in low-cost areas could dominate the Shared Savings 
Program, where participation could be a relatively risk-free 
opportunity to achieve shared savings simply due to the generous 
benchmark presented by national average ``flat-dollar'' growth. On the 
other hand, the first 3-year agreement period ACOs could foster 
significant improvements in the quality and cost-efficiency of health 
care delivery, leading to broader use of these techniques nationwide 
and accelerated adoption of risk-sharing arrangements (such as partial 
capitation, bundled payments, etc.). These changes could result in 
significant efficiency gains in FFS Medicare. The stochastic model for 
the first 3 years of the program, does not incorporate either of these 
longer-run scenarios, but both remain possibilities--subject to the 
final program design and implementation. At this time, an impact 
estimate expanded to include performance beyond the initial 3-year 
period would likely entail a significantly wider range of possible 
outcomes. The results of the first performance cycle, however, will 
help inform estimates of the ongoing financial effects of the Shared 
Savings Program.
2. Impact on Beneficiaries
    We anticipate the Shared Savings Program will benefit beneficiaries 
because the intent of the program is to require ACOs to be accountable 
for Medicare beneficiaries, improve the coordination of FFS items and 
services, encourage investment in infrastructure and redesigned care 
processes for high quality and efficient service delivery that 
demonstrates a dedication and focus toward patient-centered care. 
Patient-centered care is a concept that focuses healthcare delivery and 
communication on the patient and those who are close to the patient and 
bases the care and communication delivered around the needs of the 
beneficiary, thus benefitting the beneficiary community. This program 
does not affect the beneficiary's freedom of choice regarding providers 
or care. Also, a requirement of ACO participation in the Shared Savings 
Program is reporting of, and successful performance related to, quality 
measures and patient-experience surveys. These aspects of the Shared 
Savings Program will encourage the provider and supplier community to 
focus on and deliver improved quality care. In addition to existing 
Medicare monitoring programs that are in place to protect 
beneficiaries, the Shared Savings Program will include monitoring and 
auditing processes to protect beneficiary choice as well as ensure that 
beneficiaries are receiving the appropriate care. As is discussed in 
more detail in the preamble, these processes include monitoring ACO 
avoidance of at-risk beneficiaries, assessing and providing follow up 
on beneficiary complaints, audits (including, for example, analysis of 
claims, chart review, beneficiary surveys, coding audits) and analysis 
of quality performance.
    More specifically, we believe that beneficiary impacts would be 
maximized as the ACO meets the mission of the Shared Savings Program, 
as established by the Affordable Care Act and embraces the following 
goals of better health and experience of care for individuals, better 
health for populations and lower expenditure growth. The ACO's impact 
will be demonstrated by how effectively it delivers care as measured 
under the financial methodology outlined in

[[Page 19638]]

section II. F, Shared Savings Determination, of this proposed rule, how 
well it improves and delivers high quality care outlined in the quality 
measurement and reporting methodology in section II.E. of this proposed 
rule, and in meeting program requirements for patient centered care 
outlined in the eligibility section II.B. of this proposed rule.
    Therefore, because of the accountability of ACOs for both the 
quality and overall cost of care provided to their assigned beneficiary 
population and must meet the quality performance standards prior to 
sharing any savings; they have new incentives to improve the health and 
well being of the beneficiaries they treat. ACOs will report on 
conditions and areas that are high prevalence and high cost in the 
Medicare population, such as chronic disease, ambulatory care sensitive 
conditions, care transitions and readmissions, and patient experience. 
We have observed that measuring quality and providing incentives can 
result in redesigned care processes that provide clinicians with 
actionable information on their patients at the point of care which can 
lead to improved patient care processes and outcomes. For example, the 
Medicare Physician Group Practice Demonstration Fact Sheet (CMS, August 
2009) showed that over the first three years of the PGP Demonstration, 
physician groups increased their quality scores an average of 10 
percentage points on the 10 diabetes measures, 11 percentage points on 
the ten congestive heart failure measures, 6 percentage points on the 
coronary artery disease measures, 10 percentage points on the cancer 
screening measures, and 1 percentage point on the hypertension 
measures. Further analysis is provided in the Physician Group Practice 
Demonstration Evaluation Report (Report to Congress, 2009; http://www.cms.gov/DemoProjectsEvalRpts/downloads/PGP_RTC_Sept.pdf).
    In addition to the overall increases in quality scores, we can 
examine the impact of the PGP Demonstration on quality can be examined 
by comparing the values of the seven claimsbased quality measures for 
each PGP site and its comparison group. Our analysis found that, on the 
claims-based measures, PGP performance exceeded that of the comparison 
groups (CGs) on all measures between the base year (BY) and performance 
year 2 (PY2). It also found that the PGP sites exhibited more 
improvement than their CGs on all but one measure between the BY and 
PY2. Even after adjusting for pre-demonstration trends in the claims-
based quality indicators, the PGP sites improved their claims-based 
quality process indicators more than their comparison groups.
3. Impact on Providers and Suppliers
    In order to participate in the program, we realize that there will 
be costs borne in building the organizational, financial and legal 
infrastructure that is required of an ACO as well as performing the 
tasks required (as discussed throughout the Preamble) of an eligible 
ACO, such as: quality reporting, conducting patient surveys and 
investment in infrastructure for effective care coordination. While 
provider and supplier participation in the Shared Savings Program will 
be voluntary, we have examined the potential costs that program 
participation will create.
    The proposed rule allows for flexibility regarding the specific 
structure of an ACO and, as such, we expect the costs to vary greatly. 
Furthermore, beyond the statutorily required assignment of at least 
5,000 Medicare beneficiaries to an ACO, the size of ACOs will also vary 
in relation to beneficiary participation and associated cost. Due to 
the limited precedence for this program and uncertainty regarding the 
structure and strategies that the provider community will pursue in 
order to participate as an ACO, estimates of expected provider costs 
are difficult to create. An analysis produced by the Government 
Accountability Office (GAO) of first year total operating expenditures 
for participants of the Medicare PGP Demonstration varied greatly, from 
$436,386 to $2,922,820, with the average for a physician group at 
$1,265,897 (Medicare Physician Payment: Care Coordination Programs Used 
in Demonstration Show Promise, but Wider Use of Payment Approach May Be 
Limited. GAO, February 2008). These costs (for groups which all had 200 
or more physicians) include investments in infrastructure and 
information technology enhancements, management, quality reporting, and 
focused care coordination programs. The GAO also discovered that start-
up investment expenditures in the PGP Demonstration varied between 
$82,573 and $917,398, with the average for a physician group at 
$489,354.
    It is worth noting that the 10 participating physician groups in 
the demonstration were large compared with other physician practices in 
terms of annual medical revenues and nonphysician staff. GAO claims 
that their larger relative size gave the 10 participating physician 
groups in the PGP Demonstration three size-related advantages over 
smaller physician practices. First, participants typically had 
institutional affiliations with an integrated delivery system, a 
general hospital, or a health insurance entity. Specifically 9 of the 
10 participating physician groups were part of an integrated delivery 
system, 8 affiliated with a general hospital, and 5 affiliated with an 
entity that marketed a health insurance product. As a result of these 
affiliations, GAO claims that participating physician groups generally 
had greater access to relatively large amounts of financial capital 
needed to initiate or expand programs. The second advantage, GAO 
claims, the 10 large participating physician groups had over smaller 
physician practices is the increased probability of having or acquiring 
EHR systems, which was essential in participants' ability to gather 
data and track progress in meeting quality-of-care targets. For 
example, 8 of the 10 participating physician groups had an EHR in place 
before the demonstration began, and the 2 other participants, out of 
necessity, developed alternative methods for gathering patient data 
electronically. Lastly, GAO claims that the third size-related 
advantage that most of the 10 participating physician groups had over 
smaller physician practices was the larger groups' experience with 
other pay-for-performance systems prior to participating in the PGP 
Demonstration. That is, 8 of the 10 participants had previous 
experience with pay-for-performance programs initiated by private or 
public sector organizations. This experience, GAO concludes, may have 
eased their adjustment to the PGP Demonstration and allowed them 
greater initial and overall success.
    We use this analysis not to predict cost investment and operating 
expenditures, but to demonstrate that we expect the range of investment 
to vary greatly across ACOs and to provide potential scope for aspiring 
participants. We expect that due to the difference in program 
requirements between the Shared Savings Program and the PGP 
Demonstration Project, and the potential variation in ACO size and 
structure, the PGP related costs may be a subset of the investment 
required by entities seeking participation in this program. However, we 
recognize that potential advantageous key drivers for participating 
physician groups would include institutional affiliations that allow 
greater access to financial capital, access to and experience using EHR 
and other IT systems and experience with pay-for-performance programs. 
As a result, we present a rough estimate of

[[Page 19639]]

$1,755,251, based on the GAO findings to reflect the total average 
start-up investment and first year operating expenditures for a 
participant in the Shared Savings Program. Lastly, assuming a range of 
expected ACOs participating in the Shared Savings Program at 75 to 150 
yields an estimated aggregate cost, for ACO start-up investment and 
first year operating expenditures in the Shared Savings Program, in the 
range of $131,643,825 to $263,287,650.
    Participating in the Shared Savings Program will require groups of 
providers and suppliers to (among other things): invest in or improve 
upon information technology systems, focus on evidence-based medicine, 
improve care coordination and quality and generally refine all 
processes of caring for their patients and community. While, as we 
discussed previously, there will be a financial cost placed on ACOs in 
order to do so, there will be benefits to the respective organizations 
in the form of increased operational and healthcare delivery 
efficiency. Furthermore, as discussed previously, and explained in more 
detail in the preamble of this proposed rule, there will be an 
opportunity for financial reward for success in the program in the form 
of shared savings. The estimated bonuses paid are a median of $800 
million over 3 years, with $560 million and $1,130 million reflecting 
the 10th and 90th percentiles. Also, participating ACO's will be 
assuming a risk of a financial penalty for failing to achieve savings 
(that is, if actual expenditures exceed the benchmark). The estimated 
penalties paid are a median of $40 million over 3 years, with $10 
million and $80 million reflecting the 10th and 90th percentiles. (It 
is important to note that the given percentiles for bonuses, penalties, 
and net impacts are independently tabulated and therefore are not 
additive across the three parameters.) The actuality of the risk is 
dependent on which of the two options an ACO selects for their first 
agreement period. Due to the voluntary nature of this program, we 
expect the formation of ACOs by entities that aspire to receive 
benefits that outweigh their costs. We anticipate that not all ACOs 
will achieve shared savings and some will incur a financial loss, due 
to requirement to repay a share of actual expenditures in excess of 
their benchmark.
    As is previously stated, we expect the costs and benefits of 
establishing and maintaining an ACO to vary and solicit comment on this 
issue, including total ACO expenditures for start-up investment and 
annual operating costs for the 3 years of the Shared Savings Program.

D. Alternatives Considered

    The proposed rule contains a range of policies. Many tenets of the 
program are statutorily mandated and thus allow for little, if any, 
flexibility in the rulemaking process. Where there was flexibility, we 
made our policy decisions regarding alternatives based on a balance 
between creating the least possible negative impact on the stakeholders 
affected by the program on and satisfactorily fitting the vision of the 
program within given operational constraints.
    For example, while the Affordable Care Act mandates that an ACO be 
large enough to care for minimum of 5,000 assigned beneficiaries, as is 
described in the preamble, we are proposing a sliding minimum 
percentage and confidence interval for the savings threshold based on 
the size of an ACO. This proposal is a balance of protecting the 
program from paying out savings based on random variation, while 
allowing attainable thresholds for smaller sized potential ACOs and 
thus encouraging participation from various sized entities.
    The preceding preamble provides descriptions of the various 
statutory provisions that are addressed, identifies those policies when 
discretion has been allowed and exercised, presents the rationales for 
our proposals and, where relevant, alternatives that were considered. 
An important example involves adjustments to an ACO's benchmark for 
changes in FFS price adjustments (such as the geographic practice cost 
index (GPCI) under the PFS and hospital wage index). Such price changes 
regularly occur and often impact counties or other localities in 
magnitudes that can significantly differ from the national average. If, 
for example, operating cost payments are reduced for section 508 
hospitals (as will occur under current law at the end of FY 2011) then 
ACO-attributed claims incurred in a 508 hospital would exhibit 
significant price decreases which could lead to shared savings payments 
unrelated to real improvements in ACO efficiency. Absent such 
adjustments, these statutory changes will impact the comparison of 
actual expenditures and the benchmark. However, as we have previously 
noted, the statute provides authority for adjustment to the benchmark 
for ``such other factors as the Secretary determines appropriate.''
    Another design element involves the method for constructing a 
participating ACO's benchmark. One proposed method employs a similar 
approach to that used in the CMS PGP Demonstration and is based on 
risk-adjusting to take into account changes in the health status of the 
population between the benchmark period and performance year. If HCC 
risk adjustments are specified in the final program then it must be 
applied in a manner that does not reward ACOs for more complete and 
accurate coding of their assigned patient population to protect the 
program from costs due to paying shared savings as a result of greater 
diagnosis coding intensity in ACOs than would occur for a comparable 
group of beneficiaries receiving care outside an ACO.
    Finally, a key design element involves the method for establishing 
quality standards. We propose aggregating the quality domain scores 
into a single overall ACO score used to calculate the ACOs final 
sharing rate for purposes of determining shared savings or shared 
losses as described in section II.E of this proposed rule. We would 
average all domain scores for an ACO together equally to calculate the 
overall quality score used to calculate the ACO's final sharing rate as 
previously described. We also considered a variety of scoring 
methodology that would have differing incentives for improving clinical 
outcomes such as: Scoring measures individually under a method that 
would weight all measures equally as well as weighting quality measures 
by their clinical importance. In addition to the performance score 
approach that rewards ACOs for better quality with larger percentages 
of shared savings as modeled in this analysis, we could use a threshold 
approach that allows any ACO that meets minimum standards for the 
quality to realize the full shared savings. By design this approach 
could ensure higher net savings to the Medicare program, depending on 
the quality threshold and sharing percentage chosen.
    The provisions adopted in the final Shared Savings Program rule may 
differ from the current proposals, possibly resulting in material 
changes in the projected financial impact of the program. We solicit 
comment on other potentially effective and reasonably feasible 
alternatives especially those that reduce burdens and maintain 
flexibility and freedom of choice for the public.

E. Accounting Statement and Table

    As required by OMB Circular A-4 (available at http://www.whitehouse.gov/sites/default/files/omb/assets/regulatory_matters_pdf/a-4.pdf), in Table 13, we have prepared an accounting statement 
showing the classification of transfers, benefits and

[[Page 19640]]

costs associated with the provisions of this proposed rule. Because of 
the uncertainties identified in establishing the economic impact 
estimates, we intend to update the estimates in the final rule.
[GRAPHIC] [TIFF OMITTED] TP07AP11.033

F. Conclusion

    As a result of this proposed rule, the median estimate of the 
financial impact from implementation of the Shared Savings Program, for 
CYs 2012 through 2014, is a net savings of $510 million. Although this 
is the ``best estimate'' for the 3-year financial impact of the Shared 
Savings Program initiative, a relatively wide range of possible 
outcomes exists. Overall, 80 percent of the stochastic trials resulted 
in net program savings, and the other 30 percent represented cost 
increases. The 10th and 90th percentiles of the estimate distribution 
show net savings of $960 million and $170 million, respectively, 
suggesting a 10-percent likelihood that the actual impact would exceed 
the respective percentile amounts. In the extreme scenarios, the 
results were as large as $1,960 million in savings or $270 million in 
costs. Lastly, the estimated aggregate cost for ACO start-up investment 
and first year operating expenditures in the Shared Savings Program 
range from $131,643,825 to $263,287,650, based on an assumed 75 to 150 
ACOs participating in the Shared Savings Program.
    In accordance with the provisions of Executive Order 12866, this 
regulation was reviewed by the Office of Management and Budget.

List of Subjects in Part 425

    Administrative practice and procedure, Health facilities, Health 
professions, Medicare, Reporting and recordkeeping requirements.
    For the reasons set forth in the preamble, the Centers for Medicare 
& Medicaid Services proposes to amend 42 CFR Chapter IV by adding part 
425 to read as follows:

SUBCHAPTER B--MEDICARE PROGRAM

PART 425--MEDICARE SHARED SAVINGS PROGRAM

Sec.
Subpart A--General Provisions
425.2 Basis and scope.
425.4 Definitions.
Subpart B--Shared Savings Program Requirements
425.5 Eligibility and governance requirements.
425.6 Assignment of Medicare fee-for-service beneficiaries to ACOs.
425.7 Payment and treatment of savings.
425.8 ACO quality and continuous improvement goals.
425.9 Measures to assess the quality of care furnished by an ACO.
425.10 Calculating the ACO quality performance score and determining 
shared savings eligibility.
425.11 Incorporating other reporting requirements related to the 
Physician Quality Reporting System and electronic health records 
technology.
425.12 Monitoring.
425.13 Actions prior to termination.
425.14 Termination, suspension, and repayment of Shared Savings.
425.15 Reconsideration review process.
425.16 Audits and record retention.
425.17 Requirements for data submission by ACOs.
425.18 The 3-year agreement with CMS.
425.19 Data sharing with ACOs.
425.20 New program standards established during the 3-year agreement 
period.
425.21 Managing significant changes to the ACO during the agreement 
period.
425.22 Future participation of previous Shared Savings Program 
participants.
425.23 Public reporting and transparency.
425.24 Overlap with other CMS shared savings initiatives.

Subpart A--General Provisions

Sec.  425.2  Basis and scope.

    (a) Basis. This part implements section 1899 of the Act by 
establishing a shared savings program that promotes accountability for 
a patient population, coordinates items and services under parts A and 
B, and encourages investment in infrastructure and redesigned care 
processes for high quality and efficient services. Under this program, 
groups of providers of services and suppliers meeting criteria 
specified by the Secretary may work together to manage and coordinate 
care for Medicare fee-for-service beneficiaries through an accountable 
care organization (ACO). ACOs that meet quality performance standards 
established by the Secretary are eligible to receive payments for 
shared savings. During years in which the ACO is participating in a 
two-sided model, the ACO may be required to share losses.
    (b) Scope. This part sets forth the following:
    (1) The eligibility requirements for an ACO to participate in the 
Medicare Shared Savings Program (Shared Savings Program).
    (2) Program requirements, including quality and other reporting 
requirements.
    (3) The method for assigning Medicare fee-for-service beneficiaries 
to ACOs.
    (4) Payment criteria and methodologies (one-sided model and two-
sided model).

[[Page 19641]]

    (5) Compliance monitoring and sanctions for noncompliance.
    (6) Reconsideration of adverse determinations.

Sec.  425.4  Definitions.

    As used in this part, unless otherwise indicated--
    Accountable care organization (ACO) means a legal entity that is 
recognized and authorized under applicable State law, as identified by 
a Taxpayer Identification Number (TIN), and comprised of an eligible 
group (as defined at Sec.  425.5(b)) of ACO participants that work 
together to manage and coordinate care for Medicare fee-for-service 
beneficiaries and have established a mechanism for shared governance 
that provides all ACO participants with an appropriate proportionate 
control over the ACO's decision-making process.
    ACO participant means a provider (as defined in Sec.  400.202) or a 
supplier (as defined at Sec.  400.202), as identified by a TIN.
    ACO provider/supplier means--
    (1) A provider (as defined in Sec.  400.202); or
    (2) A supplier (as defined at Sec.  400.202) that bills for items 
and services it furnishes to Medicare beneficiaries under a Medicare 
billing number assigned to the TIN of an ACO participant in accordance 
with applicable Medicare rules and regulations.
    ACO professional means an ACO provider/supplier who is either of 
the following:
    (1) A doctor of medicine or osteopathy legally authorized to 
practice medicine and surgery by the State in which he performs such 
function or action, including an osteopathic practitioner within the 
scope of his or her practice as defined by State law.
    (2) A practitioner who is one of the following:
    (i) A physician assistant (as defined at Sec.  410.74(a)(2)).
    (ii) A nurse practitioner (as defined at Sec.  410.75(b)).
    (iii) A clinical nurse specialist (as defined at Sec.  410.76(b)).
    Antitrust Agency means the Department of Justice or Federal Trade 
Commission.
    Antitrust Policy Statement means the Statement of Antitrust 
Enforcement Policy Regarding Accountable Care Organizations 
Participating in the Medicare Shared Savings Program issued by the 
antitrust agencies.
    Assignment means the operational process by which CMS determines 
whether a beneficiary has chosen to receive a sufficient level of the 
requisite primary care services from primary care physician(s) who is 
an ACO provider/supplier so that the ACO may be appropriately 
designated as exercising basic responsibility for that beneficiary's 
care.
    At-risk beneficiary means a beneficiary who--
    (1) Has a high risk score on the CMS-HCC risk adjustment model;
    (2) Is considered high cost due to having two or more 
hospitalizations each year;
    (3) Is dually eligible for Medicare and Medicaid;
    (4) Has a high utilization pattern; or
    (5) Has had a recent diagnosis that is expected to result in 
increased cost.
    CAP means a corrective action plan.
    Covered professional services has the same meaning give these terms 
under section 1848(k)(3) of the Act.
    Eligible professional has the meanings given this term under 
section 1848(k)(3) of the Act.
    Hospital means a hospital subject to the prospective payment system 
specified in Sec.  412.1(a)(1) of this chapter.
    Marketing materials and activities include, but are not limited to, 
general audience materials such as brochures, advertisements, outreach 
events, letters to beneficiaries, web pages, data sharing opt out 
letters, mailings, or other activities conducted by or on behalf of the 
ACO, or by ACO participants, or ACO providers/suppliers participating 
in the ACO, or by other individuals on behalf of the ACO or its 
participating providers and suppliers when used to educate, solicit, 
notify, or contact Medicare beneficiaries or providers and suppliers 
regarding the Shared Savings Program. The following beneficiary 
communications are not marketing materials and activities: 
Informational materials customized or limited to a subset of 
beneficiaries; materials that do not include information about the ACO 
or providers in the ACO; materials that cover beneficiary-specific 
billing and claims issues or other specific health-related issues; or 
educational information on specific medical conditions (for example, 
flu shot reminders), or referrals for Medicare covered items and 
services.
    Medicare fee-for-service beneficiary means an individual who is--
    (1) Enrolled in the original Medicare fee-for-service program under 
parts A and B; and
    (2) Not enrolled in any of the following:
    (i) A MA plan under part C.
    (ii) An eligible organization under section 1876 of the Act.
    (iii) A PACE program under section 1894 of the Act.
    Medicare Shared Savings Program (Shared Savings Program) means the 
program, established under section 1899 of the Act and implemented in 
this part.
    One-sided model means a model under which the ACO may share savings 
with the Medicare program, if it meets the requirements for doing so, 
but is not liable for sharing any losses incurred under the provisions 
of Sec.  425.7(c).
    Physician Quality Reporting System means the system established 
under section 1848(k) of the Act.
    Primary care physician means a physician (as defined at Sec.  
410.20(b)(1)) who has a primary specialty designation of internal 
medicine, general practice, family practice, or geriatric medicine.
    Primary care services mean the set of services identified by the 
following HCPCS codes: 99201 through 99215, 99304 through 99340, and 
99341 through 99350, G0402 (the code for the Welcome to Medicare 
visit); and G0438 and G0439 (codes for the annual wellness visits).
    Reporting period means January 1 through December 31.
    TIN means Federal taxpayer identification number.
    Two-sided model means a model under which the ACO may share savings 
with the Medicare program, if it meets the requirements for doing so, 
and is also liable for sharing any losses incurred under the provisions 
of Sec.  425.7(d).

Subpart B--Shared Savings Program Requirements

Sec.  425.5  Eligibility and governance requirements.

    (a) General requirements. (1) Under the Shared Savings Program, ACO 
participants may work together to manage and coordinate care for 
Medicare fee-for-service beneficiaries through an ACO that participates 
in the Shared Savings Program and meets the criteria specified in this 
part.
    (2) ACOs that exceed a minimum savings rate established under Sec.  
425.7(c)(2) and (d)(2), meet the minimum quality performance standards 
established under Sec.  425.10, and otherwise maintain their 
eligibility to participate in the Shared Savings Program under this 
section are eligible to receive payments for shared savings under Sec.  
425.7 of this subpart.
    (3) ACOs that operate under the two-sided model established in this 
section must share losses with the Medicare program under Sec.  425.7 
of this subpart.
    (b) Eligible providers and suppliers. The following ACO 
participants, which must have established a mechanism for

[[Page 19642]]

shared governance, are eligible, separately or in combination, to form 
ACOs that may participate in the Shared Savings Program:
    (1) ACO professionals in group practice arrangements.
    (2) Networks of individual practices of ACO professionals.
    (3) Partnerships or joint venture arrangements between hospitals 
and ACO professionals.
    (4) Hospitals employing ACO professionals.
    (5) Providers or suppliers otherwise recognized under the Act that 
are not ACO professionals or hospitals, as defined in Sec.  425.4.
    (6) CAHs that bill under Method II (as described in Sec.  
413.70(b)(3))
    (c) Reporting of TINs. (1) Each ACO must report to CMS the TINs of 
the ACO participants comprising the ACO along with a list of associated 
National Provider Identifiers (NPIs), at the beginning of each 
performance year and at other such times as specified by CMS.
    (2) For purposes of the Shared Savings Program, each ACO 
participant TIN upon which beneficiary assignment is dependent is 
required to commit to a 3-year agreement with CMS and will be exclusive 
to one ACO.
    (3) ACO participant TINs upon which beneficiary assignment is not 
dependent are required to commit to a 3-year agreement to the ACO, and 
the ACO participant must not be required to be exclusive to a single 
ACO.
    (d) Other requirements. (1) Accountability for beneficiaries. As 
part of its application and 3-year agreement, the ACO must certify that 
the providers and suppliers forming the ACO have agreed to become 
accountable for and report to CMS on the quality, cost, and overall 
care of the Medicare fee-for-service beneficiaries assigned to the ACO. 
Each ACO must make information on its accountability for quality, cost, 
and the overall care of its assigned population available to the public 
in a standardized format, as determined by CMS.
    (2) Coordination of Antitrust Agency review. (i) Except for an ACO 
that qualifies for the Rural Exception articulated in the Antitrust 
Policy Statement or other controlling guidance from the antitrust 
agencies, an ACO with a Primary Service Area (PSA) share, as described 
in the Antitrust Policy Statement, greater than 50 percent for any 
common service that two or more ACO participants provide to patients 
from the same PSA must do both of the following:
    (A) Request an expedited antitrust review from the Antitrust 
Agencies.
    (B) Submit, as part of its application, a letter from the reviewing 
Antitrust Agency confirming that it has no present intent to challenge 
or to recommend challenging the proposed ACO.
    (ii) Except for an ACO that qualifies for the Rural Exception 
articulated in the Antitrust Policy Statement, or other controlling 
guidance from the antitrust agencies, an ACO with a PSA share, as 
described in the Antitrust Policy Statement, greater than 30 percent 
and less than or equal to 50 percent may do one of the following:
    (A) Request an expedited antitrust review from the Antitrust 
Agencies.
    (B) Submit a letter from the reviewing Antitrust Agency confirming 
that it has no present intent to challenge or to recommend challenging 
the proposed ACO.
    (C) Begin to operate and abide by a list of conduct restrictions, 
reducing significantly the likelihood of antitrust concern.
    (D) Begin to operate and remain subject to antitrust investigation 
if it presents competitive concerns.
    (iii) An ACO must notify CMS at least 30 days before any material 
change within the 3-year agreement period of its ACO participants or 
ACO providers/suppliers and must submit recalculated PSA shares for 
common services that two or more independent ACO participants provide 
to patients from the same PSA. If any revised PSA share is calculated 
to be greater than 50 percent, the ACO will be subject to review or re-
review by an Antitrust Agency in order to remain eligible to 
participate in the Shared Savings Program.
    (iv)(A) If an ACO receives a letter from a reviewing Antitrust 
Agency stating that the Antitrust Agency will likely challenge or 
recommend challenging the ACO, then the ACO will be ineligible to 
participate in the Shared Savings Program.
    (B) The ACO must promptly inform CMS if it receives such a letter 
at any time from an Antitrust Agency.
    (3) Agreement requirements. (i) Upon being notified by CMS of its 
approval to participate in the Shared Savings Program, an executive of 
that ACO who has the ability to legally bind the ACO must sign and 
submit to CMS a 3-year agreement.
    (ii) The 3-year agreement must require the ACO to comply with the 
provisions in this part in order to participate in the Shared Savings 
Program.
    (iii) All contracts or arrangements between or among the ACO, ACO 
participants, ACO providers/suppliers, and other entities furnishing 
services related to ACO activities must require compliance with the 
requirements and conditions of this part, including those specified in 
the 3-year agreement. The ACO must provide a copy of the 3-year 
agreement to these individuals and entities.
    (iv)(A) The ACO must certify the accuracy, completeness, and 
truthfulness of its information contained in the following:
    (1) Shared Savings Program application.
    (2) 3-year agreement.
    (3) Submissions of quality data and other information.
    (B) Certification must be made at the time the ACO submits the 
following:
    (1) Application to participate in the Shared Savings Program.
    (2) Executes the 3-year agreement.
    (3) Submits any information, including quality data, on which 
shared savings payments or shared losses are calculated.
    (C) Certification must be signed by an individual with the 
authority to legally bind the ACO (for example the ACO's chief 
executive officer (CEO) or chief financial officer (CFO)).
    (v) The ACO must establish partnerships with community stakeholders 
in order to advance the three-part aim of better care for individuals, 
better health for populations, and lower growth in expenditures.
    (vi) The ACO must agree, and must require its ACO participants, ACO 
providers/suppliers, and contracted entities performing functions or 
services on behalf of the ACO to agree, or to comply with applicable 
provisions of the following:
    (A) Federal criminal law.
    (B) The False Claims Act (31 U.S.C. 3729 et seq.).
    (C) The anti-kickback statute (42 U.S.C. 1320a-7b(b)).
    (D) The civil monetary penalties law (42 U.S.C. 1320a-7a).
    (E) The physician self-referral law (42 U.S.C. 1395nn).
    (vii)(A) The ACO must agree, as a condition of receiving any shared 
saving payment and participating in the program, that an individual 
with the authority to legally bind the ACO must certify that any data 
or information requested by or submitted to CMS is accurate, complete, 
and truthful.
    (B) If data or information is generated by an entity other than the 
ACO, such entity must similarly certify the accuracy, completeness, and 
truthfulness of the information or data.
    (4) Marketing materials. (i) Any ACO marketing materials or 
activities, as defined in Sec.  425.4, must be approved by CMS before 
use.

[[Page 19643]]

    (ii) Any changes to CMS-approved marketing materials or activities 
must be approved by CMS before use.
    (5) Notice of ACO participation. (i) ACO participants must notify 
beneficiaries that their ACO providers/suppliers are participating in 
an ACO.
    (ii) Except as specified in paragraph Sec.  412.1(a)(1) of this 
section, all beneficiary communications any materials or activities 
used by ACO participants or ACO providers/suppliers on behalf of the 
ACO to communicate about the ACO in any manner to Medicare 
beneficiaries, must be approved by CMS before use.
    (6) Tracks during agreement periods. (i) For its initial agreement 
period, an ACO may elect to operate under one of the following tracks:
    (A) Track 1. Under Track 1, the ACO operates under the one-sided 
model (as described under Sec.  425.7(c) of this part) for 2 years, and 
under the two-sided model (as described under Sec.  425.7(d) of this 
part) for the third year. In the third year of the ACO's agreement 
under Track 1, the methodology used to reconcile ACOs under the first 
year of the two-sided model would apply except ACOs must meet the 
quality performance standard that applies in the third year.
    (B) Track 2. Under Track 2, the ACO operates under the two-sided 
model (as described under Sec.  425.7(d) of this part), sharing both 
savings and losses with the Medicare program for 3 years.
    (ii) For subsequent agreement periods, an ACO may operate only 
under the two-sided model, sharing both savings and losses with the 
Medicare program (as described in Sec.  425.7(d) of this part).
    (iii) In both models an ACO's share in savings will be subject to 
25 percent withholding in order to help ensure repayment of any losses 
to the Medicare program. The withheld amount will be applied towards 
repayment of an ACO's losses.
    (iv) ACOs must obtain reinsurance, place funds in escrow, obtain 
surety bonds, establish a line of credit as evidenced by a letter of 
credit that the Medicare program can draw upon, or establish another 
appropriate repayment mechanism in order to ensure repayment of any 
losses to the Medicare program in advance of entering a period of 
participation in the Shared Savings Program under the two-sided model.
    (v) An ACO that is applying for participation in the Shared Savings 
Program must, as part of its application, submit documentation of such 
a repayment mechanism for approval by CMS. This documentation must 
include details supporting the adequacy of the mechanism for repaying 
losses equal to at least 1 percent of the ACO's per capita expenditures 
for its assigned beneficiaries from the most recent year available.
    (iv) CMS will determine the adequacy of an ACO's repayment 
mechanism.
    (v) An ACO must demonstrate the adequacy of this repayment 
mechanism annually, prior to the start of each performance year in 
which it takes risk.
    (vi) To the extent that such an ACO's repayment mechanism does not 
enable CMS to fully recoup the losses for a given performance year, any 
unpaid losses will be carried forward into subsequent performance years 
and agreement periods (to be recouped either against additional 
financial reserves, or offset by shared savings earned by the ACO).
    (7) Legal structure. (i) An ACO must be constituted as a legal 
entity for purposes of all of the following:
    (A) Receiving and distributing shared savings.
    (B) Repaying shared losses.
    (C) Establishing, reporting, and ensuring provider compliance with 
health care quality criteria, including quality performance standards.
    (D) Other ACO functions identified in this part.
    (ii) An ACO must certify that it is recognized as a legal entity in 
the State in which it was established and that it is authorized to 
conduct business in each State in which it operates.
    (8) Shared governance. (i) An ACO must establish and maintain a 
governing body with adequate authority to execute the functions of an 
ACO as defined under this part, including but not limited to, the 
definition of processes to promote evidence-based medicine and patient 
engagement, report on quality and cost measures, and coordinate care.
    (ii) The governing body must be comprised of the following:
    (A) ACO participants or their designated representatives.
    (B) Medicare beneficiary representative(s) served by the ACO who do 
not have a conflict of interest with the ACO, and who have no immediate 
family member with conflict of interest with the ACO.
    (iii) The governing body must have and possess broad responsibility 
for the ACO's administrative, fiduciary, and clinical operations.
    (iv) At least 75 percent control of the ACO's governing body must 
be held by ACO participants. Each ACO participant must choose an 
appropriate representative from within its organization to represent 
them on the governing body and each ACO participant must have 
appropriate proportionate control over governing body decision making.
    (v)(A) The members of the governing body may serve in a similar or 
complementary manner for an existing participant in the ACO.
    (B) The governing body of the ACO must be separate and unique to 
the ACO in cases where the ACO comprises multiple, otherwise 
independent entities (for example, several independent physician group 
practices).
    (C) The ACO must provide evidence within its application that the 
governing body is a separate legal entity.
    (vi)(A) Except as specified in paragraph (d)(8)(vi)(b) of this 
section, a separate governing body must be established.
    (B) If the ACO is comprised of a single entity that is financially 
and clinically integrated, and if at least 75 percent control of the 
entity's governing body is comprised of representatives of the entity, 
the ACO governing body may be the same as the governing body of that 
entity, provided it satisfies the other requirements of this section.
    (9) Leadership and management structure. (i) As part of its 
application process, an ACO must submit supporting materials to CMS 
that demonstrate the ACO's leadership and management structure, 
including clinical and administrative systems that align with and 
support the goals of the Shared Savings Program and the aims of better 
care for individuals, better health for populations, and lower growth 
in expenditures.
    (ii) The ACO's operations must be managed by an executive, officer, 
manager, or general partner whose appointment and removal are under the 
control of the organization's governing body and whose leadership team 
has demonstrated the ability to influence or direct clinical practice 
to improve efficiency processes and outcomes.
    (iii) Clinical management and oversight must be managed by a full-
time senior-level medical director who is physically present on a 
regular basis in an established ACO location, and who is a board-
certified physician and licensed in the State in which the ACO 
operates.
    (iv) ACO participants and ACO providers/suppliers must have a 
meaningful commitment to the ACO's clinical integration program to 
ensure its likely success. Meaningful commitment may include, for 
example, a meaningful financial investment in the ACO or a meaningful 
human investment (for example, time and effort) in the ongoing 
operations of the ACO such that the potential loss or recoupment of the 
investment is likely to motivate the

[[Page 19644]]

participant and provider/supplier to make the clinical integration 
program succeed.
    (v) A physician-directed quality assurance and process improvement 
committee must oversee an ongoing action-oriented quality assurance and 
improvement program. The quality assurance program must establish 
internal performance standards for quality of care and services, cost 
effectiveness, and process and outcome improvements, and hold ACO's 
providers/suppliers accountable for meeting the performance standards. 
The program must have processes and procedures in place to identify and 
correct poor compliance with such standards and to promote continuous 
quality improvements.
    (vi) The ACO must implement evidence-based medical practice or 
clinical guidelines and processes for delivering care consistent with 
the aims of better care for individuals, better health for populations, 
and lower growth in health care expenditures. The guidelines and care 
delivery processes must cover diagnoses with significant potential for 
the ACO to achieve quality and cost improvements, taking into account 
the circumstances of individual beneficiaries.
    (vii) ACO participants and providers/suppliers must agree to comply 
with these guidelines and processes and to be subject to performance 
evaluations and potential remedial actions, including their expulsion 
from the ACO. The ACO must have policies and procedures for expulsion 
of ACO participants and ACO provider/suppliers from the ACO.
    (viii) The ACO must have an infrastructure, such as information 
technology (which may include EHR technology certified to the standards 
and implementation specifications adopted by the Secretary for the 
purposes of the meaningful use EHR incentive programs), that enables 
the ACO to collect and evaluate data and provide feedback to ACO 
participants and ACO providers/suppliers across the entire ACO, 
including providing information to influence care at the point of care.
    (ix) The supporting materials that are submitted in the application 
must include all of the following:
    (A) ACO documents (for example, participation agreements, 
employment contracts, and operating policies) that describe the ACO 
participants' rights and obligations in the ACO, including distribution 
of shared savings to encourage ACO participants and ACO providers/
suppliers to adhere to the quality assurance and improvement program 
and the evidenced-based clinical guidelines.
    (B) Documents that describe the scope and scale of the quality 
assurance and clinical integration program, including documents that 
describe all relevant clinical integration program systems and 
processes, such as the internal performance standards and the processes 
for monitoring and evaluating performance.
    (C) Supporting materials documenting the ACO's organization and 
management structure, including an organizational chart, a list of 
committees (including names of committee members) and their structures, 
and job descriptions for senior administrative and clinical leaders.
    (D) Evidence that the ACO has a board-certified physician as its 
medical director who is licensed in the State in which the ACO resides 
and that a principal CMS liaison is identified in its leadership 
structure.
    (E) Evidence that the governing body is comprised of 
representatives the ACO participants who form the ACO, and that these 
ACO participants comprise at least 75 percent of the governing body.
    (F) Upon request, the ACO must provide copies of all documents 
effectuating the ACO's formation and operation, including, without 
limitation the following:
    (1) Charters.
    (2) By-laws.
    (3) Articles of incorporation.
    (4) Partnership agreement.
    (5) Joint venture agreement.
    (6) Management or asset purchase agreements.
    (7) Financial statements and records.
    (8) Descriptions of the remedial processes that will apply if an 
ACO participant or an ACO provider/supplier fails to comply with the 
ACO's internal procedures and performance standards, including a CAP 
and the circumstances under which expulsion from the ACO could occur.
    (G) A copy of the ACO's compliance plan or documentation describing 
the plan that will be put in place at the time the ACO's agreement with 
CMS becomes effective.
    (H) A description of how the ACO will partner with community 
stakeholders.
    (I) Written standards for beneficiary access and communication. 
These standards must include the ACO's process for beneficiaries to 
access their medical record.
    (x) CMS retains the right to give consideration to an innovative 
ACO with a management structure not meeting these requirements.
    (10) Compliance plan. (i) The ACO must have a compliance plan that 
includes at least the following elements:
    (A) A designated compliance official or individual who is not legal 
counsel and who has the ability to report directly to the ACO's 
governing body.
    (B) Mechanisms for identifying and addressing compliance problems 
related to the ACO's operations and performance.
    (C) A method for employees or contractors of the ACO, ACO 
participants, and ACO providers/suppliers to report suspected problems 
related to the ACO.
    (D) Compliance training for the ACO, the ACO participants, and the 
ACO providers/suppliers.
    (E) A requirement to report suspected violations of law to an 
appropriate law enforcement agency.
    (ii) To achieve an effective compliance program, an ACO may 
consider coordinating its compliance efforts with existing compliance 
efforts of its ACO providers/suppliers.
    (11) Distribution of savings. As part of its application to 
participate in the Shared Savings Program, an ACO must describe how:
    (i) It plans to use shared savings payments, including the criteria 
it plans to employ for distributing shared savings among its 
participants.
    (ii) The proposed plan will achieve the specific goals of the 
Shared Savings Program.
    (iii) The proposed plan will achieve the general aims of better 
care for individuals, better health for populations, and lower growth 
in expenditures.
    (12) Written request for shared savings payment. (i) After receipt 
of notification from CMS of the anticipated shared savings payment or 
amount of shared losses, an individual with the authority to legally 
bind the ACO (such as the ACO's CEO or CFO), must make a written 
request to CMS for payment of the shared savings (or acknowledge the 
amount of shared losses) in a document that certifies the ACO's 
compliance with program requirements as well as the accuracy, 
completeness, and truthfulness of any information submitted directly or 
indirectly by the ACO, its ACO participants, the ACO providers/
suppliers, or any other entity to CMS, including any quality data or 
other information or data relied upon by CMS in determining the ACO's 
eligibility for, and the amount of a shared savings payment or the 
amount owed by the ACO to CMS.
    (ii) If such data are generated or submitted by ACO participants, 
ACO providers/suppliers, or another entity,

[[Page 19645]]

such ACO participant, ACO provider/supplier, must similarly certify the 
accuracy, completeness, and truthfulness of the data and provide the 
government with access to such data for audit, evaluation, 
investigation, and inspection.
    (13) Sufficient number of primary care providers and beneficiaries. 
(i) CMS will deem an ACO to have a sufficient number of primary care 
physicians and beneficiaries if the number of beneficiaries 
historically assigned to the ACO participants using the assignment 
methodology in Sec.  425.6 is 5,000 or more.
    (ii) If at the end of a performance year, an ACO's assigned 
population falls below 5,000, then that ACO will be issued a warning 
and placed on a CAP.
    (A) While under the CAP, an ACO remains eligible for shared savings 
and losses during that performance year.
    (B) If the ACO's assigned population has not returned to at least 
5,000 by the end of the next performance year, then that ACO's 
agreement will be terminated and the ACO will not be eligible to share 
in savings for that year.
    (14) Required reporting on participating ACO professionals. A 
participating ACO must maintain, update, and annually report to CMS a 
list of the following:
    (i) Each ACO participant's TIN.
    (ii) Each ACO providers/supplier's NPI and/or TIN.
    (15) Required processes and patient-centeredness criteria. (i) 
Required processes. In its application to participate in the Shared 
Savings Program, an ACO must provide CMS with documentation of its 
plans to do all of the following:
    (A) Promote evidence-based medicine.
    (B) Promote beneficiary engagement.
    (C) Internally report quality and cost metrics.
    (D) Coordinate care.
    (ii) Patient-centeredness criteria. (A) An ACO should adopt a focus 
on patient-centeredness that is promoted by the governing body and 
integrated into practice by leadership and management working with the 
organization's health care teams.
    (B) An ACO must demonstrate patient-centeredness by addressing all 
of the following areas:
    (1) Have a beneficiary experience of care survey in place (using 
the Clinician and Group CAHPS survey, including an appropriate 
functional status survey module) and describe how the ACO will use the 
results to improve care over time.
    (2) Patient involvement in ACO governance.
    (3) A process for evaluating the health needs of the ACO's assigned 
population, including consideration of diversity in its patient 
populations, and a plan to address the needs of its population.
    (4) Systems in place to identify and update high-risk individuals 
and processes to develop individualized care plans for targeted patient 
populations including integration of community resources to address 
individual needs.
    (i) Such plans must promote improved outcomes for, at a minimum, 
high-risk and multiple chronic condition patients, and as appropriate, 
other patients with chronic conditions.
    (ii) The plan must be tailored to the beneficiary's health and 
psychosocial needs, account for beneficiary preferences and values, and 
identify community and other resources to support the beneficiary in 
following the plan.
    (5) A mechanism in place for the coordination of care (for example, 
via use of enabling technologies or care coordinators).
    (i) The ACO is required to describe its mechanism for coordinating 
care for Medicare beneficiaries.
    (ii) The ACO should have a process in place (or clear path to 
develop such a process) to exchange summary of care information when 
patients transition to another provider or setting of care, both within 
and outside the ACO.
    (iii) For providers enrolled in the electronic exchange of 
information, this process must be consistent with meaningful use 
requirements under the Medicare EHR Incentive Program (as described in 
part 495 of this chapter).
    (6) A process in place for communicating clinical knowledge/
evidence-based medicine to beneficiaries in a way that is 
understandable to them.
    (7) A process in place for beneficiary engagement and shared 
decision-making that takes into account the beneficiaries' unique 
needs, preferences, values, and priorities.
    (8) Written standards in place for beneficiary access and 
communication, and a process in place for beneficiaries to access their 
medical record.
    (9) Internal processes in place for measuring clinical or service 
performance by physicians across the practices, and using these results 
to improve care and service over time.

Sec.  425.6  Assignment of Medicare fee-for-service beneficiaries to 
ACOs.

    (a) General rule. (1) Medicare fee-for-service beneficiaries are 
assigned to an ACO based on their utilization of primary care services 
provided under this title by a primary care physician who is an ACO 
provider/supplier during the performance year for which shared savings 
are to be determined.
    (2) Beneficiary assignment to an ACO is for purposes of determining 
the population of Medicare fee-for-service beneficiaries for whose care 
the ACO is accountable, and for determining whether an ACO has achieved 
savings under Sec.  425.7 of this part, and in no way diminishes or 
restricts the rights of beneficiaries assigned to an ACO to exercise 
free choice in determining where to receive health care services.
    (b) Assignment methodology. CMS employs the following methodology 
to assign Medicare beneficiaries to an ACO:
    (1) For each ACO, identify all primary care physicians as defined 
in Sec.  425.4 of this part who were an ACO participant during the 
performance year.
    (2) At the end of each performance year, determine all 
beneficiaries who received services from primary care physicians in the 
ACO, as determined under paragraph (b)(1) of this section.
    (3) Determine the total allowed charges for the primary care 
services (as identified by HCPCS code in the definition of primary care 
services under Sec.  425.4 of this section) that each of the 
beneficiaries identified in paragraph (b)(2) received from any provider 
or supplier during the performance year.
    (4) For each beneficiary, add together the allowed charges for the 
primary care services provided by the primary care physicians 
(identified in paragraph (b)(1) of this section) in each ACO 
(identified in paragraph (b)(1) of this section).
    (5) Assign a beneficiary to an ACO if the beneficiary has received 
a plurality of his or her primary care services, as determined by the 
sum of allowed charges for those services under paragraph (b)(4) of 
this section, from primary care physicians identified under paragraph 
(b)(1) of this section, who are an ACO participant.
    (c) Beneficiary information and notification. ACO participants will 
post signs in each of their facilities and provide written notification 
for beneficiaries about their participation in the Shared Savings 
Program.

Sec.  425.7  Payment and treatment of savings.

    (a) Establishing a benchmark. (1) Using a 6-months claims run-out, 
CMS will retrospectively estimate and update an ACO's benchmark for an 
agreement period starting with ACO participants identified at the start 
of the agreement period.
    (2) Using the claim records of ACO participants and applying the 
methodology for assigning beneficiaries

[[Page 19646]]

in Sec.  425.6 of this part, CMS will compute per capita expenditures 
for beneficiaries who would have been assigned to the ACO in any of the 
prior three most recent available years.
    (b) Computing per capita Medicare Part A and Part B expenditures 
and updating the benchmark. In computing these per capita expenditures, 
CMS uses the per capita Parts A and B fee-for-service expenditures for 
beneficiaries that would have been assigned to the ACO in each of these 
3 prior years, we will estimate a fixed benchmark that is adjusted for 
overall growth and beneficiary characteristics, including health status 
using prospective HCC adjustments. This benchmark will then be updated 
annually during the agreement period, according to statute, based on 
the absolute amount of growth in national per capita expenditures for 
Parts A and B services under the original Medicare fee-for-service 
program. CMS will do all of the following:
    (1) Calculate annual Parts A and B fee-for-service per capita 
expenditures for the beneficiaries who would have been assigned for 
each of the benchmark years. To minimize variation from 
catastrophically large claims, CMS truncates an assigned beneficiary's 
total--
    (i) Parts A and B fee-for-service per capita expenditures at the 
99th percentile as determined for each benchmark year.
    (2) Using CMS Office of the Actuary national Medicare expenditure 
data for each of the years making up the benchmark, CMS determines 
national growth trend indices and trend them to the third benchmark 
year (BY3) dollars.
    (3) Using health status measures for the beneficiary population in 
each of the years making up the benchmark, CMS establishes health 
status indices for each year and adjust these indices so they are 
restated in BY3 risk.
    (4) CMS computes a 3-year risk-and growth-trend adjusted per capita 
expenditure amount for the patient populations in each of the 3 
benchmark years by combining the initial per capita expenditures for 
each year with the respective growth and health status indices. The 
result is risk adjusted per capita expenditures for beneficiaries 
historically assigned to the ACO in each of the 3 years used to 
establish the benchmark stated in BY3 risk and expenditure amounts, and 
assigned patient populations.
    (5) CMS weights the most recent year of the benchmark, BY3 at 60 
percent, BY2 at 30 percent and BY1 at 10 percent to ensure that the 
benchmark reflects more accurately the latest expenditure and health 
status of the ACO's assigned beneficiary population.
    (6) CMS updates this fixed benchmark by the projected absolute 
amount of growth in national per capita expenditures for Parts A and B 
services under the original Medicare fee-for-service program using data 
from CMS's Office of the Actuary.
    (7) In performing these steps, CMS does not take into consideration 
expenditure increases or decreases under Section 1848 related to value-
based purchasing programs or the HITECH Act; specifically, any of the 
following:
    (i) Physician Quality Reporting Initiative as provided in Sec.  
414.90.
    (ii) Electronic prescribing program as provided in Sec.  414.92.
    (iii) HITECH Act incentives for eligible professionals as provided 
in Sec.  495.102.
    (c) Determination of savings and shared savings rate for ACOs under 
the one-sided model. (1) Savings determination. For each performance 
year, CMS determines whether the estimated average per capita Medicare 
expenditures under the ACO for Medicare fee-for-service beneficiaries 
for Parts A and B services, adjusted for beneficiary characteristics, 
is below the applicable benchmark determined under paragraph (b) of 
this section. To minimize variation from catastrophically large claims, 
CMS truncates that assigned beneficiary's total annual Parts A and B 
fee-for-service per capita expenditures at the 99th percentile as 
determined for each performance year. In order to qualify for a shared 
savings payment, the ACO's average per capita Medicare expenditures for 
the performance year must be below the applicable benchmark by more 
than a minimum savings rate established for the ACO under paragraph 
(c)(2) of this section.
    (2) Minimum savings rate (MSR). CMS computes a minimum savings rate 
for each ACO based on the number of beneficiaries assigned to the ACO 
under Sec.  425.6 of this part. The minimum savings rates for ACOs 
based on the numbers of assigned beneficiaries will be as follows:

------------------------------------------------------------------------
                                     MSR (low end of    MSR (high end of
       Number beneficiaries              assigned           assigned
                                    beneficiaries)  %  beneficiaries)  %
------------------------------------------------------------------------
5,000-5,999.......................                3.9                3.6
6,000-6,999.......................                3.6                3.4
7,000-7,999.......................                3.4                3.2
8,000-8,999.......................                3.2                3.1
9,000-9,999.......................                3.1                3.0
10,000-14,999.....................                3.0                2.7
15,000-19,999.....................                2.7                2.5
20,000-49,999.....................                2.5                2.2
50,000-59,999.....................                2.2                2.0
                                   -------------------------------------
60,000 +..........................                   2.0
------------------------------------------------------------------------

     (3) Qualification for shared savings payment. In order to qualify 
for shared savings, an ACO must exceed its minimum savings rate 
determined under paragraph (c)(2) of this section, meet the minimum 
quality performance standards established under Sec.  425.10 of this 
part, and otherwise maintain its eligibility to participate in the 
Shared Savings Program under this part.
    (4) Net savings threshold. An ACO under the one-sided model that 
exceeds its minimum savings rate is eligible to share savings net 2 
percent of its benchmark as determined under Sec.  425.7(b). An ACO 
with fewer than 10,000 assigned beneficiaries in the most recent year 
for which CMS has complete claims data, and that meets any one of the 
following criteria, is exempt from the 2 percent net savings threshold 
adjustment under the one-sided model:

[[Page 19647]]

    (i) All ACO participants are physicians or physician groups.
    (ii) 75 percent or more of the ACO's assigned beneficiaries reside 
in counties outside an MSA in the most recent year for which CMS has 
complete claims data.
    (iii) 50 percent or more of an ACO's assigned beneficiaries in the 
most recent year for which CMS has complete claims data were assigned 
on the basis of services received from Method II CAHs.
    (iv) At least 50 percent of the assigned beneficiaries had at least 
one encounter with a participating FQHC or RHC in the most recent year 
for which CMS has complete claims data such that the ACO has achieved 
maximum sharing for this activity.
    (5) Final sharing rate. The final sharing rate for an ACO in the 
one-sided model will be calculated by adding the ACO's earned quality 
performance sharing rate and any additional increase described in Sec.  
425.7(c)(6)) (up to the performance payment limit described in Sec.  
425.7(c)(7)).
    (6) Quality performance sharing rate. An ACO that meets all the 
requirements for shared savings payments under the one-sided model will 
receive a shared savings payment based on quality performance of up to 
50 percent, as determined on the basis of its quality performance under 
Sec.  425.10 of this part.
    (7) Additional increase to the shared savings rate. Under the one-
sided model, an ACO's shared savings rate may be increased by up to 2.5 
percentage points if the ACO includes a rural health clinic (RHC) or 
Federally qualified health center (FQHC) (as defined under Sec.  
405.2401(b) of this chapter) within its structure, determined on a 
sliding scale based on the number of assigned Medicare beneficiaries 
with one or more visit to an RHC or FQHC during the performance year. 
The sliding scale will operate according to the following table:

------------------------------------------------------------------------
     Percentage of ACO assigned
beneficiaries with 1 or more visits  Percentage point increase in shared
     to an FQHC/RHC during the          savings rate (one-sided model)
          performance year
------------------------------------------------------------------------
                       1-10                                  0.5
                      11-20                                  1
                      21-30                                  1.5
                      31-40                                  2
                      41-50                                  2.5
------------------------------------------------------------------------

     (8) Performance payment limit. The amount of shared savings an 
eligible ACO receives under the one-sided model may not exceed 7.5 
percent of its benchmark.
    (d) Determination of savings or losses, and shared savings or loss 
rates for ACOs under the two-sided model. (1) For each performance 
year, CMS determines whether the estimated average per capita Medicare 
expenditures under the ACO for Medicare fee-for-service beneficiaries 
for parts A and B services, adjusted for beneficiary characteristics, 
is above or below the benchmark determined under paragraph (b) of this 
section. In order to qualify for a shared savings payment under the 
two-sided model, or to be responsible for sharing losses with CMS, an 
ACO's average per capita Medicare expenditures for the performance year 
must be below or above the benchmark, respectively, by more than the 
minimum savings or loss rate under paragraph (d)(2) of this section.
    (2) Minimum savings or loss rate. (i) To qualify for shared savings 
under the two-sided model, an ACO's average per capita Medicare 
expenditures for the performance year must be below its benchmark costs 
for the year by at least 2 percent.
    (ii) To be responsible for sharing losses with the Medicare 
program, an ACO's average per capita Medicare expenditures for the 
performance year must be at least 2 percent above its benchmark costs 
for the year.
    (3) Qualification for shared savings payment. To qualify for shared 
savings, an ACO must meet the minimum savings rate requirement 
established under paragraph (d)(2) of this section, meet the minimum 
quality performance standards established under Sec.  425.10 of this 
part, and otherwise maintain its eligibility to participate in the 
Shared Savings Program under this part.
    (4) Final sharing rate. The final sharing rate for an ACO in the 
two-sided model will be calculated by adding the ACO's earned quality 
performance sharing rate under paragraph (d)(5) and any additional 
increase described in Sec.  425.7(c)(6)) up to the performance payment 
limit described in Sec.  425.7(d)(7).
    (5) Quality performance sharing rate. An ACO that meets all the 
requirements for receiving shared savings payments under the two-sided 
model will receive a payment of up to 60 percent of all the savings 
under the benchmark as determined on the basis of its quality 
performance under Sec.  425.10 of this part.
    (6) Additional increase to the shared savings rate. Under the two-
sided model, an ACO's shared savings rate may be increased by the 
following up to 5.0 percentage points if the ACO includes a RHC or FQHC 
(as these terms are defined under Sec.  405.2401(b) of these 
regulations) within its structure, determined on a sliding scale based 
on the number of assigned Medicare beneficiaries with one or more visit 
to an RHC or FQHC during the performance year. The sliding scale will 
operate according to the following table:

------------------------------------------------------------------------
     Percentage of ACO assigned
beneficiaries with 1 or more visits  Percentage point increase in shared
     to an FQHC/RHC during the          savings rate (one-sided model)
          performance year
------------------------------------------------------------------------
                       1-10                                  1.0
                      11-20                                  2.0
                      21-30                                  3.0
                      31-40                                  4.0
                      41-50                                  5.0
------------------------------------------------------------------------

     (7) Performance payment limit. The amount of shared savings an 
eligible ACO receives under the two-sided model may not exceed 10 
percent of its benchmark.
    (8) Shared loss rate. The shared loss rate for an ACO that is 
required to share losses with the Medicare program for expenditures 
over the benchmark with the Medicare program is determined based on the 
inverse of its final sharing rate described in paragraphs (d)(2) 
through (6) of this section (that is, 1 minus the shared savings rate 
determined under paragraphs (d)(2) through (6) of this section).
    (9) Loss recoupment limit. The amount of shared losses for which an 
eligible ACO is liable may not exceed the following percentages of its 
benchmark as determined under paragraphs (a) and (b) of this section: 5 
percent in the first year of participation in a two-sided model under 
the Shared Savings Program, 7.5 percent in the second year, and 10 
percent in the third year. An ACO in Track 1 who has entered the third 
year of its agreement period would be liable for an amount not to 
exceed the percentage of the first year of the two-sided model, that 
is, it would not exceed 5 percent.
    (e) Notification of savings and losses. CMS notifies an ACO in 
writing regarding whether the ACO qualifies for a shared savings 
payment, and if so, the amount of the payment due. Similarly, CMS will 
provide written notification to an ACO of the amount of shared losses, 
if any, that it must pay to the program. If an ACO has shared losses, 
the ACO must make payment in full to CMS within 30 days of receipt of 
notification.

Sec.  425.8  ACO quality and continuous improvement goals.

    (a) CMS defines quality and continuous improvement goals for ACOs.
    (b) An ACO must meet the quality and continuous improvement goals 
defined

[[Page 19648]]

by CMS under paragraph (a) of this section in order to qualify for 
shared savings.

Sec.  425.9  Measures to assess the quality of care furnished by an 
ACO.

    (a) Selecting measures. CMS selects the measures designated to 
determine an ACO's success in promoting the aims of better care for 
individuals, better health for populations, and lower growth in 
expenditures.
    (b) Quality measures for quality performance standards. (1) CMS 
designates the measures for use in the calculation of the quality 
performance standard.
    (2) ACOs must submit data on the measures determined under this 
paragraph (b) according to the method of submission established by CMS.

Sec.  425.10  Calculating the ACO quality performance score and 
determining shared savings eligibility.

    (a) Measure domains. CMS groups individual quality performance 
standard measures into five domains:
    (1) Patient/care giver experience.
    (2) Care coordination.
    (3) Patient safety.
    (4) Preventative health.
    (5) At-risk population/frail elderly health.
    (b) Methodology for calculating a performance score for each 
measure. (1) CMS designates quality performance standards for each 
measure, including a performance benchmark and minimum attainment level 
and establishes a point scale for certain measures. Contingent upon 
data availability, quality measure performance benchmarks are defined 
by CMS based on Medicare fee-for-service, MA, or ACO performance data.
    (i) For the first performance period under the Shared Savings 
Program, CMS defines the quality performance standard at the level of 
complete and accurate reporting.
    (ii) For all subsequent years, CMS defines the quality performance 
based on measure scores.
    (2) Performance below the minimum attainment level will receive 
zero points for that measure, for those measures in which the points 
scale applies.
    (3) Performance equal to or greater than the minimum attainment 
level but less than the performance benchmark must receive points on a 
sliding scale based on the level of performance, for those measures in 
which the points scale applies.
    (4) Those measures designated as all or nothing measures receive 
the maximum available points if all criteria are met and zero points if 
at least one of the criteria are not met.
    (c) Methodology for calculating a performance score for each 
domain. CMS designates quality performance standards for each domain's 
contribution to an overall ACO performance score.
    (d) Shared savings eligibility. If the ACO demonstrates to CMS that 
it has satisfied the quality performance requirements for each domain, 
the requirements of Sec.  425.7 are satisfied, and the ACO meets all 
other applicable requirements, the ACO is eligible for shared savings. 
To satisfy the quality performance requirements for a domain:
    (1) The ACO must report all measures within a domain, via the 
mechanisms determined by CMS, in order to be considered for shared 
savings for that domain.
    (2) CMS scores individual measures based on data received.
    (3) CMS adds the individual scores for each of the measures within 
the domain to determine the domain scores.
    (i) Each of the 5 domains is equally weighted in determining an 
ACO's overall quality performance score, regardless of whether the ACO 
is in Track 1 or Track 2. All measures within a domain must have a 
score above the minimum attainment level determined by CMS in order for 
the domain to be eligible for shared savings.
    (ii) If the ACO satisfies the quality performance standards for one 
or more domains, and also satisfies the requirements for realizing 
shared savings under Sec.  425.7, the ACO may receive the proportion of 
those shared savings for which it qualifies.
    (iii) CMS retains the right to audit and validate quality data 
reported by an ACO. In an audit, the ACO would be required to provide 
beneficiary medical record data as requested by CMS. The audit would 
consist of three phases of medical record review. If, at the conclusion 
of the third audit process there is a discrepancy greater than 10 
percent between the quality data reported and the medical records 
provided, the ACO will not be given credit for meeting the quality 
target for any measures for which this mismatch rate exists.
    (iv) Failure to report quality measure data accurately, completely, 
and timely (or to timely correct such data) may subject the ACO to 
termination or other sanctions, as described in Sec.  425.12.
    (4) In the third year of the ACO's agreement under Track 1, the 
methodology used to reconcile ACOs under the first year of the two-
sided model would apply except that ACOs must meet the quality 
performance standard that applies in the third year, as opposed to the 
first year standard of full and accurate reporting.

Sec.  425.11  Incorporating other reporting requirements related to the 
Physician Quality Reporting System and electronic health records 
technology.

    (a) Physician quality reporting system. (1) ACOs, on behalf of 
their eligible professionals, must submit the measures determined under 
Sec.  425.10(b) according to the method of submission established by 
CMS, to qualify for a Physician Quality Reporting System incentive 
under the Shared Savings Program.
    (2) To qualify as a group practice for a Physician Quality 
Reporting System incentive under the Shared Savings Program, eligible 
professionals within an ACO must report the measures determined under 
Sec.  425.10(b) during the reporting period according to the method of 
submission established by CMS under the Shared Savings Program.
    (3) The Physician Quality Reporting System incentive under the 
Medicare Shared Savings Program is equal to 0.5 percent of the ACO's 
eligible professional's total estimated Medicare Part B Physician Fee 
Schedule allowed charges for covered professional services furnished 
during the calendar year reporting period from January 1 through 
December 31.
    (b) Electronic health records technology. (1) At least 50 percent 
of an ACO's primary care physicians must be meaningful EHR users, using 
certified EHR technology as defined in Sec.  495.4, in the HITECH Act 
and subsequent Medicare regulations by the start of the second 
performance year in order to continue participating in the Shared 
Savings Program.
    (2) CMS may terminate an ACO agreement under Sec.  425.14 of this 
part if fewer than 50 percent of an ACO's primary care physicians are 
not meaningfully EHR users, using certified EHR technology as defined 
in Sec.  495.4, the HITECH Act and subsequent Medicare regulations by 
the start of the ACO's second performance year.

Sec.  425.12  Monitoring.

    (a) Monitoring of ACOs: General rule. (1) CMS monitors and assesses 
the performance of ACOs and their participating providers/suppliers.
    (2) CMS employs a range of methods to monitor and assess the 
performance of ACOs, including but not limited to any of the following, 
as appropriate:
    (i) Analysis of specific financial and quality measurement data 
reported by the ACO as well as aggregated annual and quarterly reports.
    (ii) Site visits.
    (iii) Analysis of beneficiary and provider complaints.

[[Page 19649]]

    (iv) Audits (including, for example, analysis of claims, chart 
review (medical record), beneficiary survey reviews, coding audits).
    (b) Monitoring ACO avoidance of at-risk beneficiaries. To identify 
ACOs that could be avoiding at-risk beneficiaries, CMS uses a 
combination of the methods described in paragraph (a)(2) of this 
section (as appropriate) to identify trends and patterns suggestive of 
avoidance of at-risk beneficiaries. The results of these analyses may 
subsequently require further investigation and follow-up with the 
beneficiary or the ACO and its ACO providers/suppliers in order to 
substantiate cases of beneficiary avoidance. CMS may take the following 
actions as set forth in Sec.  425.13(a)(4) of this part, if it 
determines that an ACO, its ACO participants, any ACO providers/
suppliers, or contracted entities performing functions or services on 
behalf of the ACO avoids at-risk beneficiaries.
    (1) The ACO is required to submit a CAP and implement the plan as 
approved by CMS as set forth in Sec.  425.13(a)(2) of this part.
    (i) The ACO will not receive any shared savings payments during the 
probation period, regardless of the period of performance for which 
savings were attributable to while under the CAP.
    (ii) The ACO will not be eligible to receive shared savings for the 
performance period attributable to the time the ACO was under the CAP.
    (iii) The ACO will not be eligible to earn shared savings 
attributable to the time the ACO is under the CAP.
    (iv) The ACO will be re-evaluated during and after the CAP 
implementation period to determine if the ACO has continued to avoid 
at-risk beneficiaries.
    (2) ACO may be terminated if CMS determines that the ACO has 
continued to avoid at-risk beneficiaries during or after the CAP as set 
forth in Sec.  425.14 of this part.
    (c) Monitoring ACO compliance with quality performance standards. 
To identify ACOs that are not meeting the quality performance 
standards, CMS will review the ACO's submission of quality measurement 
data under Sec.  425.9(b)(2). CMS may request additional documentation 
from an ACO, ACO participants, or ACO providers/suppliers, as 
appropriate. CMS may take the following actions, in addition to actions 
set forth at Sec.  425.13, if an ACO does not meet quality performance 
standards or fails to report on one or more quality measures.
    (1) The ACO will be given a warning for the first time it fails to 
meet the minimum attainment level for one or more domain.
    (2) The ACO's compliance with the quality performance standards 
will be re-evaluated the following year. If the ACO continues to fail 
to meet quality performance standards in the following year, the 
agreement may be terminated immediately or CMS may take an alternative 
action as set forth in Sec.  425.13 of this part.
    (3) If an ACO fails to report one or more quality measures or fails 
to report completely and accurately on all measures in a domain, CMS 
will request the ACO either to submit the required measure data, 
correct the data, and/or provide a written explanation as to why it did 
not report completely and accurately. If ACO still fails to report, 
fails to report by the requested deadline and/or does not provide 
reasonable explanation for not reporting, the ACO will be terminated 
immediately as set forth in Sec.  425.14 of this part.
    (4) An ACO that exhibits a pattern of inaccurate or incomplete 
reporting, or fails to make timely corrections following notice to 
resubmit, may be terminated from the program.
    (d) Monitoring changes to ACO eligibility requirements. In order to 
ensure that the ACO continues to meet the eligibility requirements 
under Sec.  425.5 of this part, CMS uses a combination of the methods 
described in paragraph (a) of this section (as appropriate).
    (e) Monitoring beneficiary notification of the provider and 
supplier's role in the ACO and the ability for the beneficiary to op-
out of sharing claims data. In order to ensure that the ACO is 
notifying beneficiaries concerning sharing of claims data as provided 
under Sec.  425.15 of these regulations, and providing the opportunity 
for a beneficiary to opt-out of those data sharing arrangements, as 
required by that section, CMS uses a combination of the methods 
described in paragraph (a) of this section (as appropriate).
    (f) Monitoring ACO marketing materials and activities. (1) CMS may 
monitor compliance with the requirement for approval of ACO marketing 
materials and activities set forth in Sec.  425(d)(4).
    (2) An ACO that fails to adhere to this requirement may be placed 
under a CAP or terminated as set forth in Sec.  425.14 of this part, at 
the discretion of CMS.

Sec.  425.13  Actions prior to termination.

    (a) If based upon the monitoring activities described in Sec.  
425.12, CMS concludes that an ACO's performance may subject the ACO to 
termination from the Shared Savings Program, CMS, in its sole 
discretion, may take one or more or all of the following actions prior 
to termination of the ACO from the Shared Savings Program.
    (1) Provide a warning notice to the ACO of the specific performance 
at issue.
    (2) Request a CAP from the ACO.
    (i) The ACO must submit a CAP for CMS approval by CMS deadline 
indicated on the notice of violation.
    (ii) The CAP must address what actions the ACO will take to ensure 
that the ACO, ACO participants, and ACO providers/suppliers and/or 
contracted entities performing services or functions on behalf of the 
ACO will correct any deficiencies and remain in compliance with Shared 
Savings Program requirements.
    (iii) The ACO's performance will be monitored during the CAP 
process.
    (iv) Failure to submit, obtain approval for, or implement a CAP may 
result in termination of the agreement.
    (v) ACO failure to demonstrate improved performance upon completion 
of the CAP may result in termination.
    (vi) This CAP process does not apply to determinations made by the 
Antitrust Agencies and must not be construed to negate, diminish, or 
otherwise alter the applicability of existing laws, rules, and 
regulations, or determinations made by other government agencies.
    (3) Place the ACO on a special monitoring plan.
    (4) These procedures do not apply to either of the following:
    (i) Determinations that an ACO has violated the Sherman antitrust 
act (15 U.S.C. 1), Clayton Act (15 U.S.C. 12), or the Federal Trade 
Commission Act (15 U.S.C. 45).
    (ii) Determinations made by other government agencies.
    (5) The procedures established under this section do not negate, 
diminish, or otherwise alter the applicability of existing laws, rules, 
and regulations.

Sec.  425.14  Termination, suspension, and repayment of Shared Savings.

    (a) Grounds for terminating an ACO agreement. CMS may terminate an 
agreement with an ACO if the ACO, the ACO participants, the ACO 
providers/suppliers or contracted entities performing services or 
functions on behalf of the ACO:
    (1) Avoid at-risk beneficiaries.
    (2) Fail to meet quality performance standards.
    (3) Fail to completely and accurately report information or fail to 
make timely corrections to reported information.
    (4) Are not in compliance with eligibility requirements or have 
fallen

[[Page 19650]]

out of compliance with the requirements of the part because the ACO has 
undergone material changes that affect the ACO's eligibility to 
participate in the Shared Savings Program, including, but not limited 
to changes in governing body composition, a significant change (as 
defined in Sec.  425.21(b)), and the imposition of sanctions or other 
actions taken against the ACO by an accrediting organization, State, 
Federal or local government agencies.
    (5) Are unable to effectuate any required regulatory changes during 
the agreement period after given the opportunity for a CAP as set forth 
in Sec.  425.20.
    (6) Are not in compliance with requirements to notify beneficiaries 
of ACO provider/supplier participation in an ACO.
    (7) Engage in material noncompliance, or demonstrates a pattern of 
noncompliance, with public reporting and other CMS reporting 
requirements.
    (8) Fail to submit an approvable CAP, fail to implement an approved 
CAP, or fail to demonstrate improved performance after the 
implementation of a CAP.
    (9) Violate the physician self-referral prohibition, civil monetary 
penalties (CMP) law, Anti-kickback statute, other antifraud and 
antitrust laws (or enter into a final judgement or other final 
resolution of antitrust charges by an Antitrust Agency), or any other 
applicable Medicare laws, rules, or regulations that are relevant to 
ACO operations.
    (10) Submit to CMS false, inaccurate, or incomplete data and or 
information, including but not limited to, information provided in the 
Shared Savings Program application, quality data, financial data, and 
information regarding the distribution of shared savings.
    (11) Use marketing materials or participate in activities or other 
beneficiary communications, that are subject to review and approval, 
that have not been approved by CMS.
    (12) Fail to maintain an assigned beneficiary population of at 
least 5,000 beneficiaries.
    (13) Fail to offer beneficiaries the option to opt-out of sharing 
claims information.
    (14) Limit or restrict internally compiled beneficiary summary of 
care or medical records from other providers/suppliers both within and 
outside of the Shared Savings Program to the extent permitted by law.
    (15) Improperly use or disclose claims information received from 
CMS in violation of the HIPAA Privacy Rule, Medicare Part D Data Rule, 
Privacy Act, or the data use agreement.
    (16) Fail to demonstrate that the ACO has adequate resources in 
place to repay losses and to maintain those resources for the agreement 
period.
    (b) Reapplication after termination. An ACO that has been 
terminated from the Shared Savings Program may apply to participate in 
the Shared Savings Program again only after the end of the original 3-
year agreement period.
    (i) To be eligible to participate in the Shared Savings Program, 
the ACO must demonstrate in its application that it has corrected the 
deficiencies that caused it to be terminated from the Shared Savings 
Program and has processes in place to ensure that it will remain in 
compliance with the terms of the new participation agreement.
    (ii) ACOs with corrected deficiencies that wish to reenter the 
program have the option to do so only under the two-sided model.
    (c) Forfeiture of mandatory withholding after termination. If an 
agreement is terminated for any reason before the 3-year agreement 
period is completed, the ACO the ACO would forfeit its mandatory 25 
percent withhold of shared savings.
    (d) Termination of an agreement by an ACO. (1) ACO must notify CMS, 
its ACO participants, and other organizations of its decision to 
terminate 60 days before the date of termination.
    (2) The ACO participants must notify beneficiaries of the ACO's 
decision to terminate in a timely manner.
    (3) All termination notification materials must meet marketing 
guidelines as set forth at Sec.  425.12(f).
    (e) Grounds for shared saving payment suspension. If an ACO has 
been placed under a CAP because the ACO, ACO participants, ACO 
providers/suppliers, or contracted entities performing services or 
functions on behalf of the ACO were found to have avoided at-risk 
beneficiaries--
    (1) The ACO must not receive shared savings payments while it is 
under the CAP, regardless of the period of performance it is 
attributable to; and
    (2) The ACO is not eligible to earn any shared savings for the 
performance period attributable for the time the ACO was under the CAP.

Sec.  425.15  Reconsideration review process.

    (a) There is no reconsideration, appeals, or other administrative 
or judicial review of the following determinations under this section:
    (1) The specification of quality and performance standards under 
Sec.  425.9 of this part.
    (2) The assessment of the quality of care furnished by an ACO under 
the performance standards established in Sec.  425.10.
    (3) The assignment of Medicare fee-for-service beneficiaries under 
Sec.  425.6 of this part.
    (4) The determination of whether an ACO is eligible for shared 
savings under Sec.  425.7(c) of this part, and the amount of such 
shared savings, including the determination of the estimated average 
per capita Medicare expenditures under the ACO for Medicare fee-for-
service beneficiaries assigned to the ACO and the average benchmark for 
the ACO under Sec.  425.7(a) and (b) of this part.
    (5) The percent of shared savings specified by the Secretary and 
the limit on the total amount of shared savings established under Sec.  
425.7(c) of this part.
    (6) The termination of an ACO for failure to meet the quality 
performance standards established under Sec.  425.14 of this part.
    (7) A determination made by the reviewing antitrust agency that it 
is likely to challenge or recommend challenging the ACO.
    (b) An ACO may appeal an initial determination that is not 
prohibited from administrative or judicial review under paragraph (a) 
of this section by requesting a reconsideration review by a CMS 
reconsideration official.
    (1) An ACO that wants to request reconsideration review by a CMS 
reconsideration official must submit a written request by an authorized 
official for receipt by CMS within 15 days of the notice of the initial 
determination.
    (i) If the 15th day is a weekend or a Federal holiday, then the 
timeframe is extended until the end of the next business day.
    (ii) Failure to submit a request for reconsideration within 15 days 
will result in denial of the request for reconsideration.
    (2) The reconsideration review may be held orally (that is, in 
person, by telephone or other electronic means) or on the record 
(review submitted documentation) at the discretion of the 
reconsideration official.
    (3) The reconsideration official will send an acknowledgement of 
the reconsideration review request to the ACO and CMS that includes the 
following:
    (A) Review procedures.
    (B) Procedures for submission of evidence including format and 
timelines.
    (C) Date, time and location of the review. The reconsideration 
official may, on his or her own motion, or at the request of CMS or the 
ACO, change the time and place for the reconsideration

[[Page 19651]]

review, but must give the parties to the reconsideration review notice 
of the change.
    (4) The burden of proof is on the ACO to demonstrate to the 
reconsideration official with convincing evidence that the initial 
determination is not consistent with CMS' regulations or statutory 
authority.
    (i) The reconsideration official's review will be based only on 
evidence submitted by the reconsideration official's requested 
deadline, unless requested by the reconsideration official.
    (ii) Documentation submitted for the record as evidence cannot be 
documentation that was not previously submitted to CMS by its required 
applicable timelines and in the requested format.
    (iii) All evidence submitted both from the applicant and CMS, in 
preparation for the reconsideration review will be shared with 
participating parties prior to the scheduled date of the hearing, as 
indicated in the acknowledgement notice.
    (iv) All parties will be notified of the reconsideration official's 
recommendation.
    (c) If any of the parties disagree with the recommendation of the 
reconsideration official, they may request an on the record review of 
the initial determination and recommendation by an independent CMS 
official who was not involved in the initial determination or the 
reconsideration review process.
    (1) Any party that wishes to request an on the record review of the 
reconsideration official's recommendation must submit an explanation of 
why they disagree with the recommendation by the timeframe and in the 
format indicated on the recommendation letter.
    (2) The on the record review process will be based only on evidence 
presented for the reconsideration review.
    (3) The CMS official will consider the recommendation of the 
reconsideration official and make a final agency determination.
    (d) CMS's decision after review of the reconsideration official's 
recommendation is final and binding.
    (e) The review process under this section shall not be construed to 
negate, diminish, or otherwise alter the applicability of existing 
laws, rules, and regulations or determinations made by other government 
agencies.
    (f) If CMS' initial decision to deny an ACO's application to 
participate in the Shared Savings Program is upheld, the application 
will remain denied based on the effective date of the original notice 
of denial.
    (g) An ACO that requests a reconsideration review for termination 
will remain operational throughout the review process. If CMS initial 
determination to terminate the agreement with the ACO is upheld, 
termination of the agreement is effective as indicated in the initial 
notice of termination.
    (1) If CMS' initial determination to terminate an agreement with an 
ACO is upheld, the decision to terminate the agreement is effective as 
of the date indicated in the initial notice of termination.
    (2) If CMS' initial determination to terminate an ACO is reversed, 
the ACO is reinstated into the Shared Savings Program, retroactively 
back to the original date of termination.

Sec.  425.16  Audits and record retention.

    (a) Right to audit. The ACO must agree, and must require its ACO 
participants, ACO providers/suppliers, and contracted entities 
performing services or functions on behalf of the ACO to agree, that 
the DHHS the Comptroller General, the OIG or their designees have the 
right to audit, inspect, and evaluate any books, contracts, records, 
documents and other evidence of the ACO, ACO participants, and ACO 
providers/suppliers, and other contracted entities that pertain to--
    (1) The ACO's compliance with program requirements;
    (2) The quality of services performed and determination of amount 
due to or from CMS under the contract; and
    (3) The ability of the ACO to bear the risk of potential losses and 
to repay any losses to CMS.
    (b) Maintenance of records. An ACO must agree, and must require its 
ACO participants, ACO providers/suppliers, and contracted entities 
performing functions or services on behalf of the ACO to agree to the 
following:
    (1) To maintain and give DHHS, OIG, the Comptroller General, or 
their designees access to all books, contracts, records, documents, and 
other evidence (including data related to Medicare utilization and 
costs, quality performance measures, shared savings distributions, and 
other financial arrangements related to ACO activities) sufficient to 
enable the audit, evaluation, and inspection of the ACO's compliance 
with program requirements, quality of services performed, right to any 
shared savings payment, or obligation to repay losses, ability to bear 
the risk of potential losses, and ability to repay any losses to CMS.
    (2) To maintain such books, contracts, records, documents, and 
other evidence for a period of 10 years from the final date of the 
agreement period or from the date of completion of any audit, 
evaluation, or inspection, whichever is later, unless--
    (i) CMS determines there is a special need to retain a particular 
record or group of records for a longer period and notifies the ACO at 
least 30 days before the normal disposition date;
    (ii) There has been a termination, dispute, or allegation of fraud 
or similar fault by the ACO, its ACO participants, its ACO providers/
suppliers, or contracted entities that perform functions or services on 
behalf of the ACO, in which case ACOs must retain records for an 
additional 6 years from the date of any resulting final resolution of 
the termination, dispute, or allegation of fraud or similar fault.
    (iii) There is a reasonable possibility of fraud or similar fault 
by the ACO or its participating providers/suppliers, or contracted 
entities performing services or functions on behalf of the ACO, in 
which case CMS may inspect, evaluate, and audit the ACO at any time.
    (c) Notwithstanding any arrangements between or among an ACO, ACO 
participants, ACO providers/suppliers, and contracted entities 
performing functions or services on behalf of the ACO, the ACO must 
have ultimate responsibility for adhering to and otherwise fully 
complying with all terms and conditions of its agreement with CMS, 
including the requirements set forth in this section.

Sec.  425.17  Requirements for data submission by ACOs.

    (a) ACOs must submit data in a form and manner specified by CMS on 
the measures designated by CMS under Sec.  425.9 of this part.
    (b) ACOs that successfully must, on behalf of their eligible 
professionals, submit the measures designated by CMS under Sec.  425.9 
according to the method of submission established under the Shared 
Savings Program for purposes of the quality data requirements will be 
considered satisfactory reporters for purposes of the Physician Quality 
Reporting System incentive under Sec.  425.11(a).

Sec.  425.18  The 3-year agreement with CMS

    (a) General rule. In order to participate in the Shared Savings 
Program, an ACO must enter into an agreement with CMS. ACO applications 
must be submitted by the deadline established by CMS. CMS will 
determine whether to approve or deny applications from eligible 
organizations

[[Page 19652]]

prior to the end of the calendar year in which the applications are 
submitted.
    (b) An ACO's duration of agreement. The participation agreement 
must be for a term of 3 years, starting on the January 1 following 
approval of an application or such other date specified in the 
agreement.
    (c) Performance period. Unless otherwise specified, the ACO's 
annual performance period under the agreement must be the 12-month 
period beginning on January 1 of each year during the term of the 
agreement.

Sec.  425.19  Data sharing with ACOs.

    (a) General rules. CMS shares both aggregate and beneficiary 
identifiable data with ACOs under the following general conditions:
    (1) The ACO does not unnecessary limitations or restrictions on the 
use or disclosure of individually identifiable health information that 
it internally compiles from providers and suppliers both within and 
outside of the ACO.
    (2) The ACO observes all relevant statutory and regulatory 
provisions regarding the appropriate use of data and the 
confidentiality and privacy of individually identifiable health 
information and complies with the terms of the data use agreement 
described in paragraph (f) of this section.
    (b) Sharing aggregate data. (1) CMS shares aggregate data (data 
that omits the 18 identifiers listed at 45 CFR 164.514(b) with ACOs as 
follows:
    (i) Aggregate data reports at the start of the agreement period 
based on the historical beneficiaries used to calculate the benchmark, 
and each quarter thereafter during the agreement period.
    (ii) Quarterly reports will be based upon the most recent 12 months 
of data for beneficiaries that could potentially be assigned to the ACO 
under the assignment methodology in Sec.  425.6. These data will not 
include beneficiary identifying information, but will include de-
identified claims history of the services rendered for the ACO's 
assigned FFS beneficiaries, as determined under Sec.  425.6 of this 
part.
    (2) These aggregate data reports will include, when available, the 
following information:
    (i) Financial performance.
    (ii) Quality performance scores.
    (iii) Aggregated metrics on the assigned beneficiary population.
    (iv) Utilization data at the start of the agreement period based on 
historical beneficiaries used to calculate the benchmark.
    (c) Identification of historically assigned beneficiaries used to 
calculate the benchmark established under Sec.  425.7.
    (1) At the beginning of the agreement period, and at the end of 
each performance period, CMS will, upon the ACO's request for the data 
for purposes of population-based activities relating to improving 
health or reducing health care costs, protocol development, case 
management, and care coordination, provide the ACO the following data 
about each beneficiary that was included in the records used under 
Sec.  425.7(a) and (b) of this part to generate the ACO's benchmark:
    (i) Beneficiary names.
    (ii) Date of birth.
    (iii) HICN.
    (2) In its request for these data, the ACO must certify that it is 
seeking the following information:
    (i) As a HIPAA covered entity, and the request reflects the minimum 
data necessary for the ACO to conduct its own health care operations 
work that falls within the first or second paragraph of the definition 
of health care operations at 45 CFR 164.501.
    (ii) As the business associate of its ACO participants, who are 
HIPAA covered entities, and the request reflects the minimum data 
necessary for the ACO to conduct health care operations work that falls 
within the first or second paragraph of the definition of health care 
operations at 45 CFR 164.501 on behalf of those participants.
    (d) Sharing beneficiary identifiable data. Subject to the opt-out 
described in this paragraph (g) of this section, CMS will, upon the 
ACO's request for the data for purposes of evaluating ACO provider/
supplier performance, conducting quality assessment and improvement 
activities, and conducting population-based activities relating to 
improved health, provide the ACO with monthly claims data for 
potentially assigned beneficiaries.
    (1) If an ACO wishes to receive beneficiary identifiable claims 
data, it must either request these data as part of the application 
process or later submit a formal request for data.
    (2) The ACO must certify that it is requesting claims data about 
either of the following:
    (i) Its own patients, as a HIPAA covered entity, and the request 
reflects the minimum data necessary for the ACO to conduct its own 
health care operations work that falls within the first or second 
paragraph of the definition of health care operations at 45 CFR 
164.501.
    (ii) The patients of its HIPAA covered entity ACO participants as 
the business associate of these HIPAA covered entities, and the request 
reflects the minimum data necessary for the ACO to conduct health care 
operations work that falls within the first or second paragraph of the 
definition of health care operations at 45 CFR 164.501 on behalf of 
those participants.
    (3) The use of identifiers and claims data will be limited to 
developing processes and engaging in appropriate activities related to 
coordinating care and improving the quality and efficiency of care that 
are applied uniformly to all Medicare beneficiaries assigned to the 
ACO, and that these data will not be used to reduce, limit or restrict 
care for specific beneficiaries.
    (4) To ensure that beneficiaries have a meaningful opportunity to 
opt-out of having their claims data shared with the ACO, the ACO may 
only request such claims data about a beneficiary if--
    (i) The beneficiary has been seen in the office of a participating 
primary care physician (as defined in Sec.  425.4 of this part), during 
the performance year,
    (ii) The beneficiary was informed about how the ACO intends to use 
beneficiary identifiable claims data in order to improve the quality of 
care that is furnished to the beneficiary and, where applicable, 
coordinate care offered to the beneficiary; and
    (iii) The beneficiary did not exercise the opportunity to opt-out 
of having his/her claims data shared with the ACO as provided in 
paragraph (g) of the section.
    (5) CMS will continue to provide ACOs with certain beneficiary 
identifiable claims data on a monthly basis, subject to beneficiary's 
opportunity to opt-out of the data sharing under paragraph (g) of this 
section.
    (6) If an ACO requests beneficiary identifiable information, 
compliance with the terms of the data use agreement described in 
paragraph (f) of this section is a condition of an ACO's participation 
in the Shared Savings Program.
    (e) Minimum necessary data set. (1) The minimum necessary Parts A 
and B data elements may include the following data elements:
    (i) Beneficiary ID.
    (ii) Date of birth.
    (iii) Gender.
    (iv) Date of death.
    (v) Claim ID.
    (vi) The from and through dates of service.
    (vii) The provider or supplier ID.
    (viii) The claim payment type.
    (2) The minimum necessary Part D data elements may include the 
following data elements:
    (i) Beneficiary ID.
    (ii) Prescriber ID.
    (iii) Drug service date.
    (iv) Drug product service ID.
    (v) Quantity dispensed.
    (vi) Days supplied.

[[Page 19653]]

    (vii) Gross drug cost.
    (viii) Brand name.
    (ix) Generic name.
    (x) Drug strength.
    (xi) Indication if the drug is on the formulary, as designated by 
CMS.
    (f) Data Use Agreement. Prior to receiving any beneficiary 
identifiable data, ACOs must enter into a DUA with CMS. The DUA must--
    (1) Specify that the ACO will comply with the limitations on the 
use and disclosure of individually identifiable health information that 
the HIPAA Privacy Rule places on HIPAA covered entities, as well as all 
other applicable privacy and confidentiality requirements;
    (2) Prohibit the ACO from using the data received under the Shared 
Savings Program for any prohibited use of individually identifiable 
health information.
    (3) Specify that if an ACO misuses or discloses data in a manner 
that violates any applicable statutory or regulatory requirements or 
that is otherwise non-compliant with the provisions of the DUA, it will 
no longer be eligible to receive data, could potentially be terminated 
from the shared savings program as well as subject to additional 
sanctions and penalties available under the law.
    (g) Beneficiary opportunity to opt-out of claims data sharing. (1) 
Prior to requesting claims data about a particular beneficiary, the ACO 
must inform the beneficiary that it may request personal health 
information about the beneficiary for purposes of its care coordination 
and quality improvement work, and give the beneficiary meaningful 
opportunity to opt-out of having his/her claims information shared with 
the ACO.
    (2) The ACO must supply beneficiaries with a form allowing them to 
opt-out of data sharing. The form must be provided to each beneficiary 
as part of an office visit with a primary care physician as defined 
under Sec.  425.4, whose services are used to assign beneficiaries to 
the ACO.
    (3) This requirement will not apply to the initial four data points 
that CMS will provide to ACOs for individuals in the 3-year base data 
set (Beneficiary Name, Beneficiary DOB, Beneficiary Sex, and 
Beneficiary HICN) under paragraph (c) of this section.

Sec.  425.20  New program standards established during the 3 year 
agreement period.

    (a)(1) ACOs will be subject to all statutory changes.
    (2) ACOs will be subject to all regulatory changes with the 
exception of the following program areas:
    (i) Eligibility requirements concerning the structure and 
governance of ACOs.
    (ii) Calculation of sharing rate.
    (iii) Beneficiary assignment.
    (b) In those instances where changes in law or regulations require, 
or otherwise cause an ACO to change its processes in a manner that 
affects the design of its care processes and delivery of care, changes 
to the quality of care, or changes in planned distribution of shared 
savings, the ACO will be required to submit to CMS for review and 
approval a supplement to its original application detailing how it will 
address key changes in processes resulting from these modifications.
    (c) If an ACO cannot effectuate the changes needed to adhere to the 
regulatory modifications after being given an opportunity to act upon a 
CAP, the ACO would be terminated from the program.
    (d) Nothing in the regulations under this part shall be construed 
to affect the payment, coverage, program integrity, and other 
requirements that apply to providers and suppliers under FFS Medicare.

Sec.  425.21  Managing significant changes to the ACO during the 
agreement period.

    (a)(1) During the 3-year agreement, an ACO may remove, but not add, 
ACO participants (identified by TINs), and it may remove or add ACO 
providers/suppliers (identified by NPI and/or TIN).
    (2) ACOs must notify CMS at least 30 days prior to any significant 
change, as defined in paragraph (b).
    (3) CMS will review the ACO's notification and make one of the 
following determinations:
    (i) The ACO may continue to operate under the new structure with 
savings calculations for the performance year based upon the updated 
list of ACO participant TINs.
    (ii) The ACO structure is so different from the initially approved 
ACO that it must submit a new application, and, if applicable, undergo 
an antitrust review.
    (iii) The ACO is materially different from the initially approved 
ACO because of the inclusion of additional ACO providers/suppliers such 
that, in order to continue in the program, the ACO must obtain an 
antitrust review and a letter from the reviewing Antitrust Agency 
stating that it has no present intent to challenge, or to recommend 
challenging, the ACO. An ACO's failure to timely request antitrust 
review shall be deemed to constitute voluntary termination of its 3-
year agreement.
    (iv) The ACO no longer meets the eligibility criteria for the 
program and its 3-year agreement must be terminated.
    (v) CMS and the ACO may mutually decide to terminate the agreement.
    (b) A ``significant change'' occurs when an ACO is unable to 
fulfill its 3-year agreement due to:
    (i) Deviation from its approved application such as a 
reorganization of the ACO's legal structure or other changes in 
eligibility.
    (ii) A material change as defined in Sec.  425.14.
    (iii) Government-required reorganization as a result of fraud or 
antitrust concerns.
    (c) The ACO must notify CMS within 30 days of the event for 
reevaluation of its eligibility to continue to participate in the 
Shared Savings Program.
    (d) ACO participants continue to be subject to all requirements 
applicable to fee-for-service Medicare, including routine CMS business 
operation updates, and changes in fee-for-service coverage decisions.

Sec.  425.22  Future participation of previous Shared Savings Program 
participants.

    (a) The ACO must disclose to CMS whether the ACO, its ACO 
participants, or its ACO providers/suppliers have participated in the 
Medicare program under the same or a different name, or is related to 
or has an affiliation with another Shared Savings Program ACO. The ACO 
must specify whether the related ACO was terminated or withdrew 
voluntarily from the program.
    (b) If the ACO was previously terminated from the program, the 
applicant must identify the cause of termination and what safeguards 
are now in place to enable the applicant ACO to participate in the 
program for the full of the three-year agreement period. For new ACOs, 
this should be disclosed on a prospective ACO's application. For ACOs 
that are already participating in the Shared Savings Program, this 
information should be included in the annual updates that the ACOs will 
provide to CMS on their ACO participants and ACO providers/suppliers.

Sec.  425.23  Public reporting and transparency.

    For purposes of the shared savings program, each ACO will publicly 
report the following information regarding the ACO a standardized 
format specified by CMS:
    (a) Name and location.
    (b) Primary contact.
    (c) Organizational information including all of the following:
    (1) Participating providers of services and suppliers.
    (2) Identification of participants in joint ventures between ACO 
professionals and hospitals.

[[Page 19654]]

    (3) Identification of the representatives on its governing body.
    (4) Associated committees and committee leadership.
    (5) Quality performance standard scores.
    (d) Shared savings or losses information, including the amount of 
any shared savings performance payment received by the ACOs or shared 
losses owed to CMS.
    (e) Total proportion of shared savings that was distributed among 
ACO participants and total proportion that was used to support quality 
performance and the aims of better care for individuals, better health 
for populations, and lower growth in expenditures.

Sec.  425.24  Overlap with other CMS Shared Savings initiatives.

    (a) Medicare providers and suppliers may not participate in the 
Shared Savings Program as ACO participants if they participate in the 
independence at home medical practice pilot program under section 1866E 
of the Act, a model tested or expanded under section 1115A of the Act 
that involves shared savings, or any other Medicare initiative that 
involves shared savings. CMS will review and reject an ACO's 
application if ACO participants are participating in another Medicare 
initiative that involves shared savings payments so that beneficiaries 
are assigned to only one such initiative and in order to avoid 
duplicate shared savings payments.
    (b) PGP demonstration sites applying for participation to the 
Shared Savings Program will be required to complete a condensed 
application form.

(Catalog of Federal Domestic Assistance Program No. 93.773, 
Medicare--Hospital Insurance; and Program No. 93.774, Medicare--
Supplementary Medical Insurance Program)

    Dated: March 24, 2011.
Donald M. Berwick,
Administrator, Centers for Medicare & Medicaid Services.

    Approved: March 29, 2011.
Kathleen Sebelius,
Secretary.
[FR Doc. 2011-7880 Filed 3-31-11; 11:15 am]
BILLING CODE 4120-01-P
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