72760 Federal Register / Vol. 79, No. 235 / Monday, December 8, 2014 / Proposed Rules 

DEPARTMENT OF HEALTH AND 

HUMAN SERVICES 

Centers for Medicare & Medicaid 

Services 

42 CFR Part 425 

[CMS–1461–P] 

RIN 0938–AS06 

Medicare Program; Medicare Shared 

Savings Program: Accountable Care 

Organizations 

AGENCY: Centers for Medicare & 

Medicaid Services (CMS), HHS. 

ACTION: Proposed rule. 

SUMMARY: This proposed rule addresses 

changes to the Medicare Shared Savings 

Program (Shared Savings Program), 

including provisions relating to the 

payment of Accountable Care 

Organizations (ACOs) participating in 

the Shared Savings Program. Under the 

Shared Savings Program, providers of 

services and suppliers that participate 

in an ACO continue to receive 

traditional Medicare fee-for-service 

(FFS) payments under Parts A and B, 

but the ACO may be eligible to receive 

a shared savings payment if it meets 

specified quality and savings 

requirements. 

DATES: To be assured consideration, 

comments must be received at one of 

the addresses provided below, no later 

than 5 p.m. on February 6, 2015. 

ADDRESSES: In commenting, please refer 

to file code CMS–1461–P. Because of 

staff and resource limitations, we cannot 

accept comments by facsimile (FAX) 

transmission. 

You may submit comments in one of 

four ways (please choose only one of the 

ways listed): 

1. Electronically. You may submit 

electronic comments on this regulation 

to http://www.regulations.gov. Follow 

the ‘‘Submit a comment’’ instructions. 

2. By regular mail. You may mail 

written comments to the following 

address ONLY: Centers for Medicare & 

Medicaid Services, Department of 

Health and Human Services, Attention: 

CMS–1461–P, P.O. Box 8013, Baltimore, 

MD 21244–8013. 

Please allow sufficient time for mailed 

comments to be received before the 

close of the comment period. 

3. By express or overnight mail. You 

may send written comments to the 

following address ONLY: Centers for 

Medicare & Medicaid Services, 

Department of Health and Human 

Services, Attention: CMS–1461–P, Mail 

Stop C4–26–05, 7500 Security 

Boulevard, Baltimore, MD 21244–1850. 

4. By hand or courier. Alternatively, 

you may deliver (by hand or courier) 

your written comments ONLY to the 

following addresses prior to the close of 

the comment period: 

a. For delivery in Washington, DC— 

Centers for Medicare & Medicaid 

Services, Department of Health and 

Human Services, Room 445–G, Hubert 

H. Humphrey Building, 200 

Independence Avenue SW., 

Washington, DC 20201 

(Because access to the interior of the 

Hubert H. Humphrey Building is not 

readily available to persons without 

Federal government identification, 

commenters are encouraged to leave 

their comments in the CMS drop slots 

located in the main lobby of the 

building. A stamp-in clock is available 

for persons wishing to retain a proof of 

filing by stamping in and retaining an 

extra copy of the comments being filed.) 

b. For delivery in Baltimore, MD— 

Centers for Medicare & Medicaid 

Services, Department of Health and 

Human Services, 7500 Security 

Boulevard, Baltimore, MD 21244– 

1850. 

If you intend to deliver your 

comments to the Baltimore address, call 

telephone number (410) 786–7195 in 

advance to schedule your arrival with 

one of our staff members. 

Comments erroneously mailed to the 

addresses indicated as appropriate for 

hand or courier delivery may be delayed 

and received after the comment period. 

For information on viewing public 

comments, see the beginning of the 

SUPPLEMENTARY INFORMATION section. 

FOR FURTHER INFORMATION CONTACT: Dr. 

Terri Postma or Rick Ensor, 410–786– 

8084, Email address: aco@cms.hhs.gov. 

SUPPLEMENTARY INFORMATION: 

Inspection of Public Comments: All 

comments received before the close of 

the comment period are available for 

viewing by the public, including any 

personally identifiable or confidential 

business information that is included in 

a comment. We post all comments 

received before the close of the 

comment period on the following Web 

site as soon as possible after they have 

been received: http://

www.regulations.gov. Follow the search 

instructions on that Web site to view 

public comments. 

Comments received timely will also 

be available for public inspection as 

they are received, generally beginning 

approximately 3 weeks after publication 

of a document, at the headquarters of 

the Centers for Medicare & Medicaid 

Services, 7500 Security Boulevard, 

Baltimore, Maryland 21244, Monday 

through Friday of each week from 8:30 

a.m. to 4 p.m. To schedule an 

appointment to view public comments, 

phone 1–800–743–3951. 

Table of Contents 

To assist readers in referencing 

sections contained in this preamble, we 

are providing a table of contents. 

I. Executive Summary and Background 

A. Executive Summary 

1. Purpose 

2. Summary of the Major Provisions 

3. Summary of Costs and Benefits 

B. Background 

II. Provisions of This Proposed Rule 

A. Definitions 

1. Proposed Definitions 

2. Proposed Revisions to Existing 

Definitions 

a. Definition of ACO Participant 

b. Definition of ACO Professional 

c. Definition of ACO Provider/Supplier 

d. Definition of Assignment 

e. Definition of Hospital 

f. Definition of Primary Care Services 

g. Definitions of Continuously Assigned 

Beneficiary and Newly Assigned 

Beneficiary 

h. Definition of Agreement Period 

B. ACO Eligibility Requirements 

1. Agreement Requirements 

a. Overview 

b. Proposed Revisions 

2. Sufficient Number of Primary Care 

Providers and Beneficiaries 

a. Overview 

b. Proposed Revisions 

3. Identification and Required Reporting of 

ACO Participants and ACO Providers/

Suppliers 

a. Overview 

b. Proposed Revisions 

(1) Certified List of ACO Participants and 

ACO Providers/Suppliers 

(2) Managing Changes to ACO Participants 

(3) Managing Changes to ACO Providers/

Suppliers 

(4) Update of Medicare Enrollment 

Information 

4. Significant Changes to an ACO 

a. Overview 

b. Proposed Revisions 

5. Consideration of Claims Billed by 

Merged/Acquired Medicare-Enrolled 

Entities 

a. Overview 

b. Proposal 

6. Legal Structure and Governance 

a. Legal Entity and Governing Body 

(1) Overview 

(2) Proposed Revisions 

b. Fiduciary Duties of Governing Body 

Members 

(1) Overview 

(2) Proposed Revisions 

c. Composition of the Governing Body 

(1) Overview 

(2) Proposed Revisions 

7. Leadership and Management Structure 

a. Overview 

b. Proposed Revisions 

8. Required Process To Coordinate Care 

a. Overview 

b. Accelerating Health Information 

Technology 

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c. Proposed Revisions 

9. Transition of Pioneer ACOs Into the 

Shared Savings Program 

a. Overview 

b. Proposed Revisions 

C. Establishing and Maintaining the 

Participation Agreement With the 

Secretary 

1. Background 

2. Application Deadlines 

a. Overview 

b. Proposed Revisions 

3. Renewal of Participation Agreements 

a. Overview 

b. Proposed Revisions 

4. Changes to Program Requirements 

During the 3-Year Agreement 

a. Overview 

b. Proposed Revisions 

D. Provision of Aggregate and Beneficiary 

Identifiable Data 

1. Background 

2. Aggregate Data Reports and Limited 

Identifiable Data 

a. Overview 

b. Proposed Revisions 

3. Claims Data Sharing and Beneficiary 

Opt-Out 

a. Overview 

b. Proposed Revisions 

E. Assignment of Medicare FFS 

Beneficiaries 

1. Background 

2. Basic Criteria for a Beneficiary To Be 

Assigned to an ACO 

3. Definition of Primary Care Services 

a. Overview 

b. Proposed Revisions 

4. Consideration of Physician Specialties 

and Non-Physician Practitioners in the 

Assignment Process 

a. Overview 

b. Proposed Revisions 

5. Assignment of Beneficiaries to ACOs 

That Include FQHCs, RHCs, CAHs, or 

ETA Hospitals 

a. Assignment of Beneficiaries to ACOs 

That Include FQHCs and RHCs 

(1) Overview 

(2) Proposed Revisions 

b. Assignment of Beneficiaries to ACOs 

That Include CAHs 

c. Assignment of Beneficiaries to ACOs 

That Include ETA Hospitals 

6. Effective Date for Finalization of 

Proposals Affecting Beneficiary 

Assignment 

F. Shared Savings and Losses 

1. Background 

2. Modifications to the Existing Payment 

Tracks 

a. Overview 

b. Proposals Related to Transition From the 

One-Sided to Two-Sided Model 

c. Proposals for Modifications to the Track 

2 Financial Model 

3. Creating Options for ACOs That 

Participate in Risk-Based Arrangements 

a. Overview 

b. Proposals for Assignment of 

Beneficiaries Under Track 3 

(1) Background 

(2) Proposal for Prospective Assignment 

Under Track 3 

c. Proposed Exclusion Criteria for 

Prospectively Assigned Beneficiaries 

d. Proposed Timing of Prospective 

Assignment 

e. Proposals for Addressing Interactions 

Between Prospective and Retrospective 

Assignment Models 

f. Proposals for Determining Benchmark 

and Performance Year Expenditures 

Under Track 3 

g. Proposals for Risk Adjusting the 

Updated Benchmark for Track 3 ACOs 

h. Proposals for Final Sharing/Loss Rate 

and Performance Payment/Loss 

Recoupment Limit Under Track 3 

i. Proposals for Minimum Savings Rate and 

Minimum Loss Rate in Track 3 

4. Seeking Comment on Ways To 

Encourage ACOs Participation in 

Performance-Based Risk Arrangements 

a. Payment Requirements and Program 

Requirements That May Need To Be 

Waived in Order To Carry Out the 

Shared Savings Program 

(1) SNF 3-Day Rule 

(2) Billing and Payment for Telehealth 

Services 

(3) Homebound Requirement Under the 

Home Health Benefit 

(4) Waivers for Referrals to Postacute Care 

Settings 

(5) Waiver of Other Payment Rules 

b. Other Options for Improving the 

Transition to Two-Sided PerformanceBased Risk Arrangements 

(1) Beneficiary Attestation 

(2) Seeking Comment on a Step-Wise 

Progression for ACOs To Take on 

Performance-Based Risk 

5. Modifications to Repayment Mechanism 

Requirements 

a. Overview 

b. Proposals for Amount and Duration of 

the Repayment Mechanism 

c. Proposals Regarding Permissible 

Repayment Mechanisms 

6. Seeking Comment on Methodology for 

Establishing, Updating, and Resetting the 

Benchmark 

a. Background on Establishing, Updating, 

and Resetting the Benchmark 

(1) Background on Use of National Growth 

Rate as a Benchmark Trending Factor 

(2) Background on Use of National FFS 

Growth Factors in Updating the 

Benchmark During the Agreement Period 

(3) Background on Managing Changes to 

ACOs During the Agreement Period 

(4) Background on Resetting the 

Benchmark 

(5) Background on Stakeholders’ Concerns 

About Benchmarking Methodology 

b. Factors To Use in Resetting ACO 

Benchmarks and Alternative 

Benchmarking Methodologies 

(1) Equally Weighting the Three 

Benchmark Years 

(2) Accounting for Shared Savings 

Payments in Benchmarks 

(3) Use of Regional Factors (as opposed to 

national factors) in Establishing and 

Updating Benchmarks 

(4) Alternative Benchmark Resetting 

Methodology: Hold the ACO’s Historical 

Costs Constant Relative to Its Region 

(5) Alternative Benchmark Methodology: 

Transition ACOs to Benchmarks Based 

Only on Regional FFS Costs Over the 

Course of Multiple Agreement Periods 

(6) Seeking Comment on the Benchmarking 

Alternatives Considered and the 

Applicability of These Approaches 

7. Seeking Comment on Technical 

Adjustments to the Benchmark and 

Performance Year Expenditures 

G. Additional Program Requirements and 

Beneficiary Protections 

1. Background 

2. Public Reporting and Transparency 

a. Overview 

b. Proposed Revisions 

3. Terminating Program Participation 

a. Overview 

b. Proposed Revisions 

(1) Grounds for Termination 

(2) Close-Out Procedures and Payment 

Consequences of Early Termination 

(3) Reconsideration Review Process 

(A) Overview 

(B) Proposed Changes 

(4) Monitoring ACO Compliance With 

Quality Performance Standards 

III. Collection of Information Requirements 

IV. Response to Comments 

V. Regulatory Impact Analysis 

A. Statement of Need 

B. Overall Impact 

C. Anticipated Effects 

1. Effects on the Medicare Program 

a. Assumptions and Uncertainties 

b. Detailed Stochastic Modeling Results 

c. Further Considerations 

2. Effects on Beneficiaries 

3. Effect on Providers and Suppliers 

4. Effect on Small Entities 

5. Effect on Small Rural Hospitals 

6. Unfunded Mandates 

D. Alternatives Considered 

E. Accounting Statement and Table 

F. Conclusion 

Regulations Text 

Acronyms 

ACO Accountable Care Organization 

BIPA Medicare, Medicaid, and SCHIP 

Benefits Improvement and Protection Act 

of 2000 (Pub. L. 106–554) 

CAHs Critical Access Hospitals 

CCM Chronic Care Management 

CEHRT Certified Electronic Health Record 

Technology 

CG–CAHPS Clinician and Group Consumer 

Assessment of Health Providers and 

Systems 

CHIP Children’s Health Insurance Program 

CMP Civil Monetary Penalties 

CMS Centers for Medicare & Medicaid 

Services 

CNM Certified Nurse Midwife 

CMS–HCC CMS Hierarchal Condition 

Category 

CPT [Physicians] Current Procedural 

Terminology (CPT codes, descriptions and 

other data only are copyright 2013 

American Medical Association. All rights 

reserved.) 

CWF Common Working File 

DHHS Department of Health and Human 

Services 

DOJ Department of Justice 

DRA Deficit Reduction Act of 2005 (Pub. L. 

109–171) 

DSH Disproportionate Share Hospital 

DUA Data Use Agreement 

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EHR Electronic Health Record 

ESRD End Stage Renal Disease 

ETA hospital Electing Teaching 

Amendment Hospital 

FFS Fee-for-service 

FQHCs Federally Qualified Health Centers 

FTC Federal Trade Commission 

GPCI Geographic Practice Cost Index 

GPRO Group Practice Reporting Option 

HCC Hierarchal Condition Category 

HCPCS Healthcare Common Procedure 

Coding System 

HICN Health Insurance Claim Number 

HIPAA Health Insurance Portability and 

Accountability Act of 1996 (Pub. L. 104– 

191) 

HVBP Hospital Value-based Purchasing 

IPA Independent Practice Association 

IPPS Inpatient Prospective Payment System 

IRS Internal Revenue Service 

MA Medicare Advantage 

MedPAC Medicare Payment Advisory 

Commission 

MLR Minimum Loss Rate 

MSP Medicare Secondary Payer 

MSR Minimum Savings Rate 

MU Meaningful Use 

NCQA National Committee for Quality 

Assurance 

NP Nurse Practitioner 

NPI National Provider Identifier 

NQF National Quality Forum 

OIG Office of Inspector General 

PA Physician Assistant 

PACE Program of All Inclusive Care for the 

Elderly 

PECOS Provider Enrollment, Chain, and 

Ownership System 

PFS Physician Fee Schedule 

PGP Physician Group Practice 

PHI Protected Health Information 

PPS Prospective Payment System 

PQRS Physician Quality Reporting System 

PRA Paperwork Reduction Act 

PSA Primary Service Areas 

RHCs Rural Health Clinics 

RIA Regulatory Impact Analysis 

SNFs Skilled Nursing Facilities 

SSA Social Security Act 

SSN Social Security Number 

TIN Taxpayer Identification Number 

VM Value Modifier 

CPT (Current Procedural Terminology) 

Copyright Notice 

Throughout this proposed rule, we 

use CPT codes and descriptions to refer 

to a variety of services. We note that 

CPT codes and descriptions are 

copyright 2013 American Medical 

Association. All Rights Reserved. CPT is 

a registered trademark of the American 

Medical Association (AMA). Applicable 

Federal Acquisition Regulations (FARs) 

and Defense Federal Acquisition 

Regulations (DFARs) apply. 

I. Executive Summary and Background 

A. Executive Summary 

1. Purpose 

Section 1899 of the Social Security 

Act (the Act) established the Medicare 

Shared Savings Program, which 

promotes accountability for a patient 

population, fosters coordination of 

items and services under parts A and B, 

and encourages investment in 

infrastructure and redesigned care 

processes for high quality and efficient 

health care service delivery. This 

proposed rule would make changes to 

the regulations that were promulgated 

in November 2011 to implement the 

Shared Savings Program in order to 

make refinements based on our 

experience with the program and to 

respond to concerns raised by 

stakeholders. Unless otherwise noted, 

these changes would be effective 60 

days after publication of the final rule. 

Application or implementation dates 

may vary, depending on the nature of 

the policy; however, we anticipate all of 

the final policies and methodological 

changes would be applied for the 2016 

performance year for all participating 

organizations unless otherwise noted. 

2. Summary of the Major Provisions 

This proposed rule is designed to 

codify existing guidance, reduce 

administrative burden and improve 

program function and transparency in 

the following areas: (1) Data-sharing 

requirements; (2) requirements for ACO 

participant agreements, the ACO 

application process, and our review of 

applications; (3) identification and 

reporting of ACO participants and ACO 

providers/suppliers, including 

managing changes to the list of ACO 

participants and ACO providers/

suppliers; (4) eligibility requirements 

related to the ACO’s number of 

beneficiaries, required processes, the 

ACO’s legal structure and governing 

body, and its leadership and 

management structure; (5) modification 

to assignment methodology; (6) 

repayment mechanisms for ACOs in 

two-sided performance-based risk 

tracks; (7) alternatives to encourage 

participation in risk-based models; (8) 

ACO public reporting and transparency; 

(9) the ACO termination process; and 

(10) the reconsideration review process. 

To achieve these goals, we make the 

following proposed modifications to our 

current program rules: 

• Clarify existing and establish new 

definitions of terms including an ACO 

participant, ACO provider/supplier, and 

ACO participation agreement. 

• Add a process for ACOs to renew 

the participation agreement for an 

additional agreement period. 

• Add, clarify, and revise the 

beneficiary assignment algorithm, 

including the following— 

++ Update the CPT codes that would 

be considered to be primary care 

services as well as changing the 

treatment of certain physician 

specialties in the assignment process; 

++ Include the claims for primary 

care services furnished by NP, PAs, and 

CNSs in Step 1 of the assignment 

algorithm; and 

++ Clarify how primary care services 

furnished in federally qualified health 

centers (FQHCs), rural health clinics 

(RHCs), and electing teaching 

amendment (ETA) hospitals will be 

considered in the assignment process. 

• Expand the kinds of beneficiaryidentifiable data that would be provided 

to ACOs in various reports under the 

Shared Savings Program as well as 

simplify the claims data sharing opt-out 

process to improve the timeliness of 

access to claims data. 

• Add or change policies to 

encourage greater ACO participation in 

risk-based models by— 

++ Offering the opportunity for ACOs 

to continue participating under a onesided participation agreement after their 

first 3-year agreement; 

++ Reducing risk under Track 2; and 

++ Adopting an alternative risk-based 

model referred to as Track 3 which 

includes proposals for a higher sharing 

rate and prospective assignment of 

beneficiaries. 

In addition, we seek comment on a 

number of options that we have been 

considering in order to encourage ACOs 

to take on two-sided performance-based 

risk under the Shared Savings Program. 

We also seek comment on issues related 

to resetting the benchmark in a 

subsequent performance year and the 

use of statutory waiver authority to 

improve participation in two-sided risk 

models. 

3. Summary of Costs and Benefits 

We assume that our proposals to ease 

the transition to risk, reduce risk under 

Track 2, and adopt an alternative riskbased model (Track 3) would result in 

increased participation in the Shared 

Savings Program. As shown in our 

impact analysis, we expect the proposed 

changes to result in a significant 

increase in total shared savings, while 

shared losses would decrease. 

Moreover, as participation in the Shared 

Savings Program continues to expand, 

we anticipate there would be a broader 

focus on care coordination and quality 

improvement among providers and 

suppliers within the Medicare program 

that would lead to both increased 

efficiency in the provision of care and 

improved quality of the care provided to 

beneficiaries. 

The proposed changes detailed in this 

rule would result in median estimated 

federal savings of $280 million greater 

than the $730 million median net 

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savings estimated at baseline for 

calendar years (CYs) 2016 through 2018. 

We estimate that the provisions of this 

proposed rule would result in a 

reduction in the median shared loss 

dollars by $140 million and an increase 

in the median shared savings payments 

by $320 million dollars relative to the 

baseline for CYs 2016 through 2018. The 

estimated aggregate average start up 

investment and 3 year operating costs if 

all proposals are finalized is 

approximately $441 million. 

B. Background 

On March 23, 2010, the Patient 

Protection and Affordable Care Act 

(Pub. L. 111–148) was enacted, followed 

by enactment of the Health Care and 

Education Reconciliation Act of 2010 

(Pub. L. 111–152) on March 30, 2010, 

which amended certain provisions of 

Public Law 111–148. Collectively 

known as the Affordable Care Act, these 

public laws include a number of 

provisions designed to improve the 

quality of Medicare services, support 

innovation and the establishment of 

new payment models, better align 

Medicare payments with provider costs, 

strengthen Medicare program integrity, 

and put Medicare on a firmer financial 

footing. 

Section 3022 of the Affordable Care 

Act amended Title XVIII of the Act (42 

U.S.C. 1395 et seq.) by adding new 

section 1899 to the Act to establish a 

Shared Savings Program. This program 

is a key component of the Medicare 

delivery system reform initiatives 

included in the Affordable Care Act and 

is a new approach to the delivery of 

health care. The purpose of the Shared 

Savings Program is to promote 

accountability for a population of 

Medicare beneficiaries, improve the 

coordination of FFS items and services, 

encourage investment in infrastructure 

and redesigned care processes for high 

quality and efficient service delivery, 

and promote higher value care. ACOs 

that successfully meet quality and 

savings requirements share a percentage 

of the achieved savings with Medicare. 

Under the Shared Savings Program, 

ACOs share in savings only if they meet 

both the quality performance standards 

and generate shareable savings. 

Consistent with the purpose of the 

Shared Savings Program, we focused on 

developing policies aimed at achieving 

the three-part aim consisting of: (1) 

Better care for individuals; (2) better 

health for populations; and (3) lower 

growth in expenditures. 

In the November 2, 2011 Federal 

Register (76 FR 67802), we published 

the final rule entitled ‘‘Medicare 

Program; Medicare Shared Savings 

Program: Accountable Care 

Organizations’’ (November 2011 final 

rule). We viewed this final rule as a 

starting point for the program, and 

because of the scope and scale of the 

program and our limited experience 

with shared savings initiatives under 

FFS Medicare, we built a great deal of 

flexibility into the program rules. We 

anticipated that subsequent rulemaking 

for the Shared Savings Program would 

be informed by lessons learned from our 

experience with the program as well as 

from testing through the Pioneer ACO 

Model and other initiatives conducted 

by the Center for Medicare and 

Medicaid Innovation (Innovation 

Center) under section 1115A of the Act. 

Over 330 organizations are now 

participating in the Shared Savings 

Program. We are gratified by stakeholder 

interest in this program. In the 

November 2011 final rule (76 FR 67805), 

we stated that we intended to assess the 

policies for the Shared Savings Program 

and models being tested by the 

Innovation Center to determine how 

well they were working and if there 

were any modifications that would 

enhance them. As evidenced by the high 

degree of interest in participation in the 

Shared Savings Program, we believe that 

the policies adopted in the November 

2011 final rule are generally wellaccepted. However, we have identified 

several policy areas we would like to 

revisit in light of the additional 

experience we have gained during the 

first 2 years of program implementation. 

We note that in developing the Shared 

Savings Program, and in response to 

stakeholder suggestions, we worked 

very closely with agencies across the 

federal government to develop policies 

to encourage participation in the 

program and to ensure a coordinated 

inter- and intra-agency program 

implementation. The result of this effort 

was the release of several documents 

regarding the application of other 

relevant laws and regulations to ACOs. 

These documents are described in more 

detail in section II.C.5. of the November 

2011 final rule (76 FR 67840) and 

include: (1) A joint CMS and DHHS OIG 

interim final rule with comment period 

establishing waivers of the application 

of the physician self-referral law, the 

Federal anti-kickback statute, and 

certain civil monetary penalties (CMP) 

law provisions for specified 

arrangements involving ACOs 

participating in the Shared Savings 

Program (76 FR 67992); (2) an Internal 

Revenue Service (IRS) notice (Notice 

2011–20) and fact sheet (FS–2011–11) 

issued in response to comments 

regarding the need for additional tax 

guidance for tax-exempt organizations, 

including tax-exempt hospitals, that 

may participate in the Shared Savings 

Program (see Notice 2011–20 at 

www.irs.gov//pub/irs-drop/n-11–20.pdf 

and FS–2011–11 at www.irs.gov/pub/irsnews/fs-2011-11.pdf); and (3) a final 

Statement of Antitrust Enforcement 

Policy Regarding Accountable Care 

Organizations Participating in the 

Shared Savings Program issued jointly 

by the FTC and DOJ (collectively, the 

Antitrust Agencies) and published in 

the October 28, 2011 Federal Register 

(76 FR 67026). We have continued 

working with these agencies as we have 

implemented this program and believe 

that these materials continue to offer 

valuable information regarding a 

number of issues of great importance 

both to our implementation of the 

Shared Savings Program and to the 

entities that participate in the program. 

We encourage ACOs and other 

stakeholders to review and comply with 

the referenced documents. Documents 

can be accessed through the links on our 

Web site at: http://www.cms.gov/

Medicare/Medicare-Fee-for-ServicePayment/sharedsavingsprogram/

Statutes_Regulations_Guidance.html. 

II. Provisions of This Proposed Rule 

The purpose of this proposed rule is 

to propose revisions to some key 

policies adopted in the November 2011 

final rule (76 FR 67802), to incorporate 

in our regulations certain guidance that 

we have issued since the Shared 

Savings Program was established, and to 

propose regulatory additions to support 

program compliance and growth. Our 

intent is to encourage continued and 

enhanced stakeholder participation, to 

reduce administrative burden for ACOs 

while facilitating their efforts to 

improve care outcomes, and to maintain 

excellence in program operations while 

bolstering program integrity. 

A. Definitions 

In the November 2011 final rule (76 

FR 67802), we adopted definitions of 

key terms for purposes of the Shared 

Savings Program at § 425.20. These 

terms are used throughout this proposed 

rule. We encourage readers to review 

these definitions. Based on our 

experiences thus far with the Shared 

Savings Program and inquiries we 

received regarding the defined terms, 

we propose some additions to the 

definitions and a few revisions to the 

existing definitions. 

1. Proposed Definitions 

We propose to add several new terms 

to the definitions in § 425.20. First, we 

propose to add a definition of 

‘‘participation agreement.’’ Specifically, 

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we propose to define the term to mean 

the written agreement required under 

§ 425.208(a) between the ACO and CMS 

that, along with the regulations at part 

425, governs the ACO’s participation in 

the Shared Savings Program. We further 

propose to make conforming changes 

throughout part 425, replacing 

references to an ACO’s agreement with 

CMS with the defined term 

‘‘participation agreement.’’ In addition, 

we propose to make a conforming 

change in § 425.204(c)(1)(i) to remove 

the incorrect reference to ‘‘participation 

agreements’’ and replace it with ‘‘ACO 

participant agreements.’’ 

Second, we propose to add the related 

definition of ‘‘ACO participant 

agreement.’’ Specifically, we propose to 

define ‘‘ACO participant agreement’’ to 

mean the written agreement between an 

ACO and an ACO participant required 

at § 425.116 in which the ACO 

participant agrees to participate in, and 

comply with, the requirements of the 

Shared Savings Program. 

Third, as discussed in greater detail in 

section II.F. of this proposed rule, we 

propose to add a definition for 

‘‘assignment window,’’ to mean the 12- 

month period used to assign 

beneficiaries to an ACO. 

2. Proposed Revisions to Existing 

Definitions 

a. Definition of ACO Participant 

The current definition of ‘‘ACO 

participant’’ states that an ‘‘ACO 

participant means an individual or 

group of ACO provider(s)/supplier(s), 

that is identified by a Medicare-enrolled 

TIN, that alone or together with one or 

more other ACO participants 

comprise(s) an ACO, and that is 

included on the list of ACO participants 

that is required under § 425.204(c)(5).’’ 

Based on inquiries we have received 

since the publication of November 2011 

final rule, we believe that there has been 

some confusion as to the distinction 

between an ACO participant and an 

ACO provider/supplier. The key point is 

that an ACO participant is an entity, not 

a practitioner, identified by a Medicareenrolled TIN (that is, a TIN that is used 

to bill Medicare for services furnished to 

Medicare fee-for-service beneficiaries). 

An ACO participant may be composed 

of one or more ACO providers/suppliers 

whose services are billed under a 

Medicare billing number assigned to the 

TIN of the ACO participant. 

Additionally, we emphasize that the 

ACO is responsible for ensuring that all 

individuals and entities that have 

reassigned the right to receive Medicare 

payment to the TIN of the ACO 

participant have also agreed to be ACO 

providers/suppliers. 

We propose to revise the definition of 

‘‘ACO participant’’ to clarify that an 

ACO participant is an entity identified 

by a Medicare-enrolled TIN. 

Additionally, we are correcting a 

grammatical error by revising the 

definition to indicate that one or more 

ACO participants ‘‘compose,’’ rather 

than ‘‘comprise’’ an ACO. We note that 

a related grammatical error is corrected 

at § 425.204(c)(iv). These proposed 

changes to the definition of ‘‘ACO 

participant’’ are not intended to alter the 

way the Shared Savings Program 

currently operates. 

b. Definition of ACO Professional 

Under the current definition at 

§ 425.20, an ‘‘ACO professional’’ means 

an ACO provider/supplier who is either 

of the following: 

• A physician legally authorized to 

practice medicine and surgery by the 

State in which he performs such 

function or action. 

• A practitioner who is one of the 

following: 

++ A physician assistant (as defined 

at § 410.74(a)(2)). 

++ A nurse practitioner (as defined at 

§ 410.75(b)). 

++ A clinical nurse specialist (as 

defined at § 410.76(b)). 

We propose to revise the definition of 

ACO professional to remove the 

requirement that an ACO professional 

be an ACO provider/supplier. We also 

propose to revise the definition of ACO 

professional to indicate that an ACO 

professional is an individual who bills 

for items or services he or she furnishes 

to Medicare fee-for-service beneficiaries 

under a Medicare billing number 

assigned to the TIN of an ACO 

participant in accordance with Medicare 

regulations. We are proposing these 

modifications because there may be 

ACO professionals who furnished 

services billed through an ACO 

participant’s TIN in the benchmarking 

years but are no longer affiliated with 

the ACO participant and therefore are 

not furnishing services billed through 

the TIN of the ACO participant during 

the performance years. These proposed 

changes to the definition of ‘‘ACO 

professional’’ are not intended to alter 

the way the Shared Savings Program 

currently operates. 

c. Definition of ACO Provider/Supplier 

Under the current definition at 

§ 425.20, an ‘‘ACO provider/supplier’’ 

means an individual or entity that—(1) 

is a provider (as defined at § 400.202) or 

a supplier (as defined at § 400.202); (2) 

is enrolled in Medicare; (3) bills for 

items and services it furnishes to 

Medicare fee-for-service beneficiaries 

under a Medicare billing number 

assigned to the TIN of an ACO 

participant in accordance with 

applicable Medicare regulations; and (4) 

is included on the certified list of ACO 

providers/suppliers that is submitted by 

the ACO. We propose to modify the 

definition to clarify that an individual 

or entity is an ACO provider/supplier 

only when it bills for items and services 

furnished to Medicare FFS beneficiaries 

during the agreement period under a 

Medicare billing number assigned to the 

TIN of an ACO participant and is 

included on the list of ACO providers/ 

suppliers that is required under the 

proposed regulation at § 425.118. We do 

not believe that an individual or entity 

that may previously have reassigned the 

right to receive Medicare payment to an 

ACO participant, but that is not 

participating in the activities of the ACO 

by furnishing care to Medicare FFS 

beneficiaries that is billed through the 

TIN of an ACO participant during the 

ACO’s agreement period, should be 

considered to be an ACO provider/

supplier. Thus, this modification is 

intended to clarify that a provider or 

supplier must bill for items or services 

furnished to Medicare FFS beneficiaries 

through the TIN of an ACO participant 

during the ACO’s agreement period in 

order to be an ACO provider/supplier. 

d. Definition of Assignment 

Under the current definition at 

§ 425.20, ‘‘assignment’’ means ‘‘the 

operational process by which CMS 

determines whether a beneficiary has 

chosen to receive a sufficient level of 

the requisite primary care services from 

a physician who is an ACO provider/

supplier so that the ACO may be 

appropriately designated as exercising 

basic responsibility for that beneficiary’s 

care.’’ As discussed previously in this 

section, we are proposing to modify the 

definition of ‘‘ACO professional’’ to 

remove the requirement that an ACO 

professional be an ACO provider/

supplier. Similarly, we believe that for 

purposes of defining assignment, it is 

more appropriate to use the term ‘‘ACO 

professional,’’ as revised, than the term 

‘‘ACO provider/supplier’’ because a 

physician or other practitioner can only 

be an ACO provider/supplier if he or 

she bills for items and services through 

the TIN of an ACO participant during 

the ACO’s agreement period and is 

included on the list of ACO providers/ 

suppliers required under our 

regulations. However, as we discussed 

previously, there may be an ACO 

professional who furnished services 

billed through an ACO participant’s TIN 

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in the benchmarking years but is no 

longer billing through the ACO 

participant’s TIN during the 

performance years and therefore cannot 

be considered an ACO provider/

supplier. For example, a practitioner 

that retired before the ACO entered into 

a participation agreement with CMS and 

is no longer billing through the TIN of 

an ACO participant, and therefore was 

not included on the ACO provider/

supplier list is not an ACO provider/

supplier. Nevertheless, the services 

furnished by this ACO professional and 

billed through the TIN of an ACO 

participant would be considered for 

purposes of determining beneficiary 

assignment to the ACO during the 

benchmarking period. 

In the interests of clarity, we therefore 

propose to modify the definition of 

assignment to reflect that our 

assignment methodology takes into 

account claims for primary care services 

furnished by ACO professionals, not 

solely claims for primary care services 

furnished by physicians in the ACO. 

This revision will ensure consistency 

with program operations and alignment 

with the definition of ‘‘ACO 

professional’’ since it is the aggregation 

of the ACO professionals’ claims that 

impacts assignment. Consistent with 

section 1899(c) of the Act, a beneficiary 

must have at least one primary care 

service furnished by a physician in the 

ACO in order to be eligible for 

assignment to the ACO, and this is 

reflected in the assignment methodology 

articulated under subpart E of the 

Shared Savings Program regulations. 

Once a beneficiary is determined to be 

eligible for assignment, the beneficiary 

is then assigned to the ACO if its ACO 

professionals have rendered the 

plurality of primary care services for the 

beneficiary as determined under the 

stepwise assignment methodology in 

§ 425.402. Thus, we believe the 

proposed modification to the definition 

of ‘‘assignment’’ would more accurately 

reflect the use of claims for primary care 

services furnished by ACO professionals 

that are submitted through an ACO 

participant’s TIN in determining 

beneficiary assignment in the ACO’s 

benchmark and performance years. 

Additionally, we propose to make 

conforming changes as necessary to the 

regulations governing the assignment 

methodology in subpart E of part 425, to 

revise the references to ‘‘ACO provider/ 

supplier’’ to read ‘‘ACO professional.’’ 

e. Definition of Hospital 

We are proposing a technical revision 

to the definition of ‘‘hospital’’ for 

purposes of the Shared Savings 

Program. Section 1899(h)(2) of the Act 

provides that, for purposes of the 

Shared Savings Program, the term 

‘‘hospital’’ means a subsection (d) 

hospital as defined in section 

1886(d)(1)(B) of the Act. In the 

November 2011 final rule (76 FR 67812), 

we stated that this statutory definition 

of hospital thus limits: ’’. . . the 

definition to include only acute care 

hospitals paid under the hospital 

inpatient prospective payment system 

(IPPS).’’ Consistent with this 

interpretation, we proposed and 

finalized the following definition of 

‘‘hospital’’ for purposes of the Shared 

Savings Program at § 425.20: ‘‘Hospital 

means a hospital subject to the 

prospective payment system specified 

in § 412.1(a)(1) of this chapter.’’ 

Under this regulatory definition, 

Maryland acute care hospitals would 

not be considered to be hospitals for 

purposes of the Shared Savings Program 

because hospitals in the state of 

Maryland are subject to a waiver from 

the Medicare payment methodologies 

under which they would otherwise be 

paid. However, we have taken the 

position in other contexts, for example, 

for purposes of electronic health record 

(EHR) incentive payments (75 FR 44448) 

and in the FY 2014 IPPS final rule (78 

FR 50623), that Maryland acute care 

hospitals remain subsection (d) 

hospitals. This is because these 

hospitals are ‘‘located in one of the fifty 

states or the District of Columbia’’ (as 

provided in the definition of subsection 

(d) hospitals at section 1886(d)(1)(B) of 

the Act) and are not hospitals that are 

specifically excluded from that category, 

such as cancer hospitals and psychiatric 

hospitals. 

Therefore, we propose to revise the 

definition of ‘‘hospital’’ for purposes of 

the Shared Savings Program to provide 

that a ‘‘hospital’’ means a hospital as 

defined in section 1886(d)(1)(B) of the 

Act. The proposed regulation text is 

consistent with both the statutory 

definition of ‘‘hospital’’ for purposes of 

the Shared Savings Program in section 

1899(h)(2) of the Act and the position 

we have taken in other contexts in 

referring to subsection (d) hospitals. The 

effect of this change is to clarify that a 

Maryland acute care hospital is a 

‘‘hospital’’ for purposes of the Shared 

Savings Program. 

f. Definition of Primary Care Services 

We propose to modify the definition 

of ‘‘primary care services.’’ We refer the 

reader to section II.E.3. of this proposed 

rule for a more detailed discussion of 

the proposed revision to this definition, 

which is relevant to the assignment of 

a Medicare beneficiary to an ACO. 

g. Definitions of ‘‘Continuously 

Assigned Beneficiary’’ and ‘‘Newly 

Assigned Beneficiary’’ 

As discussed in greater detail in 

section II.F.3.b. of this proposed rule, 

we propose revisions to the definitions 

of ‘‘continuously assigned beneficiary’’ 

and ‘‘newly assigned beneficiary.’’ 

These definitions relate to risk 

adjustment for the assigned population 

and require minor modification to 

accommodate the newly proposed Track 

3. 

h. Definition of Agreement Period 

In connection with our discussion of 

the applicability of certain changes that 

are made to program requirements 

during the agreement period, we 

propose revisions to the definition of 

‘‘agreement period.’’ Readers should 

refer to section II.C.4. of this proposed 

rule for a discussion of the proposed 

changes to the definition. 

B. ACO Eligibility Requirements 

1. Agreement Requirements 

a. Overview 

Section 1899(b)(2)(B) of the Act 

requires participating ACOs to ‘‘enter 

into an agreement with the Secretary to 

participate in the program for not less 

than a 3-year period.’’ If the ACO is 

approved for participation in the Shared 

Savings Program, an executive who has 

the ability to legally bind the ACO must 

sign and submit a participation 

agreement to CMS (§ 425.208(a)(1)). 

Under the participation agreement with 

CMS, the ACO agrees to comply with 

the regulations governing the Shared 

Savings Program (§ 425.208(a)(2)). In 

addition, the ACO must require its ACO 

participants, ACO providers/suppliers, 

and other individuals or entities 

performing functions or services related 

to the ACO’s activities to agree to 

comply with the Shared Savings 

Program regulations and all other 

applicable laws and regulations 

(§ 425.208(b) and § 425.210(b)). The 

ACO must provide a copy of its 

participation agreement with CMS to all 

ACO participants, ACO providers/

suppliers, and other individuals and 

entities involved in ACO governance 

(§ 425.210(a)). As part of its application, 

we currently require each ACO to 

submit a sample of the agreement it 

executes with each of its ACO 

participants (the ‘‘ACO participant 

agreement’’). Also, as part of its 

application and when requesting the 

addition of new ACO participants, we 

require an ACO to submit evidence that 

it has a signed written agreement with 

each of its ACO participants. (See 

guidance on our Web site at http://

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www.cms.gov/Medicare/Medicare-Feefor-Service-Payment/

sharedsavingsprogram/Downloads/

Memo_Additional_Guidance_on_ACO_

Participants.pdf.) An ACO’s application 

to participate in the Shared Savings 

Program and any subsequent request to 

add new ACO participants will not be 

approved if the ACO does not have an 

agreement in place with each of its ACO 

participants in which each ACO 

participant agrees to participate in the 

Shared Savings Program and to comply 

with the requirements of the Shared 

Savings Program. 

In our review of applications to 

participate in the Shared Savings 

Program, we received many ACO 

participant agreements that were not 

properly executed, were not between 

the correct parties, lacked the required 

provisions, contained incorrect 

information, or failed to comply with 

§ 425.304(c) relating to the prohibition 

on certain required referrals and cost 

shifting. When we identified such 

agreements, ACOs experienced 

processing delays, and in some cases, 

we were unable to approve the ACO 

applicant and/or its ACO participant to 

participate in the Shared Savings 

Program. Consequently, we issued 

guidance for ACO applicants in which 

we reiterated the required elements for 

ACO participant agreements and 

strongly recommended that ACOs 

employ good contracting practices to 

ensure that each of their ACO 

participant agreements met our 

requirements (see http://www.cms.gov/

Medicare/Medicare-Fee-for-ServicePayment/sharedsavingsprogram/

Downloads/Tips-ACO-DevelopingParticipant-Agreements.pdf). 

The ACO participant agreements are 

necessary for purposes of program 

transparency and to ensure an ACO’s 

compliance with program requirements. 

Moreover, many important program 

operations (including calculation of 

shared savings, assignment of 

beneficiaries, and financial 

benchmarking), use claims and other 

information that are submitted to CMS 

by the ACO participant. Our guidance 

clarified that ACO participant 

agreements and any agreements with 

ACO providers/suppliers must contain 

the following: 

• An explicit requirement that the 

ACO participant or the ACO provider/ 

supplier will comply with the 

requirements and conditions of the 

Shared Savings Program (part 425), 

including, but not limited to, those 

specified in the participation agreement 

with CMS. 

• A description of the ACO 

participants’ and ACO providers’/

suppliers’ rights and obligations in and 

representation by the ACO. 

• A description of how the 

opportunity to get shared savings or 

other financial arrangements will 

encourage ACO participants and ACO 

providers/suppliers to follow the quality 

assurance and improvement program 

and evidence-based clinical guidelines. 

• Remedial measures that will apply 

to ACO participants and ACO 

providers/suppliers who do not comply 

with the requirements of their 

agreements with the ACO. 

Our guidance also requires that the 

ACO participant agreements be made 

directly between the ACO and the ACO 

participant. We believe it is important 

that the parties entering into the 

agreement have a direct legal 

relationship to ensure that the 

requirements of the agreement are fully 

and directly enforceable by the ACO, 

including the ability of the ACO to 

terminate an agreement with an ACO 

participant that is not complying with 

the requirements of the Shared Savings 

Program. Additionally, a direct legal 

relationship ensures that the ACO 

participant may, if necessary, terminate 

the agreement with the ACO according 

to the terms of the agreement without 

interrupting other contracts or 

agreements with third parties. 

Therefore, the ACO and the ACO 

participant must be the only parties to 

an ACO participant agreement; the 

agreements may not include a third 

party to the agreement. For example, the 

agreement may not be between the ACO 

and another entity, such as an 

independent practice association (IPA) 

or management company that in turn 

has an agreement with one or more ACO 

participants. Similarly, existing 

contracts between ACOs and ACO 

participants that include third parties 

should not be used. 

We recognize that there are existing 

contractual agreements between entities 

(for example, contracts that permit 

organizations like IPAs to negotiate 

contracts with health care payers on 

behalf of individual practitioners). 

However, because it is important to 

ensure that there is a direct legal 

relationship between the ACO and the 

ACO participant evidenced by a written 

agreement, and because ACO 

participants continue to bill and receive 

payments as usual under the Medicare 

FFS rules (that is, there is no negotiation 

for payment under the program) we 

believe that typical IPA contracts are 

generally inappropriate and 

unnecessary for purposes of 

participation in the Shared Savings 

Program. An ACO and ACO participant 

may use a contract unrelated to the 

Shared Savings Program as an ACO 

participant agreement only when it is 

between the two parties and is amended 

to satisfy the requirements for ACO 

participant agreements under the 

Shared Savings Program. 

It is the ACO’s responsibility to make 

sure that each ACO participant 

agreement identifies the parties entering 

into the agreement using their correct 

legal names, specifies the term of the 

agreement, and is signed by both parties 

to the agreement. We validate the legal 

names of the parties based on 

information the ACO submitted in its 

application and the legal name of the 

entity associated with the ACO 

participant’s TIN in the Provider 

Enrollment Chain & Ownership System 

(PECOS). We reject an ACO participant 

agreement if the party names do not 

match our records. It may be necessary 

for the ACO to execute a new or 

amended ACO participant agreement. 

Although the ACO participant must 

ensure that each of its ACO providers/ 

suppliers (as identified by a National 

Provider Identifier (NPI)) has agreed to 

participate in the ACO and will comply 

with program rules, the ACO has the 

ultimate responsibility for ensuring that 

all the ACO providers/suppliers that bill 

through the TIN of the ACO participant 

(that is, reassign their right to receive 

Medicare payment to the ACO 

participant) have also agreed to 

participate in the Shared Savings 

Program and comply with our program 

regulations. The ACO may ensure this 

by directly contracting with each ACO 

provider/supplier (NPI) or by 

contractually requiring the ACO 

participant to ensure that all ACO 

providers/suppliers that bill through its 

TIN have agreed to participate in, and 

comply with the requirements of, the 

Shared Saving Program. If the ACO 

chooses to contract directly with the 

ACO providers/suppliers, the 

agreements must meet the same 

requirements as the agreements with 

ACO participants. We emphasize that 

even if an ACO chooses to contract 

directly with the ACO providers/

suppliers (NPIs), it must still have the 

required ACO participant agreement. In 

other words, the ACO must be able to 

produce valid written agreements for 

each ACO participant and each ACO 

provider/supplier. Furthermore, since 

we use TINs (and not merely some of 

the NPIs that make up the entity 

identified by a TIN) as the basis for 

identifying ACO participants, and we 

use all claims submitted under an ACO 

participant’s TIN for financial 

calculations and beneficiary assignment, 

an ACO may not include an entity as an 

ACO participant unless all Medicare 

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enrolled providers and suppliers billing 

under that entity’s TIN have agreed to 

participate in the ACO as ACO 

providers/suppliers. 

To illustrate the requirement that all 

ACO providers/suppliers must agree to 

participate in and comply with the 

terms of the Shared Savings Program 

before the ACO can include the ACO 

participant’s TIN on its list of ACO 

participants, we offer the following 

scenarios that describe when an ACO 

participant’s TIN may and may not be 

included on the applicant’s ACO 

participant list: 

Correct: A large group practice 

(Medicare-enrolled TIN) decides to 

participate in an ACO as an ACO 

participant. Its owner signs an 

agreement with the ACO on behalf of 

the practice to participate in the 

program and follow program 

regulations. Also, all practitioners that 

have reassigned their right to receive 

Medicare payments to the TIN of the 

large group practice have also agreed to 

participate and follow program 

regulations. Therefore, the ACO may 

include this group practice TIN on its 

list of ACO participants. 

Incorrect: A large group practice 

(Medicare-enrolled TIN) decides to 

participate in an ACO as an ACO 

participant. Its owner signs an 

agreement to participate in the program 

and follow program regulations. 

However, not all practitioners that have 

reassigned their right to receive 

Medicare payment to the group practice 

TIN have agreed to participate in the 

ACO and follow Shared Savings 

Program regulations. Therefore, the 

ACO may not include this group 

practice TIN on its list of ACO 

participants. 

Incorrect: Several practitioners in a 

large group practice (Medicare-enrolled 

TIN) decide to participate in an ACO. 

However, the group practice as a whole 

has not agreed to participate in the 

program. Therefore, the ACO may not 

include this group practice TIN on its 

list of ACO participants. 

We propose to codify much of our 

guidance regarding the content of the 

ACO participant and ACO provider/

supplier agreements. 

b. Proposed Revisions 

First, we propose to add new 

§ 425.116 to set forth the requirements 

for agreements between an ACO and an 

ACO participant or ACO provider/

supplier. We believe the new provision 

would promote a better general 

understanding of the Shared Savings 

Program and transparency for ACO 

participants and ACO providers/

suppliers. It is our intent to provide 

requirements that would facilitate and 

enhance the relationships between 

ACOs and ACO participants, and reduce 

uncertainties and misunderstandings 

leading to rejection of ACO participant 

agreements during application review. 

Specifically, we propose to require that 

ACO participant agreements satisfy the 

following criteria: 

• The ACO and the ACO participant 

are the only parties to the agreement. 

• The agreement must be signed on 

behalf of the ACO and the ACO 

participant by individuals who are 

authorized to bind the ACO and the 

ACO participant, respectively. 

• The agreement must expressly 

require the ACO participant to agree, 

and to ensure that each ACO provider/ 

supplier billing through the TIN of the 

ACO participant agrees, to participate in 

the Shared Savings Program and to 

comply with the requirements of the 

Shared Savings Program and all other 

applicable laws and regulations 

(including, but not limited to, those 

specified at § 425.208(b)). 

• The agreement must set forth the 

ACO participant’s rights and obligations 

in, and representation by, the ACO, 

including without limitation, the quality 

reporting requirements set forth in 

Subpart F, the beneficiary notification 

requirements set forth at § 425.312, and 

how participation in the Shared Savings 

Program affects the ability of the ACO 

participant and its ACO providers/

suppliers to participate in other 

Medicare demonstration projects or 

programs that involve shared savings. 

• The agreement must describe how 

the opportunity to receive shared 

savings or other financial arrangements 

will encourage the ACO participant to 

adhere to the quality assurance and 

improvement program and evidencebased medicine guidelines established 

by the ACO. 

• The agreement must require the 

ACO participant to update enrollment 

information with its Medicare 

contractor using the PECOS, including 

the addition and deletion of ACO 

professionals billing through the TIN of 

the ACO participant, on a timely basis 

in accordance with Medicare program 

requirements. The Agreement must also 

require ACO participants to notify the 

ACO within 30 days after any addition 

or deletion of an ACO provider/

supplier. 

• The agreement must permit the 

ACO to take remedial action against the 

ACO participant, and must require the 

ACO participant to take remedial action 

against its ACO providers/suppliers, 

including imposition of a corrective 

action plan, denial of shared savings 

payments (that is, the ability of the ACO 

participant or ACO provider/supplier to 

receive a distribution of the ACO’s 

shared savings) and termination of the 

ACO participant agreement, to address 

noncompliance with the requirements 

of the Shared Savings Program and 

other program integrity issues, 

including those identified by CMS. 

• The term of the agreement must be 

for at least 1 performance year and must 

articulate potential consequences for 

early termination from the ACO. 

• The agreement must require 

completion of a close-out process upon 

the termination or expiration of the 

ACO’s participation agreement that 

requires the ACO participant to furnish 

data necessary to complete the annual 

assessment of the ACO’s quality of care 

and addresses other relevant matters. 

Although we propose that the term of 

an ACO participant agreement be for at 

least 1 performance year, we do not 

intend to prohibit early termination of 

the agreement. We recognize that there 

may be legitimate reasons to terminate 

an ACO participant agreement. 

However, because care coordination and 

quality improvement requires 

commitment from ACO participants, we 

believe this requirement would improve 

the likelihood of success in the Shared 

Savings Program. We are also 

considering whether and how ACO 

participant agreements should 

encourage participation to continue for 

subsequent performance years. We seek 

comment on this issue. 

In the case of an ACO that chooses to 

contract directly with its ACO 

providers/suppliers, we propose 

virtually identical requirements for its 

agreements with ACO providers/

suppliers. We note that agreements with 

ACO providers/suppliers would not be 

required to be for a term of 1 year, 

because we do not want to impede 

individual practitioners from activities 

such as retirement, reassignment of 

billing rights, or changing employers. In 

the case of ACO providers/suppliers 

that do not have a contract directly with 

the ACO, we are considering requiring 

each ACO to ensure that its ACO 

participants contract with or otherwise 

arrange for the services of its ACO 

providers/suppliers on the same or 

similar terms as those required for 

contracts made directly between the 

ACO and ACO providers/suppliers. 

In addition, we propose to add at 

§ 425.204(c)(6) a requirement that, as 

part of the application process and upon 

request thereafter, the ACO must submit 

documents demonstrating that its ACO 

participants, ACO providers/suppliers, 

and other individuals or entities 

performing functions or services related 

to ACO activities are required to comply 

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72768 Federal Register / Vol. 79, No. 235 / Monday, December 8, 2014 / Proposed Rules 

with the requirements of the Shared 

Savings Program. In the case of ACO 

participants, the evidence to be 

submitted must, consistent with our 

past guidance, include executed 

agreements or sample form agreements 

together with the first and last 

(signature) page of each form agreement 

that has been fully executed by the 

parties to the agreement. However, we 

reserve the right, to request all pages of 

an executed ACO participant agreement 

to confirm that it conforms to the 

sample form agreement submitted by 

the ACO. We further propose at 

§ 425.116(c) that executed ACO 

participant agreements must also be 

submitted when an ACO seeks approval 

to add new ACO participants. The 

agreements may be submitted in the 

same form and manner as set forth in 

§ 425.204(c)(6). Finally, although we 

would not routinely request an ACO to 

submit copies of executed agreements 

with its ACO providers/suppliers or 

other individuals or entities performing 

functions or services related to ACO 

activities as part of the ACO’s 

application or continued participation 

in each performance year, we reserve 

our right to request this information 

during the application or renewal 

process and at any other time for audit 

or monitoring purposes in accordance 

with § 425.314 and § 425.316. 

We believe that the proposed 

requirements regarding agreements 

between ACOs and ACO participants, 

together with our earlier guidance 

regarding good contracting practices, 

would enhance transparency between 

the ACO, ACO participants, and ACO 

professionals, reduce turnover among 

ACO participants, prevent 

misunderstandings related to 

participation in the Shared Savings 

Program, and assist prospective ACOs in 

submitting complete applications and 

requests for adding ACO participants. 

We believe that codifying these 

requirements would assist the ACO, 

ACO participants, and ACO providers/ 

suppliers in better understanding the 

program and their rights and 

responsibilities while participating in 

the program. We solicit comment on the 

proposed new requirements and on 

whether there are additional elements 

that should be considered for inclusion 

in the agreements the ACO has with its 

ACO participants and ACO providers/

suppliers. 

2. Sufficient Number of Primary Care 

Providers and Beneficiaries 

a. Overview 

Section 1899(b)(2)(D) of the Act 

requires participating ACOs to ‘‘include 

primary care ACO professionals that are 

sufficient for the number of Medicare 

fee-for-service beneficiaries assigned to 

the ACO . . .’’ and that at a minimum, 

‘‘the ACO must have at least 5,000 such 

beneficiaries assigned to it. . . .’’ Under 

§ 425.110(a)(2) of the regulations, an 

ACO is deemed to have initially 

satisfied the requirement to have at least 

5,000 assigned beneficiaries if the 

number of Medicare beneficiaries 

historically assigned to the ACO 

participants in each of the 3 years before 

the start of the agreement period is 

5,000 or more. 

Under the beneficiary assignment 

methodology set forth in the regulations 

at part 425, subpart E, the assignment of 

beneficiaries to a particular ACO for a 

calendar year is dependent upon a 

number of factors, including where the 

beneficiary elected to receive primary 

care services and whether the 

beneficiary received primary care 

services from ACO professionals 

participating in one or more Shared 

Savings Program ACOs. We note that to 

ensure no duplication in shared savings 

payments for care provided to the same 

beneficiaries, assignment of a 

beneficiary may also be dependent on 

whether the beneficiary has been 

assigned to another initiative involving 

shared savings, such as the Pioneer ACO 

Model (§ 425.114(c)). While a final 

assignment determination can be made 

for the first 2 benchmark years (BY1 and 

BY2, respectively) for an ACO applying 

to participate in the Shared Savings 

Program, it is not possible to determine 

the final assignment for the third 

benchmark year (BY3) (that is, the 

calendar year immediately prior to the 

start of the agreement period) because 

application review and determination of 

whether the ACO has met the required 

5,000 assignment must take place 

during BY3 before all claims are 

submitted for the calendar year. Further, 

there is a lag period after the end of a 

calendar year during which additional 

claims for the year are billed and 

processed. Therefore, the final historical 

benchmark for the 3-year period and the 

preliminary prospective assignment for 

PY1 must be determined after the ACO’s 

agreement period has already started. 

We note that we currently estimate the 

number of historically assigned 

beneficiaries for the third benchmark 

year for Tracks 1 and 2 by using claims 

with dates of service for the last 3 

months of benchmark year 2 (October 

through December) and the first 9 

months of benchmark year 3 (January 

through September, with up to 3 months 

claims run out, as available). We use 

this approach to calculate the number of 

assigned beneficiaries for BY3 in order 

to be as consistent as possible with the 

timeframes (that is, 12 month period) 

and claims run out used for the BY1 and 

BY2 calculations. 

Section 425.110(b) provides that an 

ACO that falls below 5,000 assigned 

beneficiaries at any time during the 

agreement period will be allowed to 

continue in the program, but CMS must 

issue a warning letter and place the 

ACO on a CAP. The purpose of this 

provision is to ensure that the ACO is 

aware that its number of assigned 

beneficiaries is below 5,000, is notified 

of the consequences of remaining under 

5,000, and that the ACO is taking 

appropriate steps to correct the 

deficiency. 

Section 425.110(b)(1) provides that, 

while under the CAP, the ACO will 

remain eligible to share in savings for 

the performance year in which it fell 

below the 5,000, and the MSR will be 

adjusted according to the number of 

assigned beneficiaries determined at the 

time of reconciliation. For example, 

according to Table 6 in the November 

2011 final rule (42 FR 67928), a Track 

1 ACO with an assigned population of 

5,000 would have an MSR of 3.9. If the 

ACO’s number of assigned beneficiaries 

falls below 5,000, we would work with 

the CMS Office of the Actuary to 

determine the MSR for the number of 

beneficiaries below 5,000, set at the 

same 90 percent confidence interval that 

is used to determine an ACO’s MSR 

when the ACO has a smaller assigned 

beneficiary population. If the number of 

beneficiaries assigned to the ACO 

remains less than 5,000 by the end of 

the next performance year, the ACO is 

terminated and is not be permitted to 

share in savings for that performance 

year (§ 425.110(b)(2)). 

b. Proposed Revisions 

First, we propose to revise 

§ 425.110(a)(2) to clarify the data used 

during the application review process to 

estimate the number of beneficiaries 

historically assigned in each of the 3 

years of the benchmarking period. 

Specifically, we propose that the 

number of assigned beneficiaries would 

be calculated for each benchmark year 

using the assignment methodology set 

forth in Subpart E of part 425, and in the 

case of BY3, we would use the most 

recent data available with up to a 3- 

month claims run out to estimate the 

number of assigned beneficiaries. This 

proposed revision would reflect current 

operational processes under which we 

assign beneficiaries to ACOs using 

complete claims data for BY1 and BY2 

but must rely on incomplete claims data 

for BY3. We would likely continue to 

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estimate the number of historically 

assigned beneficiaries for the third 

benchmark year by using claims with 

dates of service for the last 3 months of 

BY2 and the first 9 months of BY3, with 

up to 3 months claims run out. 

However, that could vary from year to 

year depending on data availability 

during the application review process. 

As discussed previously, we believe that 

using this approach to calculate the 

number of assigned beneficiaries for 

BY3 is consistent with the timeframes 

and claims run out used for BY1 and 

BY2 calculations because we would be 

using a full 12 months of claims, rather 

than the only available claims for the 

calendar year, which would be less than 

12 months. 

The estimates of the number of 

assigned beneficiaries would be used 

during the ACO application review 

process to determine whether the ACO 

exceeds the 5,000 assigned beneficiary 

threshold for each year of the historical 

benchmark period. If based upon these 

estimates, we determine that an ACO 

had at least 5,000 assigned beneficiaries 

in each of the benchmark years, it 

would be deemed to have initially 

satisfied the eligibility requirement that 

the ACO have at least 5,000 assigned 

beneficiaries. The specific data to be 

used for computing these initial 

estimates during the ACO application 

review process would be designated 

through program instructions and 

guidance. Although unlikely, it is 

possible that when final benchmark year 

assignment numbers are generated after 

the ACO has been accepted into the 

program, the number of assigned 

beneficiaries could be below 5,000. In 

this event, the ACO will be allowed to 

continue in the program, but may be 

subject to the actions set forth in 

§ 425.110(b). 

Second, given our experience with the 

program and the timing of performance 

year determinations regarding 

beneficiary assignment provided during 

reconciliation, we wish to modify our 

rules to provide greater flexibility to 

address situations in which an ACO’s 

assigned beneficiary population falls 

below 5,000 assigned beneficiaries. 

Specifically, we have concerns that in 

some cases it may be very difficult for 

an ACO to increase its number of 

assigned beneficiaries by the end of the 

next performance year, as currently 

required by § 425.110(b)(2). For 

example, assume an ACO with a start 

date of January 2013 were to get its third 

quarterly report for PY1 in November or 

December 2013, and the report 

indicated that the ACO’s preliminary 

prospectively assigned beneficiary 

population had fallen below 5,000. 

Under our current regulations, we 

would send the ACO a warning letter 

and place the ACO on a CAP. If the ACO 

were to fail to increase its assigned 

beneficiary population to at least 5,000 

by the end of the next performance year 

(PY2), it would be terminated. We note 

that increasing the number of assigned 

beneficiaries generally involves adding 

new ACO participants and/or ACO 

providers/suppliers. However, in the 

previous example, by the time the ACO 

had been notified that its assigned 

beneficiary population had fallen below 

5,000 beneficiaries, it would have been 

too late for the ACO to add new ACO 

participants for PY2, leaving the ACO 

with more limited options for timely 

correction of the deficit. We believe that 

§ 425.110(b) should be modified to 

provide ACOs with adequate time to 

successfully complete a CAP. Therefore, 

we propose to revise § 425.110(b)(2) to 

state that CMS will specify in its request 

for a CAP the performance year during 

which the ACO’s assigned population 

must meet or exceed 5,000 beneficiaries. 

This modification would permit some 

flexibility for ACOs whose assigned 

populations fall below 5,000 late in a 

performance year to take appropriate 

actions to address the deficit. 

Additionally, we do not believe it is 

necessary to request a CAP from every 

ACO whose assigned beneficiary 

population falls below 5,000. For 

example, we should have the discretion 

not to impose a CAP when the ACO has 

already submitted a request to add ACO 

participants effective at the beginning of 

the next performance year and CMS has 

a reasonable expectation that the 

addition of these new ACO participants 

would increase the assigned beneficiary 

population above the 5,000 minimum 

beneficiary threshold. Therefore, we 

propose to revise § 425.110(b) to 

indicate that we have the discretion 

whether to impose any remedial 

measures or to terminate an ACO for 

failure to satisfy the minimum assigned 

beneficiary threshold. Specifically, we 

propose to revise § 425.110(b) to state 

that the ACO ‘‘may’’ be subject to any 

of the actions described in § 425.216 

(actions prior to termination, including 

a warning letter or request for CAP) and 

§ 425.218 (termination). However, we 

note that although we are proposing to 

retain discretion as to whether to 

impose remedial measures or terminate 

an ACO whose assigned beneficiary 

population falls below 5,000, we 

recognize that the requirement that an 

ACO have at least 5,000 assigned 

beneficiaries is a condition of eligibility 

to participate in the Shared Savings 

Program under § 1899(b)(2)(D), and 

would exercise our discretion 

accordingly and consistently. 

3. Identification and Required Reporting 

of ACO Participants and ACO 

Providers/Suppliers 

a. Overview 

For purposes of the Shared Savings 

Program, an ACO is an entity that is 

identified by a TIN and comprised of 

one or more Medicare-enrolled TINs 

associated with ACO participants (see 

§ 425.20). The Medicare-enrolled TINs 

of ACO participants, in turn, are 

associated with Medicare enrolled 

individuals and entities that bill 

through the TIN of the ACO participant. 

(For example, in the case of a physician, 

the physician has reassigned to the TIN 

of the ACO participant his or her right 

to receive Medicare payments, and their 

services to Medicare beneficiaries are 

billed by the ACO participant under a 

billing number assigned to the TIN of 

the ACO participant). 

As part of the application process and 

annually thereafter, the ACO must 

submit a certified list identifying all of 

its ACO participants and their 

Medicare-enrolled TINs (the ‘‘ACO 

participant list’’) (§ 425.204(c)(5)(i)). 

Additionally, for each ACO participant, 

the ACO must submit a list identifying 

all ACO providers/suppliers (including 

their NPIs or other provider identifiers) 

that bill Medicare during the agreement 

period under a billing number assigned 

to the TIN of an ACO participant (the 

‘‘ACO provider/supplier list’’) 

(§ 425.204(c)(5)(i)(A)). Our regulations 

require the ACO to indicate on the ACO 

provider/supplier list whether an 

individual is a primary care physician 

as defined at § 425.20. All Medicare 

enrolled individuals and entities that 

bill through an ACO participant’s TIN 

during the agreement period must be on 

the certified ACO provider/supplier list 

and agree to participate in the ACO. 

ACOs are required to maintain, update, 

and annually furnish the ACO 

participant and ACO provider/supplier 

lists to CMS at the beginning of each 

performance year and at such other 

times as may be specified by CMS 

(§ 425.304(d)). 

We use TINs identified on the ACO 

participant list to identify claims billed 

to Medicare in order to support the 

assignment of Medicare fee-for-service 

beneficiaries to the ACO, the 

implementation of quality and other 

reporting requirements, and the 

determination of shared savings and 

losses (see section 1899(b)(2)(E) of the 

Act). We also use the ACO’s initial (and 

annually updated) ACO participant list 

to: Identify parties subject to the 

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screenings under § 425.304(b); 

determine whether the ACO satisfies the 

requirement to have a minimum of 

5,000 assigned beneficiaries; establish 

the historical benchmark; perform 

financial calculations associated with 

quarterly and annual reports; determine 

preliminary prospective assignment for 

and during the performance year; 

determine a sample of beneficiaries for 

quality reporting; and coordinate 

participation in the Physician Quality 

Reporting System (PQRS) under the 

Shared Savings Program. Both the ACO 

participant and ACO provider/supplier 

lists are used to ensure compliance with 

program requirements. We refer readers 

to our guidance at http://www.cms.gov/ 

Medicare/Medicare-Fee-for-ServicePayment/sharedsavingsprogram/

Updating-ACO-Participant-List.html for 

more information. 

In this section, we discuss current 

policy and procedures regarding the 

identification and required reporting of 

ACO participants and ACO providers/

suppliers. In addition, we propose 

revisions to our regulations to improve 

program transparency by ensuring that 

all ACO participants and ACO 

providers/suppliers are accurately 

identified. 

b. Proposed Revisions 

In order to administer the Shared 

Savings Program, we need to identify 

accurately the ACO participants and 

ACO providers/suppliers associated 

with each ACO that participates in the 

program. An accurate understanding of 

the ACO participants is critical for 

assignment of beneficiaries to the ACO 

as well as assessing the quality of care 

provided by the ACO to its assigned 

beneficiaries. An accurate 

understanding of the ACO providers/

suppliers is also critical for ensuring 

compliance with program rules. We 

believe that this information is equally 

critical to the ACO for its own 

operational and compliance purposes. 

Thus, both CMS and the ACO need to 

have a common understanding of the 

individuals and entities that comprise 

the ACO participants and ACO 

providers/suppliers in the ACO. We 

obtain this common understanding by 

requiring the ACO to certify the 

accuracy of its ACO participant and 

ACO provider/supplier lists prior to the 

start of each performance year and to 

update the lists as changes occur during 

the performance year. Because we rely 

on these lists for both operational and 

program integrity purposes, we must 

have a transparent process that results 

in the accurate identification of all ACO 

participants and ACO providers/

suppliers that compose each ACO in the 

Shared Savings Program. 

We propose to add a new § 425.118 to 

reflect with more specificity the 

requirements for submitting ACO 

participant and ACO provider/supplier 

lists and the reporting of changes to 

those lists. In addition, we propose to 

revise § 425.204(c)(5) and to remove 

§ 425.214(a) and § 425.304(d) because 

these provisions are addressed in new 

§ 425.118. 

(1) Certified Lists of ACO Participants 

and ACO Providers/Suppliers 

We intend to continue to require 

ACOs to maintain, update and submit to 

CMS accurate and complete ACO 

participant and ACO provider/supplier 

lists, but are proposing to establish new 

§ 425.118 to set forth the requirements 

and processes for maintaining, 

updating, and submitting the required 

ACO participant and ACO provider/

supplier lists. New § 425.118 would 

consolidate and revise provisions at 

§ 425.204(c)(5), § 425.214(a) and 

§ 425.304(d) regarding the ACO 

participant and ACO provider/supplier 

lists. Specifically, we propose at 

§ 425.118(a) that prior to the start of the 

agreement period and before each 

performance year thereafter, the ACO 

must provide CMS with a complete and 

certified list of its ACO participants and 

their Medicare-enrolled TINs. We would 

use this ACO participant list to identify 

the Medicare-enrolled individuals and 

entities that are affiliated with the ACO 

participant’s TIN in PECOS, the CMS 

enrollment system. Because these 

individuals and entities are currently 

billing through the Medicare enrolled 

TIN identified by the ACO as an ACO 

participant, they must be included on 

the ACO provider/supplier list. We 

would provide the ACO with a list of all 

ACO providers/suppliers (NPIs) that we 

have identified as billing through each 

ACO participant’s Medicare-enrolled 

TIN. In accordance with § 425.118(a), 

the ACO would be required to review 

the list, make any necessary corrections, 

and certify the lists of all of its ACO 

participants and ACO providers/

suppliers (including their TINs and 

NPIs) as true, accurate, and complete. In 

addition, we propose that an ACO must 

submit certified ACO participant and 

ACO provider/supplier lists at any time 

upon CMS request. We note that all 

NPIs that reassign their right to receive 

Medicare payment to an ACO 

participant must be on the certified list 

of ACO providers/suppliers and must 

agree to be ACO providers/suppliers. 

We propose to clarify this point in 

regulations text at § 425.118(a)(4). 

Finally, in accordance with 

developing and certifying the ACO 

participant and provider/supplier lists, 

we propose at § 425.118(d) to require 

the ACO to report changes in ACO 

participant and ACO provider/supplier 

enrollment status in PECOS within 30 

days after such changes have occurred 

(for example, to report changes in an 

ACO provider’s/supplier’s reassignment 

of the right to receive Medicare payment 

or revocation of billing rights). This 

requirement corresponds with our 

longstanding policy that requires 

enrolled providers and suppliers to 

notify their Medicare contractors 

through PECOS within specified 

timeframes for certain reportable events. 

We recognize that PECOS is generally 

not accessible to ACOs to make these 

changes directly because most ACOs are 

not enrolled in Medicare. Therefore, an 

ACO may satisfy the requirement to 

update PECOS throughout the 

performance year by requiring its ACO 

participants to submit the required 

information directly in PECOS within 

30 days after the change, provided that 

the ACO participant actually submits 

the required information within 30 

days. We propose to require ACOs to 

include language in their ACO 

participant agreements (discussed in 

section II.B.1. of this proposed rule) to 

ensure compliance with this 

requirement. We are not proposing to 

change the current 30-day timeframe 

required for such reporting in PECOS. 

These changes are consistent with the 

current requirements regarding ACO 

participant and ACO provider/supplier 

list updates under § 425.304(d) and we 

believe that they would enhance 

transparency and accuracy within the 

Shared Savings Program. We further 

propose to remove § 425.304(d) because 

the requirements, although not 

modified, would be incorporated into 

new § 425.118(d). 

This revised process should afford the 

ACO the opportunity to work with its 

ACO participants to identify its ACO 

providers/suppliers and to ensure 

compliance with Shared Savings 

Program requirements. Currently, we 

also require the ACO to indicate 

whether the ACO provider/supplier is a 

primary care physician as defined in 

§ 425.20. Because this information is 

derived from the claims submitted 

under the ACO participant’s TINs 

(FQHCs and RHCs being the exception), 

we have found this unnecessary to 

implement the program, so we are 

proposing to remove this requirement, 

which currently appears in 

§ 425.204(c)(5)(i)(A). 

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(2) Managing Changes to ACO 

Participants 

Except for rare instances, such as the 

cessation of ACO participant operations 

or exclusion from the Medicare 

program, we expect ACO participants to 

remain in the ACO for the entire 3 year 

agreement period. This is due to our 

belief that care coordination and quality 

improvement require the commitment 

of ACO participants. Moreover, as noted 

previously, we utilize the ACO 

participant list, among other things, for 

assigning beneficiaries to the ACO, 

determining the ACO’s benchmark and 

performance year expenditures, and 

drawing the sample for ACO quality 

reporting. Nevertheless, we understand 

that there are legitimate reasons why an 

ACO may need to update its list of ACO 

participants during the 3-year agreement 

period. Thus, under current 

§ 425.214(a), an ACO may add or 

remove ACO participants (identified by 

TINs) throughout a performance year, 

provided that it notifies CMS within 30 

days of such addition or removal. 

If such changes occur, we may, at our 

discretion, adjust the ACO’s benchmark, 

risk scores, and preliminary prospective 

assignment (§ 425.214(a)(3)). We 

articulated the timing of these changes 

in our guidance (http://cms.gov/

Medicare/Medicare-Fee-for-ServicePayment/sharedsavingsprogram/

Updating-ACO-Participant-List.html), 

which states that we adjust the ACO’s 

historical benchmark at the start of a 

performance year if the ACO participant 

list that the ACO certified at the start of 

that performance year differs from the 

one it certified at the start of the prior 

performance year. We use the updated 

certified ACO participant list to assign 

beneficiaries to the ACO in the 

benchmark period (the 3 years prior to 

the start of the ACO’s agreement period) 

in order to determine the ACO’s 

adjusted historical benchmark. Our 

guidance provides that, as a result of 

changes to the ACO’s certified ACO 

participant list, we may adjust the 

historical benchmark upward or 

downward. We use the new annually 

certified list of ACO participants and 

the adjusted benchmark for the 

following program operations: The new 

performance year’s assignment; quality 

measurement and sampling; reports for 

the new performance year; and financial 

reconciliation. We provide ACOs with 

the adjusted Historical Benchmark 

Report reflecting these changes. 

However, our guidance stated that 

absent unusual circumstances, changes 

in ACO participants that occur in the 

middle of a performance year will not 

result in midyear changes to 

assignment, sampling for quality 

reporting, financial reconciliation, or 

other matters. As indicated in our 

guidance, the midyear removal of an 

entity from the ACO participant list due 

to program integrity issues is one 

unusual circumstance that could result 

in midyear changes to assignment and 

other matters. Finally, our guidance 

states that we do not make adjustments 

upon Medicare payment changes such 

as wage-index adjustments, or the 

addition or deletion of ACO participants 

during the course of the performance 

year made by the ACO and ACO 

participants. 

We propose to add new provisions at 

§ 425.118(b) to address the procedures 

for adding and removing ACO 

participants during the agreement 

period. These proposals revise the 

regulations to incorporate some of the 

important policies that we have 

implemented through our operational 

guidance as well as some additional 

proposals to ease the administrative 

burden generated by the magnitude of 

changes made to ACO participant lists 

to date. 

First, we propose under 

§ 425.118(b)(1) that an ACO must 

submit a request to add a new entity to 

its ACO participant list in the form and 

manner specified by CMS and that CMS 

must approve additions to the ACO 

participant list before they can become 

effective. We do not believe ACO 

participants should be admitted into the 

program if, for example, the screening 

conducted under § 425.304(b) reveals 

that the entity has a history of program 

integrity issues, or if the ACO 

participant agreement with the entity 

does not comply with program 

requirements, or if the entity is 

participating in another Medicare 

shared savings initiative (§ 425.114). If 

CMS denies the request to add an entity 

to the ACO participant list, then the 

entity is not eligible to participate in the 

ACO for the upcoming performance 

year. 

Second, we propose that, if CMS 

approves the request, the entity will be 

added to the ACO participant list at the 

beginning of the following performance 

year. That is, entities that are approved 

for addition to the ACO participant list 

will not become ACO participants, and 

their claims would not be considered for 

purposes of benchmarking, assignment 

and other operational purposes, until 

the beginning of the next performance 

year. For example, if an ACO notifies 

CMS of the addition of an entity in June 

of the second performance year (PY2), 

the entity would not become an ACO 

participant and its claims would not be 

included in program operations until 

January 1 of PY3 if CMS approves the 

entity’s addition. 

Third, we propose that an ACO must 

notify CMS no later than 30 days after 

the date of termination of the entity’s 

ACO participant agreement. The ACO 

may notify CMS in advance of such 

termination. The ACO must submit the 

notice of removal, which must include 

the date of termination, in the form and 

manner specified by CMS. We propose 

that the removal of the ACO participant 

from the ACO participant list would be 

effective on the date of termination of 

the ACO participation agreement. 

We propose at § 425.118(b)(3)(i) that 

changes made by an ACO to its annually 

certified ACO participant list would 

result in adjustments to its historical 

benchmark, assignment, quality 

reporting sample, and the obligation of 

the ACO to report on behalf of eligible 

professionals for certain CMS quality 

initiatives. We would annually adjust 

the ACO’s benchmark calculations to 

include (or exclude) the claims 

submitted during the benchmark years 

by the newly added (or removed) ACO 

participants. In other words, the 

annually certified ACO participant list 

is used under Subparts E (assignment of 

beneficiaries), F (quality performance 

assessment), and G (calculation of 

shared savings/losses) for the 

performance year. For example, if an 

ACO began program participation in 

2013, the PY1 certified list generates an 

historical benchmark calculated from 

claims submitted by the TINs on the 

PY1 certified list during CY 2010, 2011, 

and 2012. If the ACO adds ACO 

participants during 2013 and certifies an 

updated list for PY2 reflecting those 

additions, we would adjust the 

historical benchmark to accommodate 

those changes by recalculating the 

benchmark using the claims submitted 

by the PY2 list of certified ACO 

participants during the ACO’s same 

benchmark years (CYs 2010, 2011, and 

2012). In this way, the ACO’s 

benchmark continues to be based on the 

same 3 years prior to the start of the 

ACO’s agreement, but ensures that the 

changes in ACO composition and 

performance year calculations retain a 

consistent comparison between 

benchmark and performance during the 

agreement period. 

As noted previously, adjustment to 

the ACO’s historical benchmark as a 

result of changes to the ACO’s certified 

ACO participant list may move the 

benchmark upward or downward. We 

would use the annual certified ACO 

participant list and the adjusted 

benchmark for the new performance 

year’s beneficiary assignment, quality 

measurement and other operations that 

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are dependent on the ACO participant 

list as outlined in our guidance. We 

would provide ACOs with an adjusted 

Historical Benchmark Report that 

reflects the new certified ACO 

participant list. We propose to add this 

requirement at § 425.118(b)(3). 

We propose at § 425.118(b)(3)(ii) to 

codify the policy we established in 

guidance that, absent unusual 

circumstances, the removal of an ACO 

participant from the ACO participant 

list during the performance year must 

not affect certain program calculations 

for the remainder of the performance 

year in which the removal becomes 

effective. Namely, the removal of an 

entity from the ACO participant list 

during the performance year would not 

affect the ACO’s beneficiary assignment 

or, by extension, such program 

operations as the calculation of the 

ACO’s historical benchmark, financial 

calculations for quarterly and annual 

reporting, the sample of beneficiaries for 

quality reporting, or the obligation of 

the ACO to report on behalf of eligible 

professionals for certain quality 

initiatives. In other words, absent 

unusual circumstances, CMS uses only 

the ACO participant list that is certified 

at the beginning of a performance year 

to assign beneficiaries to the ACO under 

Subpart E and to determine the ACO’s 

quality and financial performance for 

that performance year under Subparts F 

and G. Examples of unusual 

circumstances that might justify 

midyear changes include the midyear 

removal of an ACO participant due to 

avoidance of at-risk beneficiaries or 

another program integrity issue. 

For example, if an ACO participant is 

on the ACO’s certified list of ACO 

participants for the second performance 

year, and the ACO timely notifies CMS 

of the termination of the entity’s ACO 

participant agreement effective June 

30th of PY2, the ACO participant would 

be removed from the ACO participant 

list effective June 30th of PY2. However, 

the former ACO participant’s TIN would 

still be used for purposes of calculating 

the quality reporting requirements, 

financial reports, benchmarking, 

assignment and reporting of PQRS, 

meaningful use of EHR, and the valuebased modifier. The ACO participant 

list that was certified at the start of the 

performance year governs the 

assessment of the ACO’s financial and 

quality performance for that year, 

regardless of changes to the list during 

the performance year. We believe this is 

necessary to help create some stability 

in the assessment of the ACO’s quality 

and financial performance for each 

performance year. If CMS had to modify 

underlying program operations each 

time an ACO added or removed a TIN 

from its list of ACO participants, the 

ACO would not be able to rely on 

information (such as the calculation of 

the historical benchmark) that we 

provide before the beginning of the 

performance year. We would not make 

adjustments upon Medicare payment 

changes such as wage index 

adjustments. 

We further believe it is important for 

ACOs to communicate effectively with 

ACO participants that seek to join an 

ACO so that they understand the 

potential impact to the ACO, the ACO 

participant, and the ACO providers/

suppliers affiliated with the ACO 

participant when an ACO participant 

leaves during a performance year. For 

example, it is likely that the ACO would 

be required to report quality data for 

beneficiaries that were seen by the 

former ACO participant in the previous 

12 months. The ACO must work with 

the former ACO participant to obtain the 

necessary quality reporting data. 

Additionally, the ACO participant 

would not be able to qualify for PQRS 

incentive payment or avoid the PQRS 

payment adjustment apart from the ACO 

for that performance year. Therefore, it 

is in the best interest of both parties to 

understand this in advance and to 

commit to working together to fulfill the 

obligations for the performance year. To 

assist ACO and ACO participants, we 

have proposed criteria for ACO 

participant agreements addressing this 

issue (see section II.B.1. of this proposed 

rule). 

(3) Managing Changes to ACO 

Providers/Suppliers 

We recognize that ACO providers/

suppliers may terminate their affiliation 

with an ACO participant or affiliate 

with new or additional Medicareenrolled TINs (which may or may not be 

ACO participants) on a frequent basis. 

Thus, the annual certified ACO 

provider/supplier list may quickly 

become outdated. In order to ensure that 

CMS and the ACO have a common 

understanding of which NPIs are part of 

the ACO at any particular point in time, 

our regulations at § 425.214 set forth 

requirements for managing changes to 

the ACO during the term of the 

participation agreement. Specifically, 

§ 425.214(a)(2) and § 425.304(d)(2) 

require an ACO to notify CMS within 30 

days of the addition or removal of an 

ACO provider/supplier from the ACO 

provider/supplier list. 

We are proposing new § 425.118(c) on 

how to report changes to the ACO 

provider/supplier list that occur during 

the performance year. Under proposed 

§ 425.118(c), ACOs will continue to be 

required to report these changes within 

30 days. As discussed later in this 

section, we would require the ACO to 

ensure that changes in ACO participant 

and ACO provider/supplier enrollment 

status are reported in PECOS. However, 

because the lists of ACO providers/

suppliers cannot be maintained in 

PECOS, we propose to require ACOs to 

notify CMS’ Shared Savings Program 

separately, in the form and manner 

specified by CMS, of the addition or 

removal of an ACO provider/supplier. 

At this time, we anticipate that ACOs 

will be required to send such 

notifications via electronic mail; 

however, specific guidance regarding 

this notification process would be 

provided by the Secretary on the CMS 

Web site and/or through the ACO 

intranet portal. 

We propose that an ACO may add an 

individual or entity to the ACO 

provider/supplier list if it notifies CMS 

within 30 days after the individual or 

entity became a Medicare-enrolled 

provider or supplier that bills for items 

and services it furnishes to Medicare 

fee-for-service beneficiaries under a 

billing number assigned to the TIN of an 

ACO participant. If the ACO provides 

such notice by the 30-day deadline, the 

addition of an ACO provider/supplier 

would be effective on the date specified 

in the notice furnished to CMS but no 

earlier than 30 days before the date of 

notice. If the ACO fails to provide 

timely notice to CMS regarding the 

addition of an individual or entity to the 

ACO provider/supplier list, then the 

addition becomes effective on the date 

CMS receives notice from the ACO. 

However, we note that when an 

individual has begun billing through the 

TIN of an ACO participant but is not on 

the ACO provider/supplier list, the 

individual satisfies the definition of an 

ACO professional, in which case his or 

her claims for services furnished to 

Medicare fee-for-service beneficiaries 

are considered for assignment and other 

operational purposes previously 

described. 

Each potential ACO provider/supplier 

that reassigns his or her billing rights 

under the TIN of an ACO participant is 

screened by CMS through the 

enrollment process and PECOS system. 

Additionally, the Shared Savings 

Program conducts additional screening 

on a biannual basis for each ACO 

provider/supplier through the CMS 

Fraud Prevention System. In spite of 

this, we are concerned that our 

proposed effective date for the addition 

of an individual or entity to the ACO 

provider/supplier list will prevent us 

from conducting a robust program 

integrity screening of such individuals 

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and entities. Therefore, we are 

considering whether to delay the 

effective date of any additions to the 

ACO provider/supplier list until after 

we have completed a program integrity 

screening of the individuals or entities 

that the ACO wishes to add to the list. 

For example, we are considering 

whether to delay the effective date of 

additions to the ACO provider/supplier 

list until the start of the next 

performance year, similar to the timing 

for adding TINs of ACO participants to 

the list of ACO participants. In this way, 

a complete yearly screening, including 

screening with the assistance of our law 

enforcement partners, could occur at 

one time for both the ACO participant 

list and the ACO provider/supplier list. 

As noted previously, until the 

individual or entity has been officially 

designated as an ACO provider/

supplier, that individual or entity would 

be an ACO professional because of its 

billing relationship with the ACO 

participant. Thus, any claims billed by 

the ACO professional through the TIN of 

the ACO participant would be used for 

assignment and related activities during 

the performance year in which the 

change takes place, regardless of 

whether the individual or entity 

subsequently becomes an ACO 

provider/supplier. We seek comment on 

this proposal. 

We propose that to remove an ACO 

provider/supplier from the ACO 

provider/supplier list, an ACO must 

notify CMS no later than 30 days after 

the individual or entity ceases to be a 

Medicare-enrolled provider or supplier 

that bills for items and services it 

furnishes to Medicare fee-for-service 

beneficiaries under a billing number 

assigned to the TIN of an ACO 

participant. The individual or entity 

would be removed from the ACO 

provider/supplier list effective as of the 

date the individual or entity terminates 

its affiliation with the ACO participant. 

(4) Update of Medicare Enrollment 

Information 

We propose at § 425.118(d) to require 

the ACO to ensure that changes in ACO 

participant and ACO provider/supplier 

enrollment status are reported in PECOS 

consistent with § 424.516 (for example, 

changes in an ACO provider’s/supplier’s 

reassignment of the right to receive 

Medicare payment or revocation of 

billing rights). As previously discussed 

in detail, this requirement corresponds 

with our longstanding policy that 

requires enrolled providers and 

suppliers to notify their Medicare 

contractors through PECOS within 

specified timeframes for certain 

reportable events. 

4. Significant Changes to an ACO 

a. Overview 

Section 425.214(b) requires an ACO to 

notify CMS within 30 days of any 

significant change. A significant change 

occurs when an ACO is no longer able 

to meet the Shared Savings Program 

eligibility or program requirements 

(§ 425.214(b)). Upon receiving an ACO’s 

notice of a significant change, CMS 

reviews the ACO’s eligibility to 

continue participating in the Shared 

Savings Program and, if necessary, may 

terminate the ACO’s participation 

agreement (§ 425.214 (c)). In addition, 

§ 425.214(c)(2) provides that CMS may 

determine that a significant change has 

caused the ACO’s structure to be so 

different from what was approved in the 

ACO’s initial application that it is no 

longer able to meet the eligibility or 

program requirements. Under such 

circumstances, CMS would terminate 

the ACO’s participation agreement, and 

permit the ACO to submit a new 

application for program participation. In 

the November 2011 final rule (76 FR 

67840), we noted that changes to an 

ACO participant list could constitute a 

significant change to an ACO if, for 

example, the removal of a large primary 

care practice from the list of ACO 

participants caused the number of 

assigned beneficiaries to fall below 

5,000. 

b. Proposed Revisions 

In light of changes proposed in the 

previous section of this preamble, we 

propose to redesignate § 425.214(b) and 

(c) as § 425.214(a) and (b). Second, we 

propose to describe when certain 

changes to the ACO constitute a 

significant change to the ACO. We 

believe that a change in ownership of an 

ACO or the addition or deletion of ACO 

participants could affect an ACO’s 

compliance with the governance 

requirements in § 425.106 or other 

eligibility requirements. We note that 

some changes to the ACO participant 

list may be of such a magnitude that the 

ACO is no longer the entity that was 

originally approved for program 

participation. In addition, depending on 

the nature of the change in ownership, 

the ACO would need to execute a new 

participation agreement with CMS if the 

existing participation agreement is no 

longer with the correct legal entity. We 

believe that such changes constitute 

significant changes and should be 

subject to the actions outlined under 

§ 425.214(b). 

Therefore, we are proposing to specify 

at § 425.214(a) that a significant change 

occurs when the ACO is no longer able 

to meet the eligibility or other 

requirements of the Shared Savings 

Program, or when the number or 

identity of ACO participants included 

on the ACO participant list, as updated 

in accordance with § 425.118, changes 

by 50 percent or more during an 

agreement period. For example, in the 

case of an ACO whose initial certified 

ACO participant list contained ten ACO 

participants, five of which gradually left 

the ACO and either were not replaced 

or were replaced with five different 

ACO participants, the ACO would have 

undergone a significant change because 

the number or identity of its ACO 

participants changed by 50 percent. 

Similarly, if an ACO’s initial certified 

ACO participant list contains 20 ACO 

participants, and the ACO incrementally 

adds 10 new ACO participants for a 

total of 30 ACO participants, it would 

have undergone a significant change 

with the addition of the 10th new ACO 

participant. 

Upon notice that an ACO has 

experienced a significant change, we 

would evaluate the ACO’s eligibility to 

continue participating in the Shared 

Savings Program and make one of the 

determinations listed in the provision 

we propose to redesignate as 

§ 425.214(b). We may request additional 

information to determine whether and 

under what terms the ACO may 

continue in the program. We note that 

a determination that a significant 

change has occurred would not 

necessarily result in the termination of 

the ACO’s participation agreement. We 

further propose to modify § 425.214 to 

provide that an ACO’s failure to notify 

CMS of a significant change must not 

preclude CMS from determining that the 

ACO has experienced a significant 

change. 

In addition, we are seeking comment 

on whether we should consider 

amending our regulations to clarify that 

the ACO’s notice of a significant change 

must be furnished prior to the 

occurrence of the significant change. We 

believe some significant changes could 

benefit from a longer notice period, 

particularly in the case of a change of 

ownership that causes the ACO to be 

unable to comply with program 

requirements. Therefore, we seek 

comment on whether ACOs should be 

required to provide 45 or 60 days’ 

advance notice of a significant change. 

We also seek comment on what changes 

in the ACO participant list should 

constitute a significant change. 

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72774 Federal Register / Vol. 79, No. 235 / Monday, December 8, 2014 / Proposed Rules 

5. Consideration of Claims Billed by 

Merged/Acquired Medicare-Enrolled 

Entities 

a. Overview 

As discussed in the November 2011 

final rule (76 FR 67843), we do not 

believe that mergers and acquisitions by 

ACO providers and suppliers are the 

only way for an entity to become an 

ACO. The statute and our regulations 

permit ACO participants that form an 

ACO to use a variety of collaborative 

organizational structures, including 

collaborations other than merger. We 

reject the proposition that an entity 

under single control, that is, an entity 

formed through a merger, would be 

more likely to meet the goals of 

improved health at a lower cost. 

However, we have received questions 

from industry stakeholders regarding 

how previous mergers and acquisitions 

of entities with Medicare enrolled 

billing TINs will be treated for purposes 

of the Shared Savings Program. In 

particular, some applicants have 

inquired whether the claims billed to 

Medicare in previous years by an entity 

that has since been merged with, or 

acquired by, a different entity could be 

used to determine whether an applicant 

meets the requirement to have at least 

5,000 beneficiaries assigned to it in each 

of the benchmark years (§ 425.110) and 

to establish the ACO’s historical 

benchmark and preliminary prospective 

assignment. To illustrate, suppose a 

large group practice that is a prospective 

ACO participant recently purchased two 

small primary care practices, and the 

primary care practitioners from those 

small practices have reassigned the right 

to receive Medicare payment to the 

larger group practice Medicare-enrolled 

TIN. In this instance, it is likely that the 

primary care providers will continue to 

serve the same patient population they 

served before the practices were 

purchased, and that their patients may 

appear on the ACO’s list of assigned 

beneficiaries at the end of the 

performance year. Therefore, applicants 

and established ACOs have inquired 

whether there is a way to take into 

account the claims billed by the 

Medicare-enrolled TINs of practices 

acquired by sale or merger for purposes 

of meeting the minimum assigned 

beneficiary threshold and creating a 

more accurate benchmark and 

preliminary prospective list of assigned 

beneficiaries for the upcoming 

performance year. Similarly, an 

established ACO may request 

consideration of the claims billed by the 

Medicare-enrolled TINs of entities 

acquired during the course of a 

performance year for the same purposes. 

In response to questions from 

industry stakeholders, we provided 

additional guidance on our Web site to 

all Shared Savings Program applicants 

about the requirements related to 

mergers and acquisitions (see http://

www.cms.gov/Medicare/Medicare-Feefor-Service-Payment/

sharedsavingsprogram/Downloads/

Merger-Acquisitions-FAQ.pdf). In this 

guidance, we indicated that under the 

following circumstances, we may take 

the claims billed under TINs of entities 

acquired through purchase or merger 

into account for purposes of beneficiary 

assignment and the ACO’s historical 

benchmark: 

• The ACO participant must have 

subsumed the acquired entity’s TIN in 

its entirety, including all the providers 

and suppliers that reassigned the right 

to receive Medicare payment to that 

acquired entity’s TIN. 

• All the providers and suppliers that 

previously reassigned the right to 

receive Medicare payment to the 

acquired entity’s TIN must reassign that 

right to the TIN of the acquiring ACO 

participant. 

• The acquired entity’s TIN must no 

longer be used to bill Medicare. 

In order to attribute the billings of 

merged or acquired TINs to the ACO’s 

benchmark, the ACO applicant must— 

• Submit the acquired entity’s TIN on 

the ACO participant list, along with an 

attestation stating that all providers and/ 

suppliers that previously billed under 

the acquired entity’s TIN have 

reassigned their right to receive 

Medicare payment to an ACO 

participant’s TIN; 

• Indicate the acquired entity’s TIN 

and which ACO participant acquired it; 

and 

• Submit supporting documentation 

demonstrating that the entity’s TIN was 

acquired by an ACO participant through 

a sale or merger and submit a letter 

attesting that the acquired entity’s TIN 

will no longer be used to bill Medicare. 

We note that we require an 

applicant’s list of ACO providers/

suppliers to include all individuals who 

previously billed under the acquired 

entity’s TIN to have reassigned their 

right to receive Medicare payment to an 

ACO participant’s TIN. 

We believe that these requirements 

are necessary to ensure that these 

entities have actually been completely 

merged or acquired and that it would be 

likely that the primary care providers 

will continue to serve the same patient 

population. In this way, the beneficiary 

assignments and the benchmarks would 

be more accurate for ACOs that include 

merged or acquired Medicare-enrolled 

TINs under which their ACO 

professionals billed during application 

or updates to the ACO participant list. 

b. Proposal 

We believe the current criteria and 

processes have been working well and 

have benefited both CMS (for example, 

by providing assurance that an entity’s 

Medicare-enrolled billing TIN have 

actually been acquired through sale or 

merger) and the affected ACOs (for 

example, by allowing for an increase in 

the ACO’s number of appropriately 

assigned beneficiaries and providing for 

a more accurate financial benchmark). 

To avoid uncertainty and to establish a 

clear and consistent process for the 

recognition of the claims previously 

billed by the TINs of acquired entities, 

we propose to codify the current 

operational guidance on this topic at 

§ 425.204(g) with some minor revisions 

to more precisely and accurately 

describe our proposed policy. Proposed 

§ 425.204(g) would add the option for 

ACOs to request consideration of claims 

submitted by the Medicare-enrolled 

TINs of acquired entities as part of their 

application, and would address the 

documentation requirements for such 

requests. Although this provision is 

added in a section regarding the content 

of the initial application, we propose to 

permit ACOs to annually request 

consideration of claims submitted by 

the TINs of entities acquired through 

sale or merger upon submission of the 

ACO’s updated list of ACO participants. 

6. Legal Structure and Governance 

Section 1899(b)(1) of the Act requires 

ACO participants to have established a 

‘‘mechanism for shared governance’’ in 

order to be eligible to participate as 

ACOs in the Shared Savings Program. In 

addition, section 1899(b)(2)(C) of the 

Act requires the ACO to have a formal 

legal structure that allows the 

organization to receive and distribute 

shared savings payments to ACO 

participants and ACO providers/

suppliers. We believe this requirement 

is important because a formal legal 

structure can ensure the ACO is 

protected against improper influence. In 

this section, we propose clarifications to 

our rules related to the ACO’s legal 

entity and governing body. The purpose 

of these changes is to clarify our 

regulations and to ensure that ACO 

decision making is governed by 

individuals who have a fiduciary duty, 

including a duty of loyalty, to the ACO 

alone and not to any other individuals 

or entities. We believe these 

clarifications are relatively minor and 

would not significantly impact the 

program as currently implemented. 

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Federal Register / Vol. 79, No. 235 / Monday, December 8, 2014 / Proposed Rules 72775 

a. Legal Entity and Governing Body 

(1) Overview 

As specified in the November 2011 

final rule (76 FR 67816) and at 

§ 425.104(a), an ACO must be a legal 

entity, formed under applicable state, 

federal, or tribal law, and authorized to 

conduct business in each state in which 

it operates for purposes of the following: 

• Receiving and distributing shared 

savings. 

• Repaying shared losses or other 

monies determined to be owed to CMS. 

• Establishing, reporting, and 

ensuring provider compliance with 

health care quality criteria, including 

quality performance standards. 

• Fulfilling other ACO functions 

identified in this part. 

Additionally, under § 425.104(b), an 

ACO formed by two or more ‘‘otherwise 

independent’’ ACO participants must be 

a legal entity separate from any of its 

ACO participants. Our regulations at 

§ 425.106(b)(4) further specify that when 

an ACO comprises ‘‘multiple, otherwise 

independent ACO participants,’’ the 

governing body of the ACO must be 

‘‘separate and unique to the ACO’’. In 

contrast, if the ACO is an ‘‘existing legal 

entity,’’ the ACO governing body may be 

the same as the governing body of that 

existing legal entity, provided it satisfies 

all other requirements of § 425.106, 

including provisions regarding the 

fiduciary duties of governing body 

members, the composition of the 

governing body, and conflict of interest 

policies (§ 425.106(b)(5)). 

Some applicants have questioned 

when an ACO needs to be formed as a 

separate legal entity, particularly the 

meaning in § 425.104(b) of ‘‘otherwise 

independent’’ ACO participants. 

Specifically, applicants have questioned 

whether multiple prospective ACO 

participants are ‘‘otherwise 

independent’’ when they have a prior 

relationship through, for example, an 

integrated health system. In addition, 

we received some questions regarding 

compliance with the governing body 

requirements set forth in § 425.106(b)(4) 

and (5). For example, we received 

questions from some IPAs, each of 

which wanted to apply to the Shared 

Savings Program as an ACO using its 

existing legal structure and governing 

body. In some cases, the IPA 

represented many group practices, but 

not every group practice represented by 

an IPA had agreed to be an ACO 

participant. We believe that such an IPA 

would need to organize its ACO as a 

separate legal entity with its own 

governing body to ensure that the 

governing body members would have a 

fiduciary duty to the ACO alone, as 

required by § 425.106(b)(3), and not to 

an entity comprised in part by entities 

that are not ACO participants. 

(2) Proposed Revisions 

We propose to clarify our regulation 

text regarding when an ACO must be 

formed as a separate legal entity. 

Specifically, we propose to remove the 

reference to ‘‘otherwise independent 

ACO participants’’ in § 425.104(b). The 

revised regulation would provide that 

an ACO formed by ‘‘two or more ACO 

participants, each of which is identified 

by a unique TIN,’’ must be a legal entity 

separate from any of its ACO 

participants. For example, if an ACO is 

composed of three ACO participants, 

each of which belongs to the same 

health system or IPA, the ACO must be 

a legal entity separate and distinct from 

any one of the three ACO participants. 

In addition, we propose to clarify 

§ 425.106(a), which sets forth the 

general requirement that an ACO have 

an identifiable governing body with the 

authority to execute the functions of an 

ACO. Specifically, we propose that the 

governing body must satisfy three 

criteria. First, the governing body of the 

ACO must be the same as the governing 

body of the legal entity that is the ACO. 

Second, in the case of an ACO that 

comprises multiple ACO participants 

the governing body must be separate 

and unique to the ACO and must not be 

the same as the governing body of any 

ACO participant. Third, the governing 

body must satisfy all other requirements 

set forth in § 425.106, including the 

fiduciary duty requirement. We note 

that the second criterion incorporates 

the requirement that currently appears 

at § 425.106(b)(4), which provides that 

the governing body of the ACO must be 

separate and unique to the ACO in cases 

where there are multiple ACO 

participants. Accordingly, we propose 

to remove § 425.106(b)(4). We further 

propose to remove § 425.106(b)(5), 

which provides that if an ACO is an 

existing legal entity, its governing body 

may be the same as the governing body 

of that existing entity, provided that it 

satisfies the other requirements of 

§ 425.106. In light of our proposed 

revision to § 425.106(a), we believe this 

provision is unnecessary and should be 

removed to avoid confusion. 

In proposing that the governing body 

be the same as the governing body of the 

legal entity that is the ACO, we intend 

to preclude delegation of all ACO 

decision-making authority to a 

committee of the governing body or 

retention of ACO decision-making 

authority by a parent company; ultimate 

authority for the ACO must still reside 

with the governing body. We recognize 

that the governing body of the legal 

entity that is the ACO may wish to 

organize committees that address 

certain matters pertaining to the ACO, 

but we do not believe that such 

committees can constitute the governing 

body of the ACO. We also recognize that 

a parent organization may wish to retain 

certain authorities to protect the parent 

company and ensure the subsidiary’s 

success; however, the ACO’s governing 

body must retain the ultimate authority 

to execute the functions of an ACO. As 

stated in the regulations, we believe 

such functions include such things as 

developing and implementing the 

required processes under § 425.112 and 

holding leadership and management 

accountable for the ACO’s activities. We 

also believe this authority extends to 

such activities including the 

appointment and removal of members of 

the governing body, leadership, and 

management, and determining how 

shared savings are used and distributed 

among ACO participants and ACO 

providers/suppliers. We seek comments 

on this proposal that the ultimate 

authority for the ACO to carry out its 

activities must reside with the 

governing body of the ACO. 

The purpose of the new provision 

precluding the governing body of the 

ACO from being the same as the 

governing body of an ACO participant is 

to ensure that decisions made on behalf 

of the ACO are not improperly 

influenced by the interests of 

individuals and entities other than the 

ACO. In order to comply with the 

requirement that the governing body be 

separate and unique to the ACO, it must 

not be responsible for representing the 

interests of any entity participating in 

the ACO or any entity that is not 

participating in the ACO. Thus, we 

propose the requirement that an ACO’s 

governing body must not be the same as 

the governing body of any of the ACO 

participants. 

b. Fiduciary Duties of Governing Body 

Members 

(1) Overview 

Our current regulations at 

§ 425.106(b)(3) require that the 

governing body members have a 

fiduciary duty to the ACO and must act 

consistent with that fiduciary duty. We 

have clarified in guidance that the 

governing body members cannot meet 

the fiduciary duty requirement if the 

governing body is also responsible for 

governing the activities of individuals or 

entities that are not part of the ACO (See 

‘‘Additional Guidance for Medicare 

Shared Savings Program Accountable 

Care Organization (ACO) Applicants’’ 

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located online at http://www.cms.gov/

Medicare/Medicare-Fee-for-ServicePayment/sharedsavingsprogram/

Downloads/Memo_Additional_

Guidance_on_ACO_Participants.pdf). 

For example, in the case of an IPA that 

applies as an ACO to the Shared Savings 

Program, we believe it would be 

difficult for the members of the IPA’s 

governing body to make decisions in the 

best interests of the ACO if only some 

of the group practices that compose the 

IPA are ACO participants; decisions 

affecting the ACO may be improperly 

influenced by the interests of group 

practices that are part of the IPA but are 

not ACO participants. For this reason, 

our regulations require the IPA to 

establish the ACO as a separate legal 

entity. This new legal entity must have 

a governing body whose members have 

a fiduciary responsibility to the ACO 

alone and not to any other individual or 

entity. 

We wish to emphasize that the ACO’s 

governing body decisions must be free 

from the influence of interests that may 

conflict with the ACO’s interests. 

(2) Proposed Revisions 

We propose to clarify in 

§ 425.106(b)(3) that the fiduciary duty 

owed to an ACO by its governing body 

members includes the duty of loyalty. 

This proposal does not represent a 

change in policy and is simply intended 

to emphasize that members of an ACO 

governing body must not have divided 

loyalties; they must act only in the best 

interests of the ACO and not another 

individual or entity, including the 

individual interests of ACO 

participants, ACO professionals, ACO 

providers/suppliers, or other 

individuals or entities. 

c. Composition of the Governing Body 

(1) Overview 

Section 1899(b)(1) requires an ACO to 

have a ‘‘mechanism for shared 

governance’’ among ACO participants. 

Section 425.106(c)(1) of the regulations 

requires an ACO to provide for 

meaningful participation in the 

composition and control of the ACO’s 

governing body for ACO participants or 

their designated representatives. As we 

explained in the November 2011 final 

rule (76 FR 67819), we believe that an 

ACO should be operated and directed 

by Medicare-enrolled entities that 

directly provide health care services to 

beneficiaries. However, we 

acknowledged, that small groups of 

providers often lack both the capital and 

infrastructure necessary to form an ACO 

and to administer the programmatic 

requirements of the Shared Savings 

Program and could benefit from 

partnerships with non-Medicare 

enrolled entities. For this reason, we 

proposed (76 FR 19541) that to be 

eligible for participation in the Shared 

Savings Program, the ACO participants 

must have at least 75 percent control of 

the ACO’s governing body. In the 

November 2011 final rule, we explained 

that this requirement would ensure that 

ACOs remain provider-driven, but also 

leave room for nonproviders to 

participate in the program. 

In addition, to provide for patient 

involvement in the ACO governing 

process, we specified at § 425.106(c)(2) 

that an ACO’s governing body must 

include a Medicare beneficiary served 

by the ACO who does not have a 

conflict of interest with the ACO. We 

acknowledged that beneficiary 

representation on an ACO’s governing 

body may not always be feasible. For 

example, commenters raised concerns 

that requiring a beneficiary on the 

governing body could conflict with 

State corporate practice of medicine 

laws or other local laws regarding 

governing body requirements for public 

health or higher education institutions 

(76 FR 67821). As a result, we believed 

it was appropriate to provide some 

flexibility for us to permit an ACO to 

adopt an alternative structure for its 

governing body, while still ensuring that 

ACO participants and Medicare FFS 

beneficiaries are involved in ACO 

governance. 

Accordingly, the November 2011 final 

rule, offers some flexibility to permit an 

ACO to participate in the Shared 

Savings Program even if its governing 

body fails to include a beneficiary or 

satisfy the requirement that 75 percent 

of the governing body be controlled by 

ACO participants. Specifically, 

§ 425.106(c)(5) provides that if an ACO’s 

governing body does not meet either the 

75 percent threshold or the requirement 

regarding beneficiary representation, it 

must describe in its application how the 

proposed structure of its governing body 

would involve ACO participants in 

innovative ways in ACO governance or 

provide a meaningful opportunity for 

beneficiaries to participate in the 

governance of the ACO. For example, 

under this provision, we anticipated 

that exceptions might be needed for 

ACOs that operate in states with 

Corporate Practice of Medicine 

restrictions to structure beneficiary 

representation accordingly. We 

contemplated that this provision could 

also be used by an existing entity to 

explain why it should not be required 

to reconfigure its board if it had other 

means of addressing the requirement to 

include a consumer perspective in 

governance (see 76 FR 67821). 

(2) Proposed Revisions 

We propose to revise § 425.106(c)(5) 

to remove the flexibility for ACOs to 

deviate from the requirement that at 

least 75 percent control of an ACO’s 

governing body must be held by ACO 

participants. Based on our experience to 

date with implementing the program, 

we have learned that ACO applicants do 

not have difficulty meeting the 

requirement under § 425.106(c)(3) that 

ACO participants maintain 75 percent 

control of the governing body. We have 

not denied participation to any ACO 

applicants on the basis of failure to 

comply with this requirement, and it 

has not been necessary to grant any 

exceptions to this rule under 

§ 425.106(c)(5). To the contrary, we have 

found the 75 percent control 

requirement to be necessary and 

protective of the ACO participant’s 

interests. Accordingly, we believe there 

is no reason to continue to offer an 

exception to the rule. 

We continue to believe it is important 

to maintain the flexibility for ACOs to 

request innovative ways to provide 

meaningful representation of Medicare 

beneficiaries on ACO governing bodies. 

Based on our experience, some ACOs 

have been unable to include a 

beneficiary on their governing body, and 

these entities have used the process 

under § 425.106(c)(5) to establish that 

they satisfy the requirement for 

meaningful beneficiary representation 

through the use of patient advisory 

bodies that report to the governing body 

of the ACO. 

We also propose to revise 

§ 425.106(c)(2) to explicitly prohibit an 

ACO provider/supplier from being the 

beneficiary representative on the 

governing body. Some ACO applicants 

have proposed that one of their ACO 

providers/suppliers would serve as the 

beneficiary representative on the 

governing body. We believe it would be 

very difficult for an ACO provider/

supplier who is Medicare beneficiary to 

represent only the interests of 

beneficiaries, rather than his or her own 

interests as an ACO provider/supplier, 

the interests of other ACO providers/

suppliers, or the interests of the ACO 

participant through which he or she 

bills Medicare. Finally, we are 

proposing to revise § 425.106(c)(1) to 

reiterate the statutory standard in 

section 1899(b)(1) of the Act requiring 

an ACO to have a ‘‘mechanism for 

shared governance’’ among ACO 

participants. Although we declined in 

the November 2011 final rule to 

promulgate a requirement that each 

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ACO participant be a member of the 

ACO’s governing body (76 FR 67818), 

the governing body must nevertheless 

represent a mechanism for shared 

governance among ACO participants. To 

that end, the governing body of an ACO 

that is composed of more than one ACO 

participant should not, for example, 

include representatives from only one 

ACO participant. For ACOs that have 

extensive ACO participant lists, we 

would expect to see representatives 

from many different ACO participants 

on the governing body. Our proposal to 

reiterate the statutory standard for 

shared governance in our regulations at 

§ 425.106(c)(1) does not constitute a 

substantive change to the program. 

7. Leadership and Management 

Structure 

a. Overview 

Section 1899(b)(2)(F) of the Act 

requires an eligible ACO to ‘‘have in 

place a leadership and management 

structure that includes clinical and 

administrative systems.’’ Under this 

authority, we incorporated certain 

leadership and management 

requirements into the Shared Savings 

Program, as part of the eligibility 

requirements for program participation. 

In the November 2011 final rule (76 FR 

67822), we stated that we believed an 

ACO’s leadership and management 

structure should align with and support 

the goals of the Shared Savings Program 

and the three-part aim of better care for 

individuals, better health for 

populations, and lower growth in 

expenditures. 

In the November 2011 final rule (76 

FR 67825), we established the 

requirement that the ACO’s operations 

be managed by an executive, officer, 

manager, general partner, or similar 

party whose appointment and removal 

are under the control of the ACO’s 

governing body and whose leadership 

team has demonstrated the ability to 

influence or direct clinical practice to 

improve efficiency, processes, and 

outcomes (see § 425.108(b)). In addition, 

under § 425.108(c), clinical management 

and oversight must be managed by a 

senior-level medical director who is one 

of the ACO providers/suppliers, who is 

physically present on a regular basis in 

an established ACO location (clinic, 

office or other location participating in 

the ACO), and who is a board-certified 

physician licensed in a State in which 

the ACO operates. In § 425.204(c)(1)(iii), 

we require ACO applicants to submit 

materials documenting the ACO’s 

organization and management structure, 

including senior administrative and 

clinical leaders specified in § 425.108. 

In the November 2011 final rule (76 

FR 67825), we provided flexibility for 

ACOs to request an exception to the 

leadership and management 

requirements set forth under 

§ 425.108(b) and (c). We believed that 

affording this flexibility was appropriate 

in order to encourage innovation in 

ACO leadership and management 

structures. In accordance with 

§ 425.108(e), we reserve the right to give 

consideration to an innovative ACO 

leadership and management structure 

that does not comply with the 

requirements of § 425.108(b) and (c). 

We continue to believe that having 

these key leaders (operational manager 

and clinical medical director) is 

necessary for a well-functioning and 

clinically integrated ACO. We have 

learned from our experience with the 

program, over four application cycles, 

that ACO applicants generally do not 

have difficulty in meeting the 

operational manager and clinical 

medical director requirements. Only one 

ACO has requested an exception to the 

medical director requirements. In that 

case, the ACO sought the exception in 

order to allow a physician, who had 

retired after a long tenure with the 

organization to serve as the medical 

director of the ACO. We approved this 

request because, although the retired 

physician was not an ACO provider/

supplier because he was no longer 

billing for physician services furnished 

during the agreement period, he was 

closely associated with the clinical 

operations of the ACO, familiar with the 

ACO’s organizational culture, and 

dedicated to this one ACO. 

In addition, we have received a 

number of questions from ACO 

applicants regarding the other types of 

roles for which CMS requires 

documentation under § 425.204(c)(1)(iii) 

to evaluate whether an applicant has a 

‘‘. . . leadership and management 

structure that includes clinical and 

administrative systems’’ that support 

the purposes of the Shared Savings 

Program and the aims of better care for 

individuals, better health for 

populations, and lower growth in 

expenditures, as articulated at 

§ 425.108(a)). In response to such 

inquiries regard, we have indicated that 

we consider an ACO’s ‘‘. . . leadership 

and management structure that includes 

clinical and administrative systems’’ to 

be comprised of the operational 

manager and clinical medical director 

(referenced under § 425.108(b) and (c)) 

as well as the qualified healthcare 

professional that is required under 

§ 425.112(a) to be responsible for the 

ACO’s quality assurance and 

improvement program. 

b. Proposed Revisions 

We propose to amend § 425.108 to 

provide some additional flexibility 

regarding the qualifications of the ACO 

medical director and to eliminate the 

provision permitting some ACOs to 

enter the program without satisfying the 

requirements at § 425.108(b) and (c) for 

operations and clinical management. In 

addition, we propose to amend 

§ 425.204(c)(iii) to clarify that applicants 

must submit materials regarding the 

qualified health care professional 

responsible for the ACO’s quality 

assurance and improvement program. 

We discuss each proposal later in this 

section. 

We believe that it is appropriate to 

amend the medical director requirement 

at § 425.108(c) to allow some additional 

flexibility. Specifically, we propose to 

remove the requirement that the 

medical director be an ACO provider/

supplier. This change would permit an 

ACO to have a medical director who 

was, for example, previously closely 

associated with an ACO participant but 

who is not an ACO provider/supplier 

because he or she does not bill through 

the TIN of an ACO participant and is 

not on the list of ACO providers/

suppliers. Alternatively, we may retain 

the requirement that an ACO’s medical 

director be an ACO provider/supplier, 

but permit ACOs to request CMS 

approval to designate as its medical 

director a physician who is not an ACO 

provider/supplier but who is closely 

associated with the ACO and satisfies 

all of the other medical director 

requirements. We seek comment on 

whether an ACO medical director who 

is not an ACO provider/supplier must 

have been closely associated with the 

ACO or an ACO participant in the 

recent past. In addition, we propose to 

clarify that the medical director must be 

physically present on a regular basis ‘‘at 

any clinic, office, or other location of 

the ACO, ACO participant or ACO 

provider/supplier.’’ Currently, the 

provision incorrectly refers only to 

locations ‘‘participating in the ACO.’’ 

However, we continue to strongly 

believe that the medical director of the 

ACO should be directly associated with 

the ACO’s clinical operations and 

familiar with the ACO’s organizational 

culture. This is one purpose of the 

provision requiring medical directors to 

be physically present on a regular basis 

at any clinic, office, or other ACO 

location. A close working relationship 

with the ACO and its clinical operations 

is necessary in order for the medical 

director to lead the ACO’s efforts to 

achieve quality improvement and cost 

efficiencies. 

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We propose to eliminate § 425.108(e), 

which permits us to approve 

applications from innovative ACOs that 

do not satisfy the leadership and 

management requirements related to 

operations management and clinical 

management and oversight set forth at 

§ 425.108(b) and (c). Based on our 

experience with the program and the 

proposed change to the medical director 

requirement, we believe it is 

unnecessary to continue to allow ACOs 

the flexibility to request an exception to 

the leadership and management 

requirements related to operations 

management and clinical management 

and oversight (§ 425.108(b) and (c)). 

These requirements are broad and 

flexible and have not posed a barrier to 

participation in the Shared Savings 

Program; in fact, in only one instance 

has an ACO requested an exception to 

the operations management criterion 

(§ 425.108(b)). We are unaware of any 

alternative operations management 

structure that might be considered 

acceptable, and we have modified 

§ 425.108(c) to accommodate the one 

exception we have granted to date. 

Accordingly, we propose to revise the 

regulations by striking § 425.108(e) to 

eliminate the flexibility for ACOs to 

request an exception to the leadership 

and management requirements at 

§ 425.108(b) and (c). 

Finally, to clarify questions that have 

been raised by ACO applicants and to 

reduce the need for application 

corrections, we propose to modify 

§ 425.204(c)(1)(iii) to require a Shared 

Savings Program applicant to submit 

documentation regarding the qualified 

healthcare professional responsible for 

the ACO’s quality assurance and 

improvement program (as required by 

§ 425.112(a)). 

We seek comment on these changes to 

the requirements for ACO leadership 

and management. 

8. Required Process To Coordinate Care 

a. Overview 

Section 1899(b)(2)(G) of the Act 

requires an ACO to ‘‘define processes to 

. . . coordinate care, such as through 

the use of telehealth, remote patient 

monitoring, and other such enabling 

technologies.’’ In the November 2011 

final rule (76 FR 67829 through 67830), 

we established requirements under 

§ 425.112(b)(4) that ACOs define their 

care coordination processes across and 

among primary care physicians, 

specialists, and acute and postacute 

providers. As part of this requirement, 

an ACO must define its methods and 

processes to coordinate care throughout 

an episode of care and during its 

transitions. In its application to 

participate in the Shared Savings 

Program, the ACO must submit a 

description of its individualized care 

program, along with a sample care plan, 

and explain how this program is used to 

promote improved outcomes for, at a 

minimum, its high-risk and multiple 

chronic condition patients. In addition, 

an ACO’s application must describe 

target populations that would benefit 

from individualized care plans. 

In developing these policies for the 

November 2011 final rule (76 FR 67819), 

we received comments acknowledging 

that requiring ACOs to define processes 

to promote coordination of care is vital 

to the success of the Shared Savings 

Program. Commenters stressed the 

importance of health information 

exchanges in coordination of care 

activities and recommended that CMS 

allow ACOs the flexibility to use any 

standards-based electronic care 

coordination tools that meet their needs. 

Other commenters suggested that the 

proposed rule anticipated a level of 

functional health information exchange 

and technology adoption that may be 

too aggressive. 

As stated in § 425.204(c)(1)(ii), 

applicants to the Shared Savings 

Program must provide a description, or 

documents sufficient to describe, how 

the ACO will implement the required 

processes and patient-centeredness 

criteria under § 425.112, including 

descriptions of the remedial processes 

and penalties (including the potential 

for expulsion) that will apply if an ACO 

participant or an ACO provider/supplier 

fails to comply with and implement 

these processes. Under § 425.112(b), an 

ACO must establish processes to 

accomplish the following: promote 

evidence-based medicine; Promote 

patient engagement; develop an 

infrastructure to internally report on 

quality and cost metrics required for 

monitoring and feedback; and 

coordinate care across and among 

primary care physicians, specialists and 

acute and postacute providers and 

suppliers. 

In addition to the processes described 

previously, we believe it is important 

for applicants to explain how they will 

develop the health information 

technology tools and infrastructure to 

accomplish care coordination across 

and among physicians and providers 

Adoption of health information 

technology is important for supporting 

care coordination by ACO participants 

and other providers outside the ACO in 

the following ways: Secure, private 

sharing of patient information; reporting 

on quality data and aggregating data 

across providers and sites to track 

quality measures; and deploying clinical 

decision support tools that provide 

access to alerts and evidence basedguidelines. As ACOs establish more 

mature processes for risk management, 

information technology infrastructure 

allows ACOs and providers to conduct 

robust financial management of 

beneficiary populations, deliver cost 

and quality feedback reporting to 

individual providers, and streamline the 

administration of risk based contracts 

across multiple payers. We believe that 

requiring ACOs to address health 

information technology infrastructure in 

their application to the Shared Savings 

program would support more careful 

planning and increased focus on this 

issue. 

b. Accelerating Health Information 

Technology 

HHS believes all patients, their 

families, and their healthcare providers 

should have consistent and timely 

access to their health information in a 

standardized format that can be securely 

exchanged between the patient, 

providers, and others involved in the 

patient’s care. (HHS August 2013 

Statement, ‘‘Principles and Strategies for 

Accelerating Health Information 

Exchange’’) HHS is committed to 

accelerating health information 

exchange (HIE) through the use of EHRs 

and other types of health information 

technology (HIT) across the broader care 

continuum through a number of 

initiatives including: (1) Alignment of 

incentives and payment adjustments to 

encourage provider adoption and 

optimization of HIT and HIE services 

through Medicare and Medicaid 

payment policies; (2) adoption of 

common standards and certification 

requirements for interoperable HIT; (3) 

support for privacy and security of 

patient information across all HIEfocused initiatives; and (4) governance 

of health information networks. These 

initiatives are designed to encourage 

HIE among health care providers, 

including professionals and hospitals 

eligible for the Medicare and Medicaid 

EHR Incentive Programs and those who 

are not eligible for the EHR Incentive 

programs as well as those providers that 

are participating in the Medicare Shared 

Savings Program as an ACO and those 

that are not, and are designed to 

improve care delivery and coordination 

across the entire care continuum. For 

example, the Transition of Care Measure 

#2 in Stage 2 of the Medicare and 

Medicaid EHR Incentive Programs 

requires HIE to share summary records 

for at least 10 percent of care transitions. 

We believe that HIE and the use of 

certified EHRs can effectively and 

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efficiently help ACOs and participating 

providers improve internal care delivery 

practices, support management of 

patient care across the continuum, and 

support the reporting of electronically 

specified clinical quality measures 

(eCQMs). 

c. Proposed Revisions 

We continue to believe that ACOs 

should coordinate care between all 

types of providers and across all 

services, and that the secure, electronic 

exchange of health information across 

all providers in a community is of the 

utmost importance for both effective 

care coordination activities and the 

success of the Shared Savings Program. 

We understand that ACOs will differ in 

their ability to adopt the appropriate 

health information exchange 

technologies, but we continue to 

underscore the importance of robust 

health information exchange tools in 

effective care coordination. 

ACOs have reported how important 

access to real time data is for providers 

to improve care coordination across all 

sites of care, including outpatient, acute, 

and postacute sites of care. We believe 

that providers across the continuum of 

care are essential partners to physicians 

in the management of patient care. 

ACOs participating in the program 

indicate that they are actively 

developing the necessary infrastructure 

and have been encouraging the use of 

technologies that enable real time data 

sharing among and between sites of 

care. We believe having a process and 

plan in place to coordinate a 

beneficiary’s care by electronically 

sharing health information improves 

care, and that this helps all clinicians 

involved in the care of a patient to 

securely access the necessary health 

information in a timely manner. It also 

can also be used to engage beneficiaries 

in their own care. We further believe 

that Shared Savings Program applicants 

should provide, as part of the 

application, their plans for improving 

care coordination by developing, 

encouraging, and using enabling 

technologies and electronic health 

records to make health information 

electronically available to all 

practitioners involved in a beneficiary’s 

care. 

Therefore, we propose to add a new 

requirement to the eligibility 

requirements under 

§ 425.112(b)(4)(ii)(C) which would 

require an ACO to describe in its 

application how it will encourage and 

promote the use of enabling 

technologies for improving care 

coordination for beneficiaries. Such 

enabling technologies and services may 

include electronic health records and 

other health IT tools (such as population 

health management and data 

aggregation and analytic tools), 

telehealth services (including remote 

patient monitoring), health information 

exchange services, or other electronic 

tools to engage patients in their care. We 

also propose to add a new provision at 

§ 425.112(b)(4)(ii)(D) to require the 

applicant to describe how the ACO 

intends to partner with long-term and 

postacute care providers to improve care 

coordination for the ACO’s assigned 

beneficiaries. Finally, we propose to add 

a provision under § 425.112(b)(4)(ii)(E) 

to require that an ACO define and 

submit major milestones or performance 

targets it will use in each performance 

year to assess the progress of its ACO 

participants in implementing the 

elements required under § 425.112(b)(4). 

For instance, providers would be 

required to submit milestones and 

targets such as: Projected dates for 

implementation of an electronic quality 

reporting infrastructure for participants; 

the number of providers expected to be 

connected to health information 

exchange services by year; or the 

projected dates for implementing 

elements of their care coordination 

approach, such as alert notifications on 

emergency department and hospital 

visits or e-care plan tools for virtual care 

teams. We believe this information 

would allow us to better understand and 

support ACOs’ plans to put into place 

the systems and processes needed to 

deliver high quality care to 

beneficiaries. 

We also note that ACOs have 

flexibility to use telehealth services as 

they deem appropriate for their efforts 

to improve care and avoid unnecessary 

costs. Some ACOs have already reported 

that they are actively using telehealth 

services to improve care for their 

beneficiaries. We welcome information 

from ACOs and other stakeholders about 

the use of such technologies. We seek 

comment on the specific services and 

functions of this technology that might 

be appropriately adopted by ACOs. For 

example, does the use of telehealth 

services and other technologies 

necessitate any additional protections 

for beneficiaries? Are these technologies 

necessary for care coordination or could 

other methods be used for care 

coordination? If a particular technology 

is necessary, under what circumstances? 

9. Transition of Pioneer ACOs Into the 

Shared Savings Program 

a. Overview 

The Center for Medicare and 

Medicaid Innovation (the Innovation 

Center) at CMS was established by 

section 1115A of the Act (as added by 

section 3021 of the Affordable Care Act) 

for the purpose of testing ‘‘innovative 

payment and service delivery models to 

reduce program expenditures . . . while 

preserving or enhancing the quality of 

care’’ for those individuals who receive 

Medicare, Medicaid, or Children’s 

Health Insurance Program (CHIP) 

benefits. The Pioneer ACO Model is an 

Innovation Center initiative designed for 

organizations with experience operating 

as ACOs or in similar arrangements. The 

Pioneer ACO Model is testing the 

impact of using different payment 

arrangements in helping these 

experienced organizations achieve the 

goals of providing better care to 

patients, and reducing Medicare costs. 

Under section 1899(b)(4) of the Act, to 

be eligible to participate in the Shared 

Savings Program, a provider of services 

or supplier may not also be participating 

in a program or demonstration project 

that involves shared savings, such as the 

Pioneer ACO Model. Thus, Pioneer 

ACOs are not permitted to participate 

concurrently in the Shared Savings 

Program. As Pioneer ACOs complete the 

model test (the agreement is for a 

minimum of 3 years with an option to 

participate for an additional 2 years), 

they would have an opportunity to 

transition to the Shared Savings 

Program. We believe it would be 

appropriate to establish an efficient 

process to facilitate this transition in a 

way that minimizes any unnecessary 

burdens on these ACOs and on CMS. 

b. Proposed Revisions 

In order to do this, we propose to use 

a transition process that is similar to the 

transition process we established 

previously for Physician Group Practice 

(PGP) demonstration participants 

applying to participate in the Shared 

Savings Program. The PGP 

demonstration, authorized under 

section 1866A of the Act, was our first 

experience with a shared savings 

program in Medicare and served as a 

model for many aspects of the Shared 

Savings Program. 

In the November 2011 final rule (76 

FR 67834), we finalized § 425.202(b), 

which provides that PGP sites applying 

for participation in the Shared Savings 

Program will be given the opportunity 

to complete a condensed application 

form. This condensed application form 

requires a PGP site to provide the 

information that was required for the 

standard Shared Savings Program 

application but that was not already 

obtained through its application for or 

via its participation in the PGP 

demonstration. Also, a PGP participant 

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would be required to update any 

information contained in its application 

for the PGP demonstration that was also 

required on the standard Shared Savings 

Program application. Former PGP 

participants qualified to use a 

condensed application form if their 

ACO legal entity and TINs of ACO 

participant were the same as those that 

participated under the PGP 

demonstration. 

As we continue to implement the 

Shared Savings program, we will likely 

have a similar situation with regard to 

Pioneer ACOs that have completed their 

current agreement and wish to 

transition to the Shared Savings 

Program. Given that we have been 

working with and have a level of 

familiarity with these organizations 

similar to that with the PGP 

participants, we believe it is also 

appropriate to consider offering some 

latitude with regard to the process for 

applying to the Shared Savings Program 

for these ACOs. 

Thus, we propose to revise 

§ 425.202(b) to offer Pioneer ACOs the 

opportunity to apply to the Shared 

Savings Program using a condensed 

application if three criteria are satisfied. 

First, the applicant ACO must be the 

same legal entity as the Pioneer ACO. 

Second, all of the TINs on the 

applicant’s ACO participant list must 

have appeared on the ‘‘Confirmed 

Annual TIN/NPI List’’ (as defined in the 

Pioneer ACO Model Innovation 

Agreement with CMS) for the applicant 

ACO’s last full performance year in the 

Pioneer ACO Model. Third, the 

applicant must be applying to 

participate in a two-sided model. We 

note that, consistent with the statute 

and our regulation at § 425.114, any 

Pioneer ACO transitioning to the Shared 

Savings Program must apply to 

participate in the Shared Savings 

Program for an agreement period that 

would start after its participation in the 

Pioneer ACO Model has ceased. We 

further note that Pioneer ACOs 

transitioning to the Shared Savings 

Program would be subject to the 

standard program integrity screening 

and an evaluation of their history of 

compliance with the requirements of the 

Pioneer ACO Model. 

Regarding the second criterion, we 

recognize there are differences between 

the Pioneer ACO Model and the Shared 

Savings Program, and that only some of 

the NPIs within a TIN might have 

participated in the Pioneer ACO. 

Therefore, for purposes of determining 

whether a condensed application will 

be appropriate under the Shared 

Savings Program, we will only compare 

the TINs and not NPIs. We also 

recognize that some TINs may not be 

able to obtain the consent of all NPIs 

billing through the TIN to participate in 

the Shared Savings Program, which 

disqualifies the TIN from participating 

in the program. Therefore, unlike with 

the PGP demonstration sites, we 

propose to allow the ACO applicant to 

complete a condensed application form 

even if it drops TINs that participated in 

its Pioneer ACO. However, if the 

applicant ACO includes TINs that were 

not on the Pioneer ACO’s Confirmed 

Annual TIN/NPI List for its last full 

performance year in the Pioneer ACO 

Model, the applicant must use the 

standard application for the Shared 

Savings Program. A Pioneer ACO 

applying to the Shared Savings Program 

using a condensed application form will 

be required to include a narrative 

description of the modifications they 

need to make to fulfill our requirements 

(for example, making changes to the 

governing body and obtaining or 

revising agreements with ACO 

participants and ACO providers/

suppliers). 

Because the Pioneer ACO Model is a 

risk-bearing model designed for more 

experienced organizations, the third 

proposed criterion would permit 

Pioneer ACOs to use the condensed 

application only if they apply to 

participate in the Shared Savings 

Program under a two-sided model. We 

established Track 1 of the Shared 

Savings Program as an on-ramp for 

ACOs while they gain experience and 

become ready to accept risk. In this 

case, the Pioneer ACOs are already 

experienced and will have already 

accepted significant financial risk. 

Therefore, under this proposal, former 

Pioneer ACOs would not be permitted 

to enter the Shared Savings Program 

under Track 1. We further note that the 

rules and methodologies used under the 

Pioneer ACO Model to assess 

performance-based risk are different 

than under the Shared Savings Program. 

Therefore, we encourage former Pioneer 

Model ACOs to carefully consider the 

risk-based track to which they apply 

under the Shared Savings Program, and 

to be cognizant of the differences in 

rules and methodologies. 

We seek comments on this proposal to 

establish a condensed application 

process for Pioneer ACOs applying to 

participate in the Shared Savings 

Program and to require such Pioneer 

ACOs to participate under a track that 

includes performance-based risk. 

Pioneer ACOs that do not meet criteria 

for the condensed application would 

have to apply through the regular 

application process. 

C. Establishing and Maintaining the 

Participation Agreement With the 

Secretary 

1. Background 

The November 2011 final rule 

established procedures for applying to 

participate in the Shared Savings 

Program, including the need to submit 

a complete application, the content of 

the application, and CMS’s criteria for 

evaluating applications (see § 425.202 

through § 425.206). In addition, 

§ 425.212 specifies which changes to 

program requirements will apply during 

the term of an ACO’s participation 

agreement. In this section we discuss 

our proposals to clarify and to 

supplement the rules related to these 

requirements. 

In addition, while the current 

regulations address certain issues with 

respect to ACOs that wish to reapply 

after termination or experiencing a loss 

during their initial agreement period 

(§ 425.222 and § 425.600(c), 

respectively). The regulations are 

generally silent with respect to the 

procedures that apply to ACOs that 

successfully complete a 3-year 

agreement and would like to reapply for 

a subsequent agreement period in the 

Shared Savings Program. In this section, 

we discuss our proposal to establish the 

procedure for an ACO to renew its 

participation agreement for a 

subsequent agreement period. 

2. Application Deadlines 

a. Overview 

To obtain a determination on whether 

a prospective ACO meets the 

requirements to participate in the 

Shared Savings Program, our rules at 

§ 425.202(a) require that an ACO submit 

a complete application in the form and 

manner required by CMS by the 

deadline established by CMS. 

Information on the required content of 

applications can be found in § 425.204, 

as well as in guidance published at 

http://www.cms.gov/Medicare/

Medicare-Fee-for-Service-Payment/

sharedsavingsprogram/

Application.html. Among other 

requirements, applications must include 

certain information such as an ACO’s 

prior participation in or termination 

from the program (§ 425.204(b)); 

documents such as participation 

agreements, employment contracts and 

operating policies (§ 425.204(c)(1)(i)); 

and a list of all ACO participants and 

their Medicare-enrolled TINs 

(§ 425.204(c)(5)(i)). 

We determine and publish in advance 

on our Web site the relevant due dates 

for the initial submission of applications 

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for each application cycle. While ACOs 

must submit a completed application by 

the initial application due date specified 

on our Web site, we recognize that there 

may be portions of the application 

where additional information is 

necessary for CMS to make a 

determination. Therefore, according to 

§ 425.206(a)(2), we notify an applicant 

when its application is incomplete and 

provide an opportunity to submit 

information to complete the application 

by the deadline specified by CMS. 

As stated in § 425.206(a), CMS 

evaluates an ACO’s application on the 

basis of the information contained in 

and submitted with the application. 

Applications that remain incomplete 

after the deadline specified by CMS are 

denied. It is incumbent upon the ACO 

applicant to submit the information that 

is required for CMS to decide whether 

the applicant is eligible to participate in 

the program. 

b. Proposed Revisions 

In implementing the Shared Savings 

Program, we found that some applicants 

misunderstood our application process 

and the need to submit all required 

information by the specified deadline 

for submission of applications and 

supporting information. Thus, we 

propose to revise our application review 

process set forth at § 425.206(a) to better 

reflect our review procedures. 

First, we propose to consolidate at 

§ 425.206 two similar provisions 

regarding application review. Currently, 

§ 425.202(c)(1) regarding application 

review provides that CMS determines 

whether an applicant satisfies the 

requirements of Part 425 and is 

qualified to participate in the Shared 

Savings Program, and § 425.202(c)(2) 

provides that CMS approves or denies 

applications accordingly. We propose to 

amend § 425.206(a)(1) to address the 

concept of application review currently 

set forth at § 425.202(c)(1), and we 

propose to amend § 425.202(c) by 

replacing the existing text with language 

clarifying that CMS reviews 

applications in accordance with 

§ 425.206. 

Second, we propose to revise 

§ 425.206(a) to better reflect our 

application review process and the 

meaning of the reference to ‘‘application 

due date.’’ Specifically, we propose to 

revise § 425.206(a)(1) to clarify that CMS 

approves or denies an application on 

the basis of the following: Information 

contained in and submitted with the 

application by the deadline specified by 

CMS; any supplemental information 

submitted by a deadline specified by 

CMS in response to CMS’ request for 

information; and other information 

available to CMS (including information 

on the ACO’s program integrity history). 

In addition, we propose to amend 

§ 425.206(a)(2) to clarify our process for 

requesting supplemental information 

and to add a new paragraph (a)(3) to 

specify that CMS may deny an 

application if an ACO applicant fails to 

submit information by the deadlines 

specified by CMS. We believe that 

additional clarity may result in more 

timely submission of the information 

necessary to evaluate applications. 

Moreover, it is critical that ACOs submit 

information on a timely basis so that we 

can perform other necessary operational 

processes before the start of the 

approved ACO’s first performance year 

(for example, determining the number of 

beneficiaries assigned to the ACO, 

screening prospective ACO participants 

and ACO providers or suppliers, 

identifying the preliminary prospective 

list of assigned beneficiaries, and 

calculating the ACO’s historical 

benchmark). 

These proposed changes are 

consistent with our current regulations 

and practice. For example, as part of the 

application review process, CMS 

provides feedback to the ACO applicant 

regarding its list of ACO participants, 

and the number of assigned 

beneficiaries is determined using this 

list of ACO participants. If the number 

of assigned beneficiaries based on the 

list of ACO participants submitted with 

the application is under 5,000, which is 

the threshold for eligibility under 

§ 425.110(a), we give the ACO applicant 

an opportunity to add ACO participant 

TINs. However, the ACO applicant must 

do so by the deadline indicated by CMS 

or the application is denied. Similarly, 

CMS denies an application if an ACO 

applicant fails to timely submit 

additional information that is required 

for CMS to determine whether the ACO 

applicant meets program requirements. 

3. Renewal of Participation Agreements 

a. Overview 

For ACOs that would like to continue 

participating in the Shared Savings 

Program after the expiration of their 

current agreement period, we propose a 

process for renewing their existing 

participation agreements, rather than 

requiring submission of a new or 

condensed application for continued 

program participation. Therefore, we 

propose to add new § 425.224 to 

establish procedures for renewing the 

participation agreements of ACOs. In 

addition, we propose to modify the 

definition of ‘‘agreement period’’ at 

§ 425.20 to clarify its meaning in the 

context of participation agreement 

renewals. 

b. Proposed Revisions 

Under proposed § 425.224(a), an ACO 

would be permitted to request renewal 

of its participation agreement prior to its 

expiration in a form and manner and by 

the deadline specified by CMS in 

guidance. An ACO executive who has 

the authority to legally bind the ACO 

must certify that the information 

contained in the renewal request is 

accurate, complete, and truthful. 

Further, an ACO that seeks renewal of 

its participation agreement and was 

newly formed after March 23, 2010, as 

defined in the Antitrust Policy 

Statement, must agree that CMS can 

share a copy of its renewal request with 

the Antitrust Agencies. We anticipate 

that our operational guidance will 

outline a process permitting renewal 

requests during the last performance 

year of an ACO’s participation 

agreement. For example, an ACO with a 

participation agreement ending on 

December 31, 2015 would be offered the 

opportunity to renew its participation 

agreement sometime during the 2015 

calendar year in preparation to begin a 

new 3-year agreement period on January 

1, 2016. To streamline program 

operations, we anticipate specifying a 

timeframe for submission and 

supplementation of renewal requests 

that would generally coincide with the 

deadlines applicable to submission and 

supplementation of applications by new 

ACO applicants under § 425.202. 

Under proposed § 425.224(b), we 

propose to determine whether to renew 

a participation agreement based on an 

evaluation of all of the following factors: 

• Whether the ACO satisfies the 

criteria for operating under the selected 

risk model. 

• The ACO’s history of compliance 

with the requirements of the Shared 

Savings Program. 

• Whether the ACO has established 

that it is in compliance with the 

eligibility and other requirements of the 

Shared Savings Program, including the 

ability to repay losses, if applicable. 

• Whether the ACO met the quality 

performance standards during at least 1 

of the first 2 years of the previous 

agreement period. 

• Whether an ACO under a two-sided 

model has repaid losses owed to the 

program that it generated during the 

first 2 years of the previous agreement 

period. 

• The results of a program integrity 

screening of the ACO, its ACO 

participants, and its ACO providers/

suppliers (conducted in accordance 

with § 425.304(b)). 

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We solicit comments on these criteria 

and any additional criteria that would 

help ensure the success of the program. 

We further propose to approve or 

deny a renewal request based on the 

information submitted in the request 

and other information available to CMS. 

We propose to notify the ACO when the 

request is incomplete or inadequate and 

to provide an opportunity for the ACO 

to submit supplemental information to 

correct the deficiency. The ACO must 

submit both the renewal request and 

any additional information needed to 

evaluate the request in the form and 

manner and by the deadlines specified 

by CMS. 

Under § 425.224(c), we propose to 

notify each ACO in writing of our 

determination to approve or deny the 

ACO’s renewal request. If we deny the 

renewal request, the notice would 

specify the reasons for the denial and 

inform the ACO of any rights to request 

reconsideration review in accordance 

with the procedures specified in part 

425 subpart I. 

We believe that a simple renewal 

process would reduce the burden for 

ACOs that wish to continue in the 

program and minimize the 

administrative burden on CMS, which 

would allow us to focus our attention on 

new applicants that have not yet 

established their eligibility to 

participate. We intend to establish the 

deadlines and other operational details 

for this renewal process through 

guidance and instructions. Finally, we 

note that under our proposal to modify 

the definition of the participation 

‘‘agreement period’’ (section II.C.4 of 

this proposed rule), a new agreement 

period would begin upon the start of the 

first performance year of the renewed 

participation agreement. 

4. Changes to Program Requirements 

During the 3-Year Agreement 

a. Overview 

In the November 2011 final rule (76 

FR 67838), we recognized that we might 

promulgate changes to the Shared 

Savings Program regulations that would 

become effective while participating 

ACOs are in the middle of an agreement 

period. Therefore, we promulgated a 

rule to specify under what conditions an 

ACO would be subject to regulatory 

changes that become effective after the 

start of its agreement period. 

Specifically, we finalized 

§ 425.212(a)(2), which provides that 

ACOs are subject to all regulatory 

changes with the exception of changes 

to the eligibility requirements 

concerning ACO structure and 

governance, the calculation of the 

sharing rate, and the assignment of 

beneficiaries (§ 425.212(a)(2)). We did 

not exempt ACOs from becoming 

immediately subject to other regulatory 

changes. For example, we did not 

exempt changes such as those related to 

quality measures because we believed 

that requiring ACOs to adhere to 

changes related to quality measures 

would ensure that they keep pace with 

changes in clinical practices and 

developments in evidence-based 

medicine. 

The November 2011 final rule did not 

require ACOs to be subject to any 

regulatory changes regarding beneficiary 

assignment that become effective during 

an agreement period because we 

recognized that changes in the 

beneficiary assignment methodology 

could necessitate changes to ACOs’ 

financial benchmarks. At the time we 

published the November 2011 final rule 

(76 FR 67838), we had not developed a 

methodology for adjusting an ACO’s 

benchmark to reflect changes in the 

beneficiary assignment methodology 

during an agreement period. We 

anticipated that ACOs would complete 

their 3-year agreement period with a 

relatively stable set of ACO participants, 

and therefore they would all have stable 

benchmarks during the 3-year 

agreement period that would require 

updates only to reflect annual national 

FFS trends and changes in beneficiary 

characteristics, consistent with statutory 

requirements. Without a methodology 

for adjusting benchmarks to reflect 

changes in the beneficiary assignment 

methodology during the agreement 

period, we were reluctant to subject 

ACOs to immediate regulatory changes 

that could impact their benchmarks 

during the term of a participation 

agreement. However, in light of the 

extensive changes that ACOs have made 

to their lists of ACO participants during 

the first two performance years, the 

significant effect that these changes 

have had upon beneficiary assignment, 

and our subsequent development of 

additional policies regarding benchmark 

adjustment at the start of each 

performance year to reflect such 

changes (see http://www.cms.gov/

Medicare/Medicare-Fee-for-ServicePayment/sharedsavingsprogram/

Updating-ACO-Participant-List.html), 

we wish to revisit the types of 

regulatory changes an ACO would 

become subject to during its agreement 

period. We also propose to clarify 

§ 425.212(a) regarding the applicability 

of certain regulatory changes and to 

clarify the definition of ‘‘agreement 

period’’ under § 425.20. 

b. Proposed Revisions 

First, we propose to modify 

§ 425.212(a) to provide that ACOs are 

subject to all regulatory changes ‘‘that 

become effective during the agreement 

period,’’ except for regulations regarding 

certain specified program areas, ‘‘unless 

otherwise required by statute.’’ This 

proposed revision corrects the omission 

of temporal language in the requirement 

regarding regulatory changes. In 

addition, it clarifies that ACOs would be 

subject to regulatory changes regarding 

ACO structure and governance, and 

calculation of the sharing rate during an 

agreement period if CMS is mandated 

by statute to implement such changes by 

regulation in the middle of a 

performance year. 

Second, we propose to modify the 

definition of ‘‘agreement period’’ at 

§ 425.20. The term ‘‘agreement period’’ 

is currently defined at § 425.20 to mean 

‘‘the term of the participation agreement 

which begins at the start of the first 

performance year and concludes at the 

end of the final performance year.’’ 

However, the reference to ‘‘final 

performance year’’ in the existing 

definition is ambiguous in light of our 

proposal to renew participation 

agreements (see section II.C.4. of this 

proposed rule). For example, if the 

‘‘final performance year’’ of the 

agreement period includes the last 

performance year of a renewed 

participation agreement, an ACO would 

never be subject to regulatory changes 

regarding ACO structure and 

governance or calculation of the sharing 

rate. Therefore, we propose to amend 

the definition to provide that the 

agreement period would be 3 

performance years, unless otherwise 

specified in the participation agreement. 

Thus, an ACO whose participation 

agreement is renewed for a second or 

subsequent agreement period would be 

subject, beginning at the start of that 

second or subsequent agreement period, 

to any regulatory changes regarding 

ACO structure and governance that 

became effective during the previous 3 

years (that is, during the preceding 

agreement period). 

Third, we propose to require ACOs to 

be subject to any regulatory changes 

regarding beneficiary assignment that 

become effective during an agreement 

period. Specifically, we propose to 

remove beneficiary assignment as an 

exception under § 425.212(a). Consistent 

with our authority under section 

1899(d)(1)(B)(ii) of the Act to adjust the 

benchmark ‘‘for beneficiary 

characteristics and other factors as the 

Secretary determines appropriate,’’ we 

have now developed operational 

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policies under which we are able to 

adjust the benchmark on a yearly basis 

to account for changes in beneficiary 

assignment resulting from changes in 

the ACO’s list of ACO participants. For 

more detailed information on these 

policies see http://www.cms.gov/

Medicare/Medicare-Fee-for-ServicePayment/sharedsavingsprogram/

Updating-ACO-Participant-List.html. 

Given that these operational policies 

enable annual adjustments to ACO 

benchmarks to account for changes in 

beneficiary assignment resulting from 

changes in ACO participants, we believe 

we would also be able to adjust an 

ACO’s benchmark to account for 

regulatory changes regarding beneficiary 

assignment methodology that become 

effective during an agreement period. 

Accordingly, we do not believe our 

proposal to make regulatory changes 

regarding beneficiary assignment 

applicable to ACOs during an agreement 

period would inappropriately affect the 

calculation of an ACO’s benchmark or 

shared savings for a given performance 

year. Rather, our adjustment 

methodology would ensure continued 

and appropriate comparison between 

benchmark and performance year 

expenditures. 

Under this proposal, regulatory 

changes regarding beneficiary 

assignment would apply to all ACOs, 

including those ACOs that are in the 

middle of an agreement period. 

However, as discussed in section II.E.6. 

of this proposed rule, we also propose 

that any final policies that affect 

beneficiary assignment would not be 

applicable until the start of the next 

performance year. We believe that 

implementing any revisions to the 

assignment methodology at the 

beginning of a performance year is 

reasonable and appropriate because it 

would permit time for us to make the 

necessary programming changes and 

would not disrupt the assessment of 

ACOs for the current performance year. 

Moreover, we would adjust all 

benchmarks at the start of the first 

performance year in which the new 

assignment rules are applied so that the 

benchmark for an ACO reflects the use 

of the same assignment rules that would 

apply in the performance year. 

We also note that we carefully 

consider the timing and effect on both 

current and future ACOs of any new 

regulatory proposal, and when 

promulgating new regulatory changes, 

we intend to solicit comment on these 

matters. Additionally, when 

implementing a final rule that changes 

our processes and methodologies, we 

intend to alert current and prospective 

ACOs of such changes via CMS 

communications and updates to 

guidance. We request comment on this 

proposed change to § 425.212(a). 

D. Provision of Aggregate and 

Beneficiary Identifiable Data 

1. Background 

Under section 1899(b)(2)(A) of the 

Act, an ACO must ‘‘be willing to 

become accountable for the quality, 

cost, and overall care of the Medicare 

fee-for-service beneficiaries assigned to 

it.’’ Further, in order to be eligible to 

participate in the Shared Savings 

Program, section 1899(b)(2)(G) of the 

Act states an ‘‘ACO shall define 

processes to . . . report on quality 

and cost measures, and coordinate 

care. . . .’’ However, section 1899 of 

the Act does not address what data, if 

any, we should make available to ACOs 

on their assigned beneficiary 

populations to support them in 

evaluating the performance of ACO 

participants and ACO providers/

suppliers, conducting quality 

assessment and improvement activities, 

or conducting population-based 

activities relating to improved health. 

As we explained in the November 

2011 final rule (76 FR 67844), in 

agreeing to become accountable for a 

group of Medicare beneficiaries, and as 

a condition of participation in the 

Shared Savings Program, we expect that 

ACOs will have, or are working towards 

having, processes in place to 

independently identify and produce the 

data they believe are necessary to best 

evaluate the health needs of their 

patient population, improve health 

outcomes, monitor provider/supplier 

quality of care and patient experience of 

care, and produce efficiencies in 

utilization of services. Therefore, it is 

our expectation that ACOs are actively 

working on developing and refining 

these processes. Moreover, we continue 

to believe this ability to independently 

identify and produce data for 

evaluating, improving, and monitoring 

the health of their patient population is 

a critical skill for each ACO to develop, 

leading to an understanding of the 

patient population that it serves. Once 

the ACO achieves an understanding of 

its patient population, it can work 

toward redesigning appropriate care 

processes to address the specific needs 

of its patient population. 

However, as we noted previously (76 

FR 67844), while an ACO typically 

should have, or at least be moving 

towards having complete information 

for the services its ACO providers/

suppliers furnish to Medicare FFS 

beneficiaries, we recognize that the ACO 

may not have access to information 

about services provided to its assigned 

beneficiaries by health care providers 

and suppliers outside the ACO— 

information that may be key to the 

ACO’s coordination of care efforts. 

Therefore, during the original 

rulemaking process for the Shared 

Savings Program, we proposed and 

made final a policy: (1) To distribute 

aggregate-level data reports to ACOs; (2) 

upon request from the ACO, to share 

limited identifying information about 

beneficiaries who are preliminarily 

prospectively assigned to the ACO and 

whose information serves as the basis 

for the aggregate reports; and (3) upon 

request from the ACO, to share certain 

beneficiary identifiable claims data with 

the ACO to enable it to conduct quality 

assessment and improvement activities 

and/or conduct care coordination, on its 

own behalf as a covered entity, or on 

behalf of its ACO participants and ACO 

providers/suppliers that are covered 

entities, unless the beneficiary chooses 

to decline to share his or her claims 

data. 

As we stated in the November 2011 

final rule (76 FR 67844), we believe that 

access to beneficiary identifiable 

information would provide ACOs with 

a more complete picture about the care 

their assigned beneficiaries receive, both 

within and outside the ACO. Further, it 

is our view that this information would 

help ACOs evaluate providers’/

suppliers’ performance, conduct quality 

assessment and improvement activities, 

perform care coordination activities, 

and conduct population-based activities 

relating to improved health. 

In the April 2011 proposed rule (76 

FR 19558), we described the 

circumstances under which we believed 

that the HIPAA Privacy Rule would 

permit our disclosure of certain 

Medicare Part A and B data to ACOs 

participating in the Shared Savings 

Program. Specifically, under the Shared 

Savings Program statute and regulations, 

ACOs are tasked with working with 

their ACO participants and ACO 

providers/suppliers to evaluate their 

performance, conduct quality 

assessment and improvement activities, 

perform care coordination activities, 

and conduct population-based activities 

relating to improved health for their 

assigned beneficiary population. When 

done by or on behalf of a covered entity, 

these are functions and activities that 

would qualify as ‘‘health care 

operations’’ under the first and second 

paragraphs of the definition of health 

care operations at 45 CFR 164.501. As 

such, these activities can be done by an 

ACO either on its own behalf, if it is 

itself a covered entity, or on behalf of its 

covered entity ACO participants and 

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ACO providers/suppliers, in which case 

the ACO would be acting as the 

business associate of its covered entity 

ACO participants and ACO providers/

suppliers. Accordingly we concluded 

that the disclosure of Part A and B 

claims data would be permitted by the 

HIPAA Privacy Rule provisions 

governing disclosures for ‘‘health care 

operations,’’ provided certain 

conditions are met. 

As we also discussed, upon receipt of 

a request for protected health 

information (PHI), a covered entity or its 

business associate is permitted to 

disclose PHI to another covered entity 

or its business associate for the 

requestor’s health care operations if 

both entities have or had a relationship 

with the subject of the records to be 

disclosed (which is true in the Shared 

Savings Program), the records pertain to 

that relationship (which is also true in 

the Shared Savings Program), and the 

recipient asserts in its request for the 

data that it plans to use the records for 

a ‘‘health care operations’’ function that 

falls within the first two paragraphs of 

the definition of ‘‘health care 

operations’’ in the HIPAA Privacy Rule 

and that the data requested are the 

‘‘minimum necessary’’ to carry out those 

health care operations. (See, the HIPAA 

Privacy Rule at 45 CFR 164.502(b) and 

164.506(c)(4)). The first two paragraphs 

of the definition of health care 

operations under 45 CFR 164.501 

include evaluating a provider’s or 

supplier’s performance, conducting 

quality assessment and improvement 

activities, care coordination activities, 

and conducting population-based 

activities relating to improved health. 

With respect to the relationship 

requirements in 45 CFR 164.506(c)(4), 

we have a relationship with the 

individuals who are the subjects of the 

requested PHI because they are 

Medicare beneficiaries. The ACO has a 

relationship with such individuals, 

either as a covered entity itself or on 

behalf of its covered entity ACO 

participants and ACO providers/

suppliers as a business associate, 

because the individuals are either 

preliminarily prospectively assigned to 

the ACO or have received a primary care 

service during the past 12 month period 

from an ACO participant upon whom 

assignment is based. In addition, the 

requested PHI pertains to the 

individuals’ relationship with both CMS 

and the ACO, in that we provide health 

care coverage for Medicare FFS 

beneficiaries and have an interest in 

ensuring that they receive high quality 

and efficient care, and the ACO is 

responsible for managing and 

coordinating the care of these 

individuals, who are part of the ACO’s 

assigned beneficiary population. 

Beneficiary identifiable Medicare 

prescription drug information could 

also be used by ACOs to improve the 

care coordination of their patient 

populations. Accordingly, consistent 

with the regulations governing the 

release of Part D data, in the April 2011 

proposed rule (76 FR 19559), we also 

proposed to make available the 

minimum Part D data necessary to allow 

for the evaluation of the performance of 

ACO participants and ACO providers/

suppliers, to conduct quality assessment 

and improvement, to perform care 

coordination, and to conduct 

population-based activities relating to 

improved health. 

In the November 2011 final rule (76 

FR 67846 and 67851), we adopted a 

policy that defined when we would 

share beneficiary identifiable 

information (including Part A and B 

claims data and Part D prescription drug 

event data) for preliminarily 

prospectively assigned beneficiaries and 

those beneficiaries who have a primary 

care visit with an ACO participant that 

is used to assign beneficiaries to the 

ACO. As a basic requirement, in order 

to receive such data an ACO that 

chooses to access beneficiary 

identifiable data is required under 42 

CFR 425.704 to request the minimum 

data necessary for the ACO to conduct 

health care operations work, either as a 

HIPAA-covered entity in its own right, 

or as the business associate of one or 

more HIPAA-covered entities (where 

such covered entities are the ACO 

participants and ACO providers/

suppliers), for ‘‘health care operations’’ 

activities that fall within the first or 

second paragraph of the definition of 

health care operations at 45 CFR 

164.501. We note that as part of their 

application to participate in the Shared 

Savings Program, ACOs certify whether 

they intend to request beneficiary 

identifiable information, and that the 

requested data reflects the minimum 

necessary for the ACO to conduct health 

care operations either on its own behalf 

or on behalf of its covered entity ACO 

participants and ACO provider/

suppliers. Thus, the ACO’s formal 

request to receive data is accomplished 

at the time of its application to the 

Shared Savings Program. The ACO must 

also enter into a data use agreement 

(DUA) with CMS. If all of these 

conditions are satisfied, CMS makes 

available certain limited PHI regarding 

the preliminarily prospectively assigned 

beneficiaries whose data were used to 

generate the aggregate data reports 

provided to the ACO under § 425.702(b) 

and other beneficiaries who have a 

primary care visit during the 

performance year with an ACO 

participant upon whom assignment is 

based. In order to enhance transparency 

and beneficiary engagement, we also 

finalized a policy that before ACOs may 

start receiving PHI in the form of 

beneficiary identifiable claims data, 

they must give beneficiaries the 

opportunity to decline sharing of their 

claims data as required under § 425.708. 

Since the publication of the 

November 2011 final rule, we have 

gained further experience with sharing 

data with ACOs participating in the 

Shared Savings Program. We continue 

to believe that distributing aggregate 

reports, paired with making available 

certain beneficiary identifiable 

information related to preliminarily 

prospectively assigned beneficiaries, as 

well as making available the claims data 

for preliminarily prospectively assigned 

FFS beneficiaries and other FFS 

beneficiaries that have primary care 

service visits with ACO participants that 

submit claims for primary care services 

that are used to determine the ACO’s 

assigned population, is worthwhile and 

consistent with the goals of the Shared 

Savings Program. The aggregate data 

reports and the beneficiary identifiable 

information related to preliminarily 

prospectively assigned beneficiaries 

give ACOs valuable information that can 

be used to better understand their 

patient population, redesign care 

processes, and better coordinate the care 

of their beneficiaries. ACOs 

participating in the Shared Savings 

Program have reported that the 

beneficiary identifiable claims data that 

they receive from us are being used 

effectively to better understand the FFS 

beneficiaries that are served by their 

ACO participants and ACO providers/

suppliers. These data give ACOs 

valuable insight into patterns of care for 

their beneficiary population; enable 

them to improve care coordination 

among and across providers and 

suppliers and sites of care, including 

providers and suppliers and sites of care 

not affiliated with the ACO; and allow 

them to identify and address gaps in 

patient care. 

However, based upon our experiences 

administering the Shared Savings 

Program and feedback from 

stakeholders, we believe that we can 

improve our data sharing policies and 

processes to streamline access to such 

data to better support program and ACO 

function and goals and better serve 

Medicare beneficiaries. It is with this in 

mind that we propose the following 

modifications to our data sharing 

policies and procedures under the 

Shared Savings Program. 

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2. Aggregate Data Reports and Limited 

Identifiable Data 

a. Overview 

Under § 425.702, we share aggregate 

reports with ACOs at the beginning of 

the agreement period based on 

beneficiary claims used to calculate the 

benchmark, at each quarter thereafter on 

a rolling 12-month basis, and in 

conjunction with the annual 

reconciliation. The aggregate reports 

provided under § 425.702(a) and (b) 

contain certain de-identified beneficiary 

information including all of the 

following: 

• Aggregated metrics on the ACO’s 

preliminarily prospectively assigned 

beneficiary population, including 

characteristics of the assigned 

beneficiary population, the number of 

primary care services provided to the 

assigned beneficiary population by the 

ACO, and the proportion of primary 

care services provided to the assigned 

beneficiary population by ACO 

participants upon whom assignment is 

based. 

• Expenditure data for the ACO’s 

assigned beneficiary population by 

Medicare enrollment type (ESRD, 

disabled, aged/dual eligible, aged/nondual eligible) and type of service (for 

example, inpatient hospital, physician, 

etc.). 

• Utilization data on select metrics 

for the assigned population, such as 

ambulatory care sensitive conditions 

discharge rates per 1,000 beneficiaries 

for conditions such as congestive heart 

failure (CHF) or uncontrolled diabetes, 

and utilization rates for imaging, 

emergency department visits, 

hospitalizations, and primary care 

services. 

In addition, under § 425.702(c), we 

also provide a report that includes 

certain beneficiary identifiable 

information about the beneficiaries who 

are preliminarily prospectively assigned 

to the ACO and whose data were used 

to generate the de-identified aggregate 

data reports. The information currently 

contained in this assignment report 

includes the beneficiary name, date of 

birth, HICN, and sex. These beneficiary 

identifiable data are made available to 

an ACO that has met the conditions 

previously discussed in detail for 

purposes of carrying out populationbased activities related to improving 

health or reducing growth in health care 

costs, process development (such as 

care coordination processes), case 

management, and care coordination for 

the beneficiary population assigned to 

the ACO. Under § 425.708(d) these data 

points are not subject to the requirement 

that an ACO give beneficiaries an 

opportunity to decline claims data 

sharing. 

Feedback we have received since the 

November 2011 final rule was issued 

and during implementation of the 

Shared Savings Program, confirms there 

is a strong desire among ACOs and their 

ACO participants and ACO providers/

suppliers to have as much information 

about their patients as is possible, in as 

timely a manner as possible, to better 

coordinate care and target care strategies 

toward individual beneficiaries. 

Moreover, ACOs are actively using the 

reports provided under § 425.702 to 

conduct their health care operations 

work with the expectation that it will 

result in higher quality and more 

efficient care for their assigned 

beneficiary populations. However, 

ACOs and their ACO participants and 

ACO providers/suppliers also report 

that the four data elements currently 

made available on the assignment 

reports under § 425.702(c)—that is, 

beneficiary name, date of birth, HICN, 

and sex—severely limit their care 

redesign efforts. They assert that 

additional data elements are necessary 

in order to conduct health care 

operations work under the first or 

second paragraph of the definition of 

health care operations at 45 CFR 

164.501. For example, an ACO reported 

that having data not only on the 

frequency of hospitalizations but also on 

which specific beneficiaries were 

hospitalized and in which specific 

hospitals would better enable it to 

identify the effectiveness and outcomes 

of its post-hospitalization care 

coordination processes. Some 

stakeholders have made suggestions for 

beneficiary identifiable data that should 

be included in the quarterly reports in 

addition to the current four data 

elements, such as risk profiles or 

information on whether the beneficiary 

had a hospital visit in the past year. 

Some stakeholders suggested that the 

report be expanded to include 

information not only for the 

beneficiaries that received a plurality of 

their primary care services from ACO 

professionals, but also for all FFS 

beneficiaries that received a primary 

care service from an ACO participant in 

the past year. These stakeholders argue 

that understanding the entire FFS 

patient population served by the ACO 

and its ACO participants would 

improve their ability to redesign care, 

and reduce the uncertainty associated 

with a list of preliminarily prospectively 

assigned beneficiaries that fluctuates 

from quarter to quarter, based on the 

population’s use of primary care 

services. 

b. Proposed Revisions 

We considered what additional 

beneficiary identifiable data might be 

the minimum necessary to support the 

ACOs’ health care operations work. 

Based on our discussions with ACOs 

and ACO participants and ACO 

providers/suppliers, we believe that 

making additional information available 

to ACOs about the FFS beneficiaries 

they serve, including for example, on 

whether a beneficiary visited an 

emergency room or was hospitalized, 

would help support such efforts. Thus, 

we propose to expand the information 

made available to ACOs under 

§ 425.702(c) to include certain 

additional beneficiary identifiable data 

subject to the existing requirements of 

§ 425.702(c)(2), which incorporates the 

requirements under HIPAA governing 

the disclosure of PHI. Specifically, in 

addition to the four data elements 

(name, date of birth, HICN, and sex) 

which are currently made available for 

preliminarily prospectively assigned 

beneficiaries, we propose to expand the 

beneficiary identifiable information that 

is made available under § 425.702(c)(1) 

to include these data elements (name, 

date of birth, HICN, and sex) for each 

beneficiary that has a primary care 

service visit with an ACO participant 

that bills for primary care services that 

are considered in the assignment 

process in the most recent 12-month 

period. 

Additionally, we propose to expand 

the beneficiary identifiable information 

made available for preliminarily 

prospectively assigned beneficiaries to 

include additional data points. The 

information would be derived from the 

same claims used to determine the 

preliminary prospective assigned 

beneficiary list. Specifically, we propose 

that we would make available the 

minimum data set necessary for 

purposes of the ACO’s population-based 

activities related to improving health or 

reducing health care costs, required 

process development (under § 425.112), 

care management, and care coordination 

for its preliminarily prospectively 

assigned beneficiary population, at the 

following times: (1) At the beginning of 

the agreement period; (2) at the 

beginning of each performance year and 

quarterly thereafter; and (3) in 

conjunction with the annual 

reconciliation. We would articulate the 

data elements associated with the 

minimum data set in operational 

guidance, and update as needed to 

reflect changes in the minimum data 

necessary for ACOs to perform these 

activities. The information would fall 

under the following categories: 

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• Demographic data such as 

enrollment status. 

• Health status information such as 

risk profile, and chronic condition 

subgroup. 

• Utilization rates of Medicare 

services such as the use of evaluation 

and management, hospital, emergency, 

and post-acute services, including dates 

and place of service. 

• Expenditure information related to 

utilization of services. 

We believe that under this approach 

the data made available in the aggregate 

data reports under § 425.702(c) would 

generally constitute the minimum data 

necessary for covered entity ACOs or for 

ACOs serving as the business associate 

of their covered entity ACO participants 

and ACO providers/suppliers, to 

evaluate providers’ and suppliers’ 

performance, conduct quality 

assessment and improvement activities, 

and conduct population-based activities 

relating to improved health. 

Finally, we note that these proposals 

for expansion of the data reports 

provided under § 425.702(c) to include 

each FFS beneficiary that has a primary 

care visit with an ACO participant that 

submits claims for primary care services 

that are considered in the assignment 

process, would apply only to ACOs 

participating in Tracks 1 and 2, where 

beneficiaries are assigned in a 

preliminarily prospective manner with 

retrospective reconciliation. This is 

because ACOs in Tracks 1 and 2 have 

an incentive to redesign care processes 

for all FFS beneficiaries that receive 

care from their ACO participants, due to 

the nature of the preliminarily 

prospective assignment methodology 

with retrospective reconciliation. Under 

our proposed Track 3, which is 

discussed in detail in section II.F.3.a. of 

this proposed rule, we believe that the 

minimum data necessary for ACOs to 

perform health care operations as 

defined under the first and second 

paragraphs of the definition of health 

care operations at 45 CFR 164.501, 

would not extend beyond data needed 

for health operations related to the 

prospective list of assigned 

beneficiaries. We believe a prospective 

assignment approach incentivizes 

targeting of the specific FFS 

beneficiaries on the list for care 

improvement, rather than redesigning 

care processes for all FFS beneficiaries 

seen by the ACO participants. As such, 

the minimum data necessary required 

for Track 3 ACOs to perform health care 

operations work would be limited to the 

data for beneficiaries that are 

prospectively assigned for a 

performance year. Thus, for Track 3, we 

propose to limit the beneficiary 

identifiable data included in the reports 

made available under § 425.702(c) to 

only those beneficiaries that appear on 

the ACO’s prospective list of 

beneficiaries at the beginning of a 

performance year. Specifically, Track 3 

ACOs would have access to beneficiary 

identifiable data elements associated 

with the list of categories under 

§ 425.702(c) for beneficiaries 

prospectively assigned to the ACO but 

would not be able to request any 

information related to other Medicare 

FFS beneficiaries who receive primary 

care services that are considered in the 

assignment process from ACO 

participants. We believe this limitation 

is reasonable because, under Track 3, 

the prospectively assigned beneficiary 

list would encompass all beneficiaries 

for whom the ACO would be held 

accountable in a given performance 

year, in contrast to ACOs in Tracks 1 

and 2 that would be held accountable 

for any FFS beneficiaries that choose to 

receive a plurality of their primary care 

services from ACO professionals billing 

through the TINs of ACO participants. 

We seek comment on our proposal to 

expand the data set made available to 

ACOs under § 425.702(c). We seek 

comment on the categories of 

information that we have proposed to 

include and on any other beneficiary 

identifiable information that should be 

offered in the aggregate reports provided 

under § 425.702(c) in order to allow 

ACOs as covered entities or as the 

business associate of their covered 

entity ACO participants and ACO 

providers/suppliers to conduct health 

care operations work under paragraphs 

one or two of the definition of health 

care operations at 45 CFR 164.501. We 

also specifically seek comment on our 

proposal to expand the list of 

beneficiaries for which data are made 

available under § 425.702(c) to ACOs 

participating in Track 1 and Track 2 to 

include all beneficiaries that had a 

primary care service visit with an ACO 

participant that submits claims for 

primary care services that are 

considered in the assignment process. 

3. Claims Data Sharing and Beneficiary 

Opt-Out 

a. Overview 

Because Medicare FFS beneficiaries 

have the freedom to choose their health 

care providers and suppliers, and are 

not required to receive services from 

providers and suppliers participating in 

the ACO, the patients of ACO 

participants and ACO providers/

suppliers often receive care from other 

providers and suppliers that are not 

affiliated with the ACO. As a result, 

ACOs and their ACO participants and 

ACO providers/suppliers may not be 

aware of all of the services an assigned 

beneficiary is receiving. Furthermore, 

under Tracks 1 and 2, we perform a 

retrospective reconciliation at the end of 

each performance year to determine an 

ACO’s assigned beneficiary population 

based on beneficiaries’ use of primary 

care services using the assignment 

algorithm described at § 425.402 of the 

regulations. Therefore, under Tracks 1 

and 2, it is possible that an ACO’s 

preliminary prospective assigned 

beneficiary list would not be complete 

and would not include all the 

beneficiaries that would ultimately be 

assigned to the ACO at the end of the 

performance year—that is, all of the 

beneficiaries for which the ACO 

ultimately would be held accountable. 

As we discussed in the April 2011 

proposed rule (76 FR 19558) and in the 

November 2011 final rule (76 FR 67844), 

we were concerned about ACOs’ ability 

to do their work in the absence of 

information about services delivered 

outside of the ACO. As we stated at that 

time, we believed that it would be 

important to give ACOs appropriate 

access to a beneficiary’s identifiable 

claims data when the beneficiary has 

received a primary care service billed 

through the TIN of an ACO participant, 

and is thus a candidate for assignment 

at the time of retrospective 

reconciliation for the performance year. 

We believed that sharing beneficiary 

identifiable claims data would enable 

ACOs to better coordinate and target 

care strategies towards the individual 

beneficiaries seen by ACO participants 

and ACO providers/suppliers. 

We ultimately concluded that the 

bases for disclosure under the HIPAA 

Privacy Rule were broad enough to 

cover CMS’s disclosure of Medicare 

Parts A and B claims data to ACOs for 

health care operations work when 

certain conditions are met. Similarly, 

we concluded that the Part D 

regulations governing the release of Part 

D data on prescription drug use would 

permit the release of Part D prescription 

drug event data to ACOs for purposes of 

supporting care coordination, quality 

improvement, and performance 

measurement activities. Thus, we 

concluded that we are permitted to 

disclose the minimum Medicare Parts 

A, B, and D data necessary to allow 

ACOs to conduct the health care 

operations activities that fall into the 

first or second paragraph of the 

definition of health care operations 

under the HIPAA Privacy Rule when 

such data is requested by the ACO as a 

covered entity or as the business 

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associate of its covered entity ACO 

participants and ACO providers/

suppliers. Accordingly, in the 

November 2011 final rule (76 FR 67851), 

we adopted a policy under which an 

ACO may request Part A and Part B 

claims data and Part D prescription drug 

event data for preliminarily 

prospectively assigned beneficiaries and 

other beneficiaries who receive primary 

care services from an ACO participant 

upon whom assignment is based. In 

accordance with the terms of the DUA 

that the ACO must enter into with CMS, 

data received from CMS under the data 

sharing provisions of the Shared 

Savings Program may only be used for 

the purposes of clinical treatment, care 

management and coordination, quality 

improvement activities, and provider 

incentive design and implementation. In 

providing the claims data subject to 

these limitations, we believed that we 

would ensure compliance with the 

requirements of the HIPAA Privacy Rule 

and the regulations governing the 

release of Part D data. 

While the disclosure of claims data in 

this manner is within the bounds of the 

applicable laws, we also noted concerns 

about beneficiaries’ interests in 

controlling access to their individually 

identifiable health information. Thus, 

even though we believed that we had 

legal authority to make the 

contemplated disclosures without the 

consent of beneficiaries, in the 

November 2011 final rule (76 FR 67849) 

we implemented the additional 

requirement at § 425.708 that ACOs 

offer beneficiaries an opportunity to 

decline to have their claims data shared 

with the ACO. As such, before 

requesting access to the beneficiary’s 

data and as part of its broader activities 

to notify patients that their health care 

provider or supplier is participating in 

an ACO, the ACO is required to inform 

beneficiaries that the ACO may request 

access to their claims data, and give 

beneficiaries an opportunity to decline 

such claims data sharing. 

Under the current opt-out system, 

once the ACO formally requests 

beneficiary identifiable claims data 

through the application process, enters 

into a DUA with CMS, and begins its 

first performance year, the ACO must 

supply beneficiaries with a written 

notification explaining their 

opportunity to decline claims data 

sharing. Offering beneficiaries the 

opportunity to decline claims data 

sharing may take two forms under 

current § 425.708. First, if the ACO has 

formally requested beneficiary 

identifiable claims data as part of the 

application process, the ACO must 

notify each FFS beneficiary of the 

opportunity to decline data sharing 

when the beneficiary has his or her first 

visit with an ACO participant upon 

whom assignment is based. During this 

visit, the beneficiary must be provided 

with written notification informing him 

or her of the ACO provider/supplier’s 

participation in the ACO and that the 

ACO may request claims information 

from CMS in order to better coordinate 

the beneficiary’s care and for other 

health operations activities. This written 

notification contains template language 

created by CMS with the assistance of 

the Medicare Ombudsman’s office and 

with input from beneficiaries, and 

explains the beneficiary’s option to 

decline claims data sharing. Once the 

beneficiary has expressed a preference 

at the point of care, the ACO may 

immediately inform CMS of the 

beneficiary’s data sharing preference. If 

the beneficiary has not declined data 

sharing, CMS makes that beneficiary’s 

data available to the ACO. 

We recognized, however, that 

beneficiaries may not seek primary care 

services until later in the performance 

year. Because of this, we offered an 

alternative option to ACOs who met 

requirements for receiving beneficiary 

identifiable claims data. Under the 

alternative option, ACOs may contact 

beneficiaries via a mailed notification 

that is sent to all preliminarily 

prospectively assigned beneficiaries to 

notify them of their health care 

provider’s participation in an ACO 

under the Shared Savings Program, and 

the ACO’s intent to request beneficiary 

identifiable claims data. The mailed 

notification contains template language 

that was developed in conjunction with 

the Medicare Ombudsman’s office with 

input from beneficiaries. If the 

beneficiary wishes to decline claims 

data sharing, the beneficiary is 

instructed to sign the mailed 

notification and return it to the ACO or 

call 1–800–MEDICARE directly. If the 

ACO chooses to contact beneficiaries via 

a mailed notification, rather than 

waiting to notify them at the point of 

care, the ACO must wait 30 days before 

submitting the beneficiary’s preference 

and receiving access to the data for 

those beneficiaries that have chosen not 

to decline claims data sharing. The 30- 

day waiting period provides 

beneficiaries with an opportunity to 

mail back the notification or to call 1– 

800–MEDICARE before the ACO 

receives access to their claims data. In 

addition, in order to ensure 

transparency, beneficiary engagement 

and meaningful choice, the notification 

and opportunity to decline claims data 

sharing must be repeated at the 

beneficiary’s first primary care visit 

with an ACO participant upon whom 

assignment is based (76 FR 67850 and 

67851). Finally, in addition to the point 

of care and mailed notifications 

provided by ACOs, all Medicare FFS 

beneficiaries are notified through the 

Medicare & You Handbook about ACOs 

and the opportunity to decline claims 

data sharing by contacting CMS directly 

at 1–800–MEDICARE. 

Once the ACO has notified the 

beneficiaries according to program 

rules, and any applicable wait periods 

are over, the ACO submits the 

beneficiaries’ preferences to CMS. 

Beneficiary preferences submitted by 

ACOs are combined with preferences 

received by CMS through 1–800– 

MEDICARE. Based on these beneficiary 

preferences, we generate a claims file 

containing the beneficiary identifiable 

claims data of beneficiaries that have 

not declined data sharing. These claims 

files are then made available for ACO 

access on a monthly basis. 

Once a beneficiary has declined data 

sharing, the beneficiary may choose to 

reverse the decision by signing another 

form and sending it to the ACO (who in 

turn notifies CMS of the beneficiary’s 

updated preference) or by calling 1– 

800–MEDICARE directly. We then 

include the beneficiary’s claims data in 

the claims file provided to the ACO the 

following month. 

In the November 2011 final rule (76 

FR 67849), we acknowledged that it is 

possible that a beneficiary may decline 

to have his or her claims data shared 

with an ACO but would choose to 

continue to receive care from ACO 

participants and ACO providers/

suppliers. In such a case, the ACO 

would still be responsible for that 

beneficiary’s care, and, as such, 

although the beneficiary’s claims data 

would not be shared with the ACO, 

CMS would continue to use the 

beneficiary’s claims data in its 

assessment of the ACO’s quality and 

financial performance. 

In the November 2011 final rule (76 

FR 67849 through 67850) we expressed 

our view that beneficiaries should be 

notified of their health care provider’s 

participation in an ACO in order to have 

some control over who has access to 

their health information for purposes of 

the Shared Savings Program. Further, 

we indicated that the requirement that 

an ACO provider/supplier engage 

patients in a discussion about the 

inherent benefits, as well as the 

potential risks, of claims data sharing 

provided an opportunity for true 

patient-centered care and would create 

incentives for ACOs, ACO participants, 

and ACO providers/suppliers to develop 

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positive relationships with each 

beneficiary under their care. 

Additionally, we stated that this policy 

would provide ACO participants and 

ACO providers/suppliers the 

opportunity to engage with beneficiaries 

by explaining the Shared Savings 

Program and its potential benefits for 

both the beneficiaries and the health 

care system as a whole. 

Since implementation of the Shared 

Savings Program, we have shared claims 

data on over 5 million beneficiaries with 

over 300 Shared Savings Program ACOs. 

We have received informal feedback 

from ACOs that are putting the opt-out 

requirement into practice, and from 

beneficiaries who have received 

notifications from an ACO that wanted 

to request access to their claims data. 

We have learned the following from this 

feedback: 

• The option for ACOs to mail 

notifications and then conduct in-office 

follow-up adds to ACOs’ financial costs 

and delays their ability to access claims 

data in a timely manner. ACOs must 

wait until January 1 of the first 

performance year to send out mailings. 

After waiting the requisite 30 days, the 

earliest the ACO may submit beneficiary 

preferences to CMS is in February. The 

first set of claims data is then available 

in mid-March. In addition, some ACOs 

struggle with obtaining current mailing 

information for preliminarily 

prospectively assigned beneficiaries, 

which can delay the mailing of 

notifications to later in the performance 

year. Thus, the earliest opportunity for 

ACOs to receive claims data is midFebruary, and that is only the claims 

data for beneficiaries who visited 

primary care providers in early January 

and were given the opportunity to 

decline claims data sharing at the point 

of care. 

• Stakeholders, including ACOs, ACO 

participants, and ACO providers/

suppliers, continually confuse the 

notification regarding the ACO’s intent 

to request access to claims data with the 

separate requirement that all FFS 

beneficiaries must be notified of ACO 

participants’ and ACO providers/

suppliers’ participation in the program. 

Beneficiaries must be notified at the 

point of care of the ACO participants’ 

and ACO providers/suppliers’ 

participation in an ACO, regardless of 

whether the ACO has or intends to 

request access to claims data. 

• ACOs have commented that 

beneficiaries are confused about why 

their providers do not already have 

access to information regarding other 

care they may receive, which potentially 

erodes rather than strengthens the 

patient-provider relationship. 

Beneficiaries often assume their 

providers have all the information they 

need to care for them. However, as 

noted previously, the ACO, its ACO 

participants, and ACO providers/

suppliers would not have claims data 

for services rendered outside the ACO, 

and would not necessarily have 

knowledge about that care. 

• Beneficiaries can choose to receive 

care from providers outside an ACO, so 

beneficiaries may receive notices 

regarding data sharing from more than 

one ACO. This is most likely to occur 

in markets with high ACO penetration 

where a beneficiary may receive 

primary care services from several 

different ACO professionals, each 

participating in different ACOs. 

Beneficiaries report confusion, concern, 

and annoyance over receiving multiple 

mailings from ACOs, and question why 

their health care providers do not 

already have the information they need 

to appropriately coordinate their care. 

• Beneficiaries receiving the 

notifications giving them the 

opportunity to decline claims data 

sharing may mistakenly believe they are 

being asked to ‘‘opt-out’’ of ACO care 

and/or Medicare FFS, or that they have 

been placed in a managed care plan 

without their consent. 

• Beneficiaries that receive the letters 

in the mail notifying them of their 

provider’s participation in an ACO and 

offering them the opportunity to decline 

claims data sharing often mistakenly 

believe that these letters are fraudulent 

and do not know what to do. Many 

ACOs are entities that have been newly 

formed by providers and suppliers for 

purposes of participating in the Shared 

Savings Program. While the beneficiary 

may have a strong relationship with his 

or her primary care provider, the 

beneficiary may not recognize the name 

of the newly formed ACO and therefore 

may have concerns and question the 

legitimacy of the notification. 

• Our data indicate that 

approximately 2 percent of beneficiaries 

have declined claims data sharing. This 

is consistent with other CMS initiatives 

that have included data sharing, such as 

the Medicare Health Support 

demonstration, the Multi-Payer 

Advanced Primary Care Practice 

demonstration, the Physician Group 

Practice demonstration, and the 

Physician Group Practice Transition 

demonstration. 

As discussed previously, beneficiaries 

currently have the opportunity to 

decline claims data sharing by 

responding to the letters that ACOs send 

to their preliminarily prospectively 

assigned beneficiaries, by informing an 

ACO provider/supplier during a face-toface primary care service visit, or by 

contacting 1–800–MEDICARE directly. 

We continue to be committed to offering 

beneficiaries some control over ACO 

access to their beneficiary identifiable 

information for purposes of the Shared 

Savings Program. However, in light of 

the feedback we have received, we were 

motivated to review our claims data 

sharing policies and processes to 

determine what refinements could be 

made to mitigate the concerns raised by 

stakeholders regarding the burden 

imposed on both beneficiaries and those 

entities participating in the Shared 

Savings Program. We considered several 

aspects of our claims data sharing 

policies, including the use of various 

formats to communicate with 

beneficiaries regarding claims data 

sharing under the program such as: 

Mailed notifications to the list of 

preliminarily prospectively assigned 

beneficiaries by the ACO; face-to-face 

discussions with healthcare providers 

during primary care visits; and CMS’s 

use of 1–800–MEDICARE and the 

Medicare & You Handbook. As 

discussed in the April 2011 proposed 

rule (76 FR 19558) and the November 

2011 final rule (76 FR 67846), we are 

convinced by stakeholders that 

Medicare claims data provide an 

important supplement to the data to 

which the ACO and its ACO 

participants and ACO providers/

suppliers already have access. Current 

law allows CMS to share certain 

beneficiary identifiable claims data with 

ACOs when those data are necessary for 

purposes of certain health care 

operations. HIPAA does not require that 

beneficiaries be presented with an 

opportunity to decline claims data 

sharing before their PHI can be shared. 

Moreover, several other CMS initiatives, 

including the Medicare Health Support 

demonstration, the Multi-Payer 

Advanced Primary Care Practice 

demonstration, the Physician Group 

Practice demonstration, and the 

Physician Group Practice Transition 

demonstration, have successfully shared 

claims data with providers in the 

absence of an opportunity for 

beneficiaries to decline claims data 

sharing. Therefore, we considered how 

to retain meaningful beneficiary choice 

in claims data sharing while reducing 

the confusion and burden caused by our 

current claims data sharing policies. We 

believe meaningful beneficiary choice in 

claims data sharing is maintained when 

the purpose and rationale for such 

claims data sharing are transparent and 

communicated to beneficiaries, and 

there is a mechanism in place for 

beneficiaries to decline claims data 

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sharing. Thus, in revisiting our claims 

data sharing policies, we sought to 

maintain claims data sharing 

transparency and a mechanism for 

beneficiaries to decline claims data 

sharing. 

b. Proposed Revisions 

Based on our experiences with data 

sharing under the Shared Savings 

Program to date, we are proposing to 

modify our processes and policy for 

claims data sharing while remaining 

committed to retaining meaningful 

beneficiary choice over claims data 

sharing with ACOs. First, we propose to 

provide beneficiaries with the 

opportunity to decline claims data 

sharing directly through 1–800– 

MEDICARE, rather than through the 

ACO. We note that 1–800–MEDICARE 

has the capability for beneficiaries to 

use accessible alternative or appropriate 

assistive technology, if needed. We 

would continue to maintain a list of 

beneficiaries that have declined data 

sharing and ensure that their claims 

information is not included in the 

claims files shared with ACOs. Second, 

we propose to provide advance 

notification to all FFS beneficiaries 

about the opportunity to decline claims 

data sharing with ACOs participating in 

the Shared Savings Program through 

CMS materials such as the Medicare & 

You Handbook. The Handbook would 

include information about the purpose 

of the program, describe the opportunity 

for ACOs to request beneficiary 

identifiable claims data for health care 

operations purposes, and provide 

instructions on how beneficiaries may 

decline claims data sharing by 

contacting CMS directly through 1–800– 

MEDICARE. The Handbook would also 

contain instructions on how a 

beneficiary may reverse his or her 

preference to decline claims data 

sharing by contacting 1–800– 

MEDICARE. Third, to reduce burden for 

both beneficiaries and ACOs, we 

propose to remove the option for ACOs 

to mail notifications to beneficiaries and 

for beneficiaries to sign and return the 

forms to the ACO in order to decline 

claims data sharing. This process would 

be replaced by a simpler, direct process 

through notification at the point of care 

and through 1–800–MEDICARE as 

described previously. 

We also propose to continue to 

require that ACO participants notify 

beneficiaries in writing at the point of 

care that their providers and suppliers 

are participating in the Shared Savings 

Program as required under § 425.312(a). 

We propose that ACO participants 

would continue to be required to post 

signs in their facilities using required 

template language. Rather than 

requiring ACO participants furnishing 

primary care services to provide a 

written form regarding claims data 

sharing to all beneficiaries who have a 

primary care service office visit, we 

propose to update the required 

notification template language for these 

signs to include information regarding 

claims data sharing. We would update 

the template language with the 

assistance of the Medicare 

Ombudsman’s Office and beneficiary 

input to inform beneficiaries about both 

the Shared Savings Program and also 

that the ACO may request access to 

beneficiary identifiable claims data from 

CMS in order to perform health care 

operations as defined under the first and 

second paragraphs of the definition of 

health care operations at 45 CFR 

164.501. The signs would also provide 

beneficiaries with information about 

their opportunity to decline this data 

sharing and instructions to call 1–800– 

MEDICARE if they would prefer that we 

not share their claims data with an ACO 

and its ACO participants and ACO 

providers/suppliers. The signs would 

likewise include instructions for how 

beneficiaries may reverse their opt-outs 

through 1–800–MEDICARE, if they 

determine in the future they would 

prefer to have their claims data made 

available to ACOs and their ACO 

participants and ACO providers/

suppliers. Because ACO participants are 

required to post these signs in their 

facilities at all times, this written 

notification through the signs would 

occur at each visit, including the first 

visit the beneficiary has with an ACO 

participant during a performance year. 

We also anticipate that some 

beneficiaries may continue to want to 

have the ability to take the information 

home or into their visit with their 

primary care provider for further 

discussion. Therefore, in addition to the 

signs, we propose to retain our policy 

that ACO participants that submit 

claims for primary care services used to 

determine the ACO’s assigned 

beneficiary population be required to 

make a separate written notification 

form available to the beneficiary upon 

request. 

We propose to modify § 425.312 and 

§ 425.708 for clarity and to reflect these 

revised notification policies. 

Finally, under Tracks 1 and 2, we 

propose to make beneficiary identifiable 

claims data available in accordance with 

applicable law on a monthly basis for 

beneficiaries that are either 

preliminarily prospectively assigned to 

the ACO or who have received a 

primary care service during the past 12- 

month period from an ACO participant 

upon whom assignment is based. 

Because Tracks 1 and 2 use a 

preliminary prospective assignment 

methodology with retrospective 

reconciliation, we believe that ACOs, 

ACO participants, and ACO providers/ 

suppliers in Tracks 1 and 2 would 

benefit from access to beneficiary 

identifiable claims information for all 

FFS beneficiaries that may be assigned 

to the ACO at the end of the 

performance year. In contrast, under 

Track 3, we propose to make beneficiary 

identifiable claims data available only 

for beneficiaries that are prospectively 

assigned to an ACO, because the 

beneficiaries on the prospective 

assignment list are the only 

beneficiaries for whom the ACO would 

be held accountable at the end of the 

performance year. Consistent with the 

existing requirements at § 425.704, in 

order to request beneficiary identifiable 

claims data, and regardless of track, an 

ACO must: (1) Certify that it is a covered 

entity or the business associate of a 

covered entity that has provided a 

primary care service to the beneficiary 

in the previous 12 months (2) enter into 

a DUA with CMS prior to the receipt of 

these beneficiary identifiable data; (3) 

submit a formal request to receive 

beneficiary identifiable claims data for 

such beneficiaries at the time of 

application to the Shared Savings 

Program; and (4) certify that the request 

reflects the minimum data necessary for 

the ACO to conduct either its own 

health care operations work that falls 

within the first or second paragraph of 

the definition of health care operations 

at 45 CFR 164.501 or health care 

operations work on behalf of its ACO 

participants and ACO providers/ 

suppliers that are covered entities (as 

the business associate of these covered 

entities) that falls within the first or 

second paragraph of the definition of 

health care operations at 45 CFR 

164.501. 

We believe these proposed 

modifications to our data sharing rules 

would significantly improve the claims 

data sharing process. First, we believe 

the modified process would reduce 

burden for beneficiaries who would no 

longer have to mail back forms. In 

addition, it would minimize beneficiary 

confusion in situations where an ACO 

may be newly formed and may not yet 

have established a relationship with the 

beneficiary. Instead, the beneficiary 

would be able decline claims data 

sharing, and reverse a decision to 

decline claims sharing, by contacting 

CMS directly using 1–800–MEDICARE. 

We believe beneficiaries would be more 

comfortable expressing their claims data 

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sharing preferences directly through 

CMS, an agency with which 

beneficiaries have an existing 

relationship. Moreover, we believe our 

proposals would streamline ACO 

operations and would allow ACOs to 

access beneficiary identifiable claims 

data earlier in the performance year 

than is possible under our current 

policies. Beneficiary identifiable claims 

data would still be available on a 

monthly basis, but the new process 

would be operationally more efficient 

and less expensive for ACOs. By 

removing the 30-day delay before ACOs 

may request beneficiary identifiable 

claims data for their preliminarily 

prospectively assigned beneficiaries 

under Tracks 1 and 2 and prospectively 

assigned beneficiaries under Track 3, 

and reducing operational complexities 

associated with providing these data, 

ACOs would have access to beneficiary 

identifiable claims data in a more timely 

fashion. This may allow ACOs to 

intervene in the care of beneficiaries 

earlier during the performance year. In 

addition, as discussed previously, while 

we initially believed that requiring 

ACOs to notify beneficiaries of the 

opportunity to decline claims data 

sharing would improve engagement 

between ACO providers/suppliers that 

furnish primary care services and their 

patients, we now realize that this policy 

unintentionally created burden and 

confusion for both ACOs and 

beneficiaries, as many beneficiaries 

assume that their health care providers 

already have the information needed to 

optimally coordinate their care, even 

though this is not always the case. We 

believe that the proposed revisions to 

our claims data sharing policy would 

reduce beneficiary confusion about the 

Shared Savings Program and the role an 

ACO plays in assisting the beneficiary’s 

health care providers to improve their 

health and health care experience, while 

still retaining a beneficiary’s meaningful 

opportunity to decline claims data 

sharing. 

We note that, since implementation of 

the program, a small percentage of FFS 

beneficiaries have requested that their 

identifiable claims data not be shared 

and have done so either by notifying the 

ACO or by contacting 1–800– 

MEDICARE to decline claims data 

sharing. None of our proposed revisions 

would have any effect on any existing 

beneficiary preferences. Previously 

recorded beneficiary preferences would 

continue to be honored, unless and until 

a beneficiary changes his or her 

preference by contacting 1–800– 

MEDICARE. Accordingly, our proposal 

not only preserves the beneficiary’s 

ability to decline claims data sharing by 

directly contacting CMS, but also has no 

effect on existing beneficiary claims 

data sharing preferences, unless the 

beneficiary subsequently amends his or 

her preferences to allow claims data 

sharing. 

In summary, we propose to amend 

§ 425.704 to reflect our proposal to 

begin sharing beneficiary identifiable 

claims data with ACOs participating 

under Tracks 1 and 2 that request claims 

data on beneficiaries that are included 

on their preliminary prospective 

assigned beneficiary list or that have 

received a primary care service from an 

ACO participant upon whom 

assignment is based during the most 

recent 12-month period, at the start of 

the ACO’s agreement period, provided 

all other requirements for claims data 

sharing under the Shared Savings 

Program and HIPAA regulations are 

met. We also propose to share 

beneficiary identifiable claims data with 

ACOs participating under Track 3 that 

request beneficiary identifiable claims 

data on beneficiaries that are included 

on their prospectively assigned 

beneficiary list. We also propose to 

revise § 425.312(a) and § 425.708 to 

reflect our policy that ACO participants 

use CMS approved template language to 

notify beneficiaries regarding 

participation in an ACO and the 

opportunity to decline claims data 

sharing. In addition, we propose to 

modify § 425.708 to reflect the 

streamlined process by which 

beneficiaries may decline claims data 

sharing. We also propose to add a new 

paragraph (c) to § 425.708 to reflect our 

proposal to honor any beneficiary 

request to decline claims data sharing 

that is received under § 425.708 until 

such time as the beneficiary may reverse 

his or her claims data sharing preference 

to allow data sharing. 

We note that the beneficiary 

identifiable information that is made 

available under § 425.704 would 

include Parts A, B and D data, but 

would exclude any information related 

to the diagnosis and treatment of 

alcohol or substance abuse. As we 

discussed in the April 2011 proposed 

rule (76 FR 19557), 42 U.S.C. 290dd–2 

and the implementing regulations at 42 

CFR part 2 restrict the disclosure of 

patient records by federally conducted 

or assisted substance abuse programs. 

Such data may be disclosed only with 

the prior written consent of the patient, 

or as otherwise provided in the statute 

and regulations. We note that we may 

revisit this approach as technology in 

the area of consent management 

advances. 

We seek comment on these proposals. 

We also seek comment on other specific 

modifications that could be made to our 

existing policies on data sharing to 

improve the ability of ACOs to access 

beneficiary identifiable claims data, and 

to reduce burden and confusion for 

ACOs, ACO participants, ACO 

providers/suppliers, and beneficiaries. 

E. Assignment of Medicare FFS 

Beneficiaries 

1. Background 

Section 1899(c) of the Act requires the 

Secretary to ‘‘determine an appropriate 

method to assign Medicare fee-forservice beneficiaries to an ACO based 

on their utilization of primary care 

services provided under this title by an 

ACO professional described in 

paragraph (h)(1)(A).’’ Section 

1899(h)(1)(A) of the Act constitutes one 

element of the definition of the term 

‘‘ACO professional.’’ Specifically, this 

provision establishes that ‘‘a physician 

(as defined in section 1861(r)(1) of the 

Act)’’ is an ‘‘ACO professional’’ for 

purposes of the Shared Savings 

Program. Section 1861(r)(1) of the Act in 

turn defines the term physician as ‘‘. . . 

a doctor of medicine or osteopathy 

legally authorized to practice medicine 

and surgery by the State in which he 

performs such function or action . . .’’ 

In addition, section 1899(h)(1)(B) of the 

Act defines ‘‘ACO professional’’ to 

include practitioners described in 

section 1842(b)(18)(C)(i) of the Act, such 

as physician assistants (PAs) and nurse 

practitioners (NPs). 

As we explained in the November 

2011 final rule (76 FR 67851) the term 

‘‘assignment’’ refers only to an 

operational process by which Medicare 

determines whether a beneficiary has 

chosen to receive a sufficient level of 

the requisite primary care services from 

physicians associated with a specific 

ACO so that the ACO may be 

appropriately designated as exercising 

basic responsibility for that beneficiary’s 

care. Consistent with section 

1899(b)(2)(A) of the Act, an ACO is held 

accountable ‘‘for the quality, cost, and 

overall care of the Medicare fee-for 

service beneficiaries assigned to it.’’ The 

ACO may also qualify to receive a share 

of any savings that are realized in the 

care of these assigned beneficiaries due 

to appropriate efficiencies and quality 

improvements that the ACO may be able 

to achieve. The term ‘‘assignment’’ for 

purposes of the Shared Savings Program 

in no way implies any limits, 

restrictions, or diminishment of the 

rights of Medicare FFS beneficiaries to 

exercise freedom of choice in the 

physicians and other health care 

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providers and suppliers from whom 

they receive their services. 

In developing the process for 

assigning Medicare beneficiaries to 

ACOs, we considered several other 

elements in addition to the definition of 

an ACO professional (76 FR 67851): (1) 

The operational definition of an ACO 

(see the discussion of the formal and 

operational definitions of an ACO in 

section II.B. of this proposed rule) so 

that ACOs can be efficiently identified, 

distinguished, and associated with the 

beneficiaries for whom they are 

providing services; (2) the definition of 

primary care services for purposes of 

determining the appropriate assignment 

of beneficiaries; (3) whether to assign 

beneficiaries to ACOs prospectively, at 

the beginning of a performance year on 

the basis of services rendered prior to 

the performance year, or retrospectively, 

on the basis of services actually 

rendered by the ACO during the 

performance year; and (4) the 

proportion of primary care services that 

is necessary for a beneficiary to receive 

from an ACO in order to be assigned to 

that ACO for purposes of this program. 

In the November 2011 final rule (76 

FR 67851 through 67870), we finalized 

the methodology that we currently use 

to assign beneficiaries to ACOs for 

purposes of the Shared Savings 

Program. Beneficiaries are assigned to a 

participating ACO using the assignment 

methodology in Part 425, subpart E of 

our regulations. In addition, since the 

final rule was issued, we have provided 

additional guidance and more detailed 

specifications regarding the beneficiary 

assignment process in operational 

instructions which are available to the 

public on the CMS Web site. (http:// 

www.cms.gov/Medicare/Medicare-Feefor-Service-Payment/ 

sharedsavingsprogram/Financial-andAssignment-Specifications.html) 

In this section of this proposed rule, 

we summarize several key policies and 

methodological issues to provide 

background for several revisions to the 

assignment methodology that we are 

proposing based on our initial 

experiences with the program and 

questions from stakeholders. 

2. Basic Criteria for a Beneficiary To Be 

Assigned to an ACO 

In order to develop operational 

procedures needed to implement the 

Shared Savings Program, and to respond 

to inquiries from ACOs and other 

stakeholders, we developed specific 

criteria to govern beneficiary eligibility 

for assignment to an ACO which we 

propose to codify in a new provision at 

§ 425.401. We believe that revising the 

regulations to include these eligibility 

criteria would help promote 

understanding of the assignment 

methodology. The proposed criteria in 

new § 425.401 are consistent with the 

current assignment methodology under 

§ 425.400 and § 425.402 as well as the 

discussion of the assignment 

methodology in the preamble to the 

November 2011 final rule and 

operational instructions that we have 

issued since the publication of the final 

rule (76 FR 67851). 

First, to determine whether a 

beneficiary is eligible to be assigned to 

an ACO, we must have information 

about the beneficiary’s Medicare 

enrollment status. As required by 

section 1899(h)(3) of the Act, and 

consistent with the definition of 

Medicare FFS beneficiary in § 425.20, 

only beneficiaries enrolled in traditional 

Medicare FFS under Parts A and B are 

eligible to be assigned to an ACO 

participating in the Shared Savings 

Program. Because of this statutory 

definition and because an important 

objective of this program is to help align 

incentives between Part A and Part B, 

beneficiaries who have coverage under 

only one of these parts are not eligible 

to be assigned to an ACO. Beneficiaries 

enrolled in a group health plan— 

including beneficiaries enrolled in 

Medicare Advantage (MA) plans under 

Part C, eligible organizations under 

section 1876 of the Act, and Programs 

of All Inclusive Care for the Elderly 

(PACE) under section 1894 of the Act— 

are also not eligible to be assigned. 

However, we note that Medicare 

Secondary Payer (MSP) status does not 

exclude a beneficiary from assignment 

to an ACO. 

The statute includes a provision that 

precludes duplication in participation 

in initiatives involving shared savings. 

Section 1899(b)(4) of the Act states that 

providers of services or suppliers that 

participate in certain programs that 

involve shared savings are not eligible 

to participate in the Shared Savings 

Program. In the November 2011 final 

rule (76 FR 67830 through 67833), we 

finalized a proposal to implement this 

requirement and to adopt a process for 

ensuring that providers and suppliers 

participating in the Shared Savings 

Program do not concurrently participate 

in another Medicare program or 

demonstration involving shared savings 

at § 425.114. Specifically, applications 

for participation in the Shared Savings 

Program are reviewed to assess for 

overlapping ACO participant TINs. ACO 

participants that are already 

participating in another Medicare 

program, model or demonstration 

involving shared savings are prohibited 

from participating in the Medicare 

Shared Savings Program. An ACO 

application that contains ACO 

participants that are already 

participating in another Medicare 

program or demonstration involving 

shared savings is rejected. 

The statutory prohibition against 

providers and suppliers participating in 

multiple programs and initiatives that 

involve shared savings limits but does 

not prevent the possibility for a 

beneficiary to be assigned to more than 

one shared savings initiative. However, 

we believe it is important that 

beneficiaries are not assigned to more 

than one initiative involving shared 

savings because we do not believe it is 

appropriate to make multiple shared 

savings payments for the same 

beneficiaries. Therefore, at § 425.114(c), 

we provide that if the other program or 

demonstration involving shared savings 

does not assign beneficiaries based upon 

the TINs of the health care providers 

from whom they receive care, but uses 

an alternate beneficiary assignment 

methodology, we will work with the 

developers of the respective 

demonstrations and initiatives to devise 

an appropriate method to ensure no 

duplication in shared savings payments. 

For example, beneficiaries cannot be 

assigned to a Shared Savings Program 

ACO for a performance year if they are 

associated with another Medicare 

shared savings initiative at the start of 

the Shared Savings Program ACO’s 

performance year. 

We have also implemented 

procedures to exclude beneficiaries 

whose residence is outside the United 

States, U.S. territories or possessions 

from assignment to an ACO. We make 

this determination based on the most 

recent available data in our beneficiary 

records regarding the beneficiary’s 

residence at the end of the assignment 

window. We do not believe it is 

appropriate to expect ACOs to be 

responsible for coordinating the care 

provided to beneficiaries that reside 

outside the United States, as required 

under the Shared Savings Program, or to 

hold ACOs accountable for the care 

provided to beneficiaries that reside 

outside the United States because ACOs 

may have limited ability to interact with 

overseas providers and suppliers. In 

most situations, Medicare does not pay 

for health care or supplies furnished 

outside the United States. (Additional 

guidance about this policy is available 

at http://www.medicare.gov/Pubs/pdf/ 

11037.pdf.) As a result, claims 

information regarding services received 

in other countries is not available to 

ACOs. United States (U.S.) residence 

includes the 50 states, the District of 

Columbia, Puerto Rico, the U.S. Virgin 

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Islands, Guam, American Samoa, and 

the Northern Marianas. (See guidance at 

http://www.cms.gov/Medicare/ 

Medicare-Fee-for-Service-Payment/ 

sharedsavingsprogram/Downloads/ 

Shared-Savings-Losses-AssignmentSpec-v2.pdf.) We believe it is 

appropriate to amend the regulations 

governing the assignment process to 

incorporate these limitations. Thus, we 

propose to add a new provision at 

§ 425.401(a) of the regulations to outline 

the criteria that a beneficiary must meet 

in order to be eligible to be assigned to 

an ACO. Specifically, a beneficiary 

would be eligible to be assigned to a 

participating ACO, for a performance 

year or benchmark year, if the 

beneficiary meets all of the following 

criteria during the assignment window 

(defined in section II.F. of this proposed 

rule as the 12-month period used for 

assignment): 

• Has at least 1 month of Part A and 

Part B enrollment and does not have any 

months of Part A only or Part B only 

enrollment. 

• Does not have any months of 

Medicare group (private) health plan 

enrollment. 

• Is not assigned to any other 

Medicare shared savings initiative. 

• Lives in the U.S. or U.S. territories 

and possessions as determined based on 

the most recent available data in our 

beneficiary records regarding the 

beneficiary’s residence at the end of the 

assignment window. 

If a beneficiary meets all of the criteria 

in § 425.401(a), then the beneficiary 

would be eligible to be assigned to an 

ACO in accordance with the two-step 

beneficiary assignment methodology in 

§ 425.402 and § 425.404. We also 

propose to make a conforming change to 

§ 425.400 to reflect the addition of this 

new provision. 

We request comment on this proposal 

to amend the regulations to address 

specifically the criteria that would be 

used to determine whether a beneficiary 

is eligible to be assigned to an ACO. 

3. Definition of Primary Care Services 

a. Overview 

Section 1899(c) of the Act requires the 

Secretary to assign beneficiaries to an 

ACO ‘‘based on their utilization of 

primary care services’’ provided by a 

physician. However, the statute does not 

specify which kinds of services may be 

considered ‘‘primary care services’’ for 

this purpose, nor the amount of those 

services that would be an appropriate 

basis for making assignments. In this 

section of this proposed rule, we 

summarize how we currently identify 

the appropriate primary care services on 

which we base assignment. In addition, 

we propose several revisions to our 

current policies for defining primary 

care services for this purpose, consistent 

with our statement in the November 

2011 final rule (76 FR 67853), that we 

intended to monitor this issue and 

would consider making changes to the 

definition of primary care services to 

add or delete codes, if there is sufficient 

evidence that revisions are warranted. 

We currently define ‘‘primary care 

services’’ for purposes of the Shared 

Savings Program in § 425.20 as the set 

of services identified by the following 

HCPCS/CPT codes: 99201 through 

99215, 99304 through 99340, 99341 

through 99350, the Welcome to 

Medicare visit (G0402), and the annual 

wellness visits (G0438 and G0439). In 

addition, as we will discuss later in this 

section, we have established a crosswalk for these codes to certain revenue 

center codes used by FQHCs (prior to 

January 1, 2011) and RHCs so that their 

services can be included in the 

beneficiary assignment process. 

In the November 2011 final rule (76 

FR 67853), we established the current 

list of codes that constitute primary care 

services for several reasons. First, we 

believed the listed codes represented a 

reasonable approximation of the kinds 

of services that are described by the 

statutory language which refers to 

assignment of ‘‘Medicare fee-for-service 

beneficiaries to an ACO based on their 

utilization of primary care services’’ 

furnished by physicians. Because the 

statute requires that assignment be 

based upon the utilization of primary 

care services furnished by physicians, 

only primary care services can be 

considered in the assignment process. In 

addition, we selected this list to be 

largely consistent with the definition of 

‘‘primary care services’’ in section 5501 

of the Affordable Care Act. That section 

establishes the Primary Care Incentive 

Payment Program (PCIP) to expand 

access to primary care services, and thus 

its definition of ‘‘primary care services’’ 

provides a compelling precedent for 

adopting a similar list of codes for 

purposes of the beneficiary assignment 

process under the Shared Savings 

Program. We slightly expanded the list 

of codes found in section 5501 of the 

Affordable Care Act to include the 

Welcome to Medicare visit (HCPCS code 

G0402) and the annual wellness visits 

(HCPCS codes G0438 and G0439) as 

primary care services for purposes of the 

Shared Savings Program. These codes 

clearly represent primary care services 

frequently received by Medicare 

beneficiaries, and in the absence of the 

special G codes the services provided 

during these visits would be described 

by one or more of the regular office visit 

codes that are included in the list under 

section 5501 of the Affordable Care Act. 

Since the publication of the 

November 2011 final rule, we have 

received several suggestions from ACOs 

and others regarding specific codes that 

we would consider adding to the 

definition of primary care services so 

that they could be considered when 

assigning beneficiaries to ACOs. For 

example, commenters have noted that 

effective January 1, 2013, Medicare pays 

for two CPT codes (99495 and 99496) 

that are used to report physician or 

qualifying non-physician practitioner 

transitional care management (TCM) 

services for a patient following a 

patient’s discharge to a community 

setting from an inpatient hospital or 

SNF or from outpatient observation 

status in a hospital or partial 

hospitalization. These codes were 

established to pay a patient’s physician 

or practitioner to coordinate the 

patient’s care in the 30 days following 

a hospital or skilled nursing facility 

(SNF) stay. We believe that providing 

separate payment for the work of 

community physicians and practitioners 

in treating a patient following discharge 

from a hospital or nursing facility would 

ensure better continuity of care for these 

patients and help reduce avoidable 

readmissions. We discussed this policy 

in the CY 2013 Physician Fee Schedule 

(PFS) final rule with comment period 

that appeared in the November 16, 2012 

Federal Register (77 FR 68978 through 

68994). 

Further, in the CY 2014 PFS final rule 

with comment period that appeared in 

the December 10, 2013 Federal Register 

(78 FR 74414 through 74427), we 

indicated that for CY 2015, we planned 

to establish a separate payment for 

HCPCS code GXXX1 under the PFS for 

chronic care management (CCM) 

services furnished to patients with 

multiple (two or more) chronic 

conditions. Subsequently, in the CY 

2015 PFS final rule with comment 

period that appeared in the November 

13, 2014 Federal Register, we provided 

more details relating to the 

implementation of the new PFS policy, 

including coding, elements of service, 

and payment rates (79 FR 67715 through 

67728). Chronic care management 

services generally include regular 

development and revision of a plan of 

care, communication with other treating 

health professionals, and medication 

management. 

Accordingly, as part of our broader 

multiyear strategy to appropriately 

recognize and value primary care and 

care management services, effective 

January 1, 2015, we will make a separate 

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payment for CCM services under the 

PFS. We believe that successful efforts 

to improve chronic care management for 

these patients could improve the quality 

of care while simultaneously decreasing 

costs, such as through reductions in 

hospitalizations, use of post-acute care 

services and emergency department 

visits. 

We have also received a few 

suggestions from hospitalists and others 

that certain evaluation and management 

codes used for services furnished in 

SNFs and other nursing facility settings 

(CPT codes 99304 through 99318) 

should be excluded from the definition 

of primary care services. In some cases, 

hospitalists that perform evaluation and 

management services in SNFs requested 

this change so that their ACO 

participant TIN need not be exclusive to 

only one ACO based on the exclusivity 

policy established in the November 

2011 final rule (76 FR 67810 through 

67811). The requirement under 

§ 425.306(b) that an ACO participant 

TIN be exclusive to a single ACO 

applies when the ACO participant TIN 

submits claims for primary care services 

that are considered in the assignment 

process. However, ACO participant 

TINs upon which beneficiary 

assignment is not dependent (that is, 

ACO participant TINs that do not 

submit claims for primary care services 

that are considered in the assignment 

process) are not required to be exclusive 

to a single ACO. 

These requests from hospitalists and 

others were based on drawing a 

distinction between evaluation and 

management services performed in 

SNFs and those that are performed in 

other nursing facilities. Specifically, 

these commenters believe that 

evaluation and management services 

furnished in SNFs are more likely to be 

acute in nature and should not be 

considered primary care services. In 

contrast, the evaluation and 

management services performed in 

other nursing facilities, where patients 

tend to stay for longer periods, are 

arguably more likely to include primary 

care services. We have also received 

comments, however, from others who 

support the inclusion of these services 

in the definition of primary care for the 

Shared Savings Program. They suggest 

that including the codes for evaluation 

and management services furnished in 

SNFs in the assignment process could 

help provide important incentives for 

ACOs to manage and coordinate the care 

of these vulnerable patients because 

ACOs would be held accountable for 

these patients if they receive the 

plurality of their primary care services 

from ACO professionals during a 

performance year. 

In the November 2011 final rule, we 

discussed comments both for and 

against including the codes for SNF 

visits in the definition of primary care 

services (76 FR 67852 through 67853). 

However, we ultimately concluded that 

it was appropriate to include these 

codes. We continue to believe that 

including the codes for SNF and other 

nursing facility visits in the list of codes 

that constitute primary care services for 

purposes of assignment to an ACO is 

appropriate for a number of reasons. As 

we stated in the November 2011 final 

rule (76 FR 67853), beneficiaries often 

stay for long periods of time in SNFs 

(Medicare covers up to 100 days of SNF 

services in each benefit period) and it is 

reasonable to conclude that these codes 

represent basic evaluation and 

management services that would 

ordinarily be provided in physician 

offices if the beneficiaries were not 

residing in nursing homes. If these 

services are performed by ACO 

professionals, we continue to believe 

that it is reasonable to hold the ACO 

accountable for the care of these 

beneficiaries. In addition, as we noted 

previously, the PCIP program 

established under section 5501 of the 

Affordable Care Act was established to 

expand access to ‘‘primary care 

services’’. Under this program, 

beginning January 1, 2011 and 

continuing through December 31, 2015, 

we pay an incentive payment of 10 

percent of Medicare program payments 

to qualifying primary care physicians 

and certain non-physician practitioners 

who furnish specified primary care 

services. We believe it is compelling 

that these SNF codes are included in the 

definition of ‘‘primary care services’’ in 

section 5501 of the Affordable Care Act, 

which established this incentive 

program. We would also note that CPT 

codes 99304 through 99318 do not 

differentiate between evaluation and 

management services performed in 

SNFs and other nursing facilities. Thus, 

services furnished in SNFs and other 

nursing facilities are included in the 

definition of ‘‘primary care services’’ for 

purposes of section 5501. Finally, in the 

CY 2015 PFS final rule with comment 

period (79 FR 67910 through 67911), we 

added the Skilled Nursing Facility 30- 

Day All-Cause Readmission Measure 

(SNFRM) to the quality performance 

measure set used to evaluate the quality 

of the care furnished by ACOs. We 

believe the addition of this measure 

helps to fill a gap in the current Shared 

Savings Program measure set and 

provides a focus on an area where ACOs 

are targeting redesign. Therefore, we 

continue to believe that it is reasonable 

to conclude that services provided in 

SNFs with CPT codes 99304 through 

99318 represent basic evaluation and 

management services that would 

ordinarily be provided in physician 

offices if the beneficiaries were not 

residing in nursing homes and should 

continue to be included in the 

definition of primary care services used 

for purposes of beneficiary assignment 

to an ACO participating in the Shared 

Savings Program. Although we are not 

making a proposal at this time regarding 

CPT codes 99304 through 99318, we 

welcome comment from stakeholders on 

the implications of retaining these codes 

in the definition of primary care 

services. 

b. Proposed Revisions 

We believe that the TCM services 

represented by CPT codes 99495 and 

99496 represent primary care services 

that should be considered in the 

beneficiary assignment methodology 

under the Shared Savings Program. In 

order to receive payment for these 

codes, the physician or non-physician 

practitioner is required to accept care of 

the beneficiary post-discharge from an 

inpatient hospital or SNF without a gap 

and must take responsibility for the 

beneficiary’s overall care for a period of 

30 days following the discharge. 

Likewise, we believe that the CCM 

services represented by HCPCS code 

GXXX1 are primary care services that 

should also be considered in the 

beneficiary assignment methodology 

under the Shared Savings Program. The 

CCM service includes continuity of care 

with a designated practitioner or 

member of the care team with whom the 

patient is able to get successive routine 

appointments. The CCM service also 

includes access to care management 

services 24-hours-a-day, 7-days-a-week, 

which means providing beneficiaries 

with a means to make timely contact 

with health care providers to address 

the patient’s urgent chronic care needs 

regardless of the time-of-day or day of 

the week. Additional explanation of 

these and the other required elements 

for billing CCM services can be found in 

the CY 2015 PFS final rule with 

comment period (79 FR 67715 through 

67728). Therefore, we propose to update 

the definition of primary care services at 

§ 425.20 to include both TCM codes 

(CPT codes 99495 and 99496) and the 

CCM code (HCPCS code GXXX1) and to 

include these codes in our beneficiary 

assignment methodology under 

§ 425.402. 

Further, in order to promote 

flexibility for the Shared Savings 

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Program and to allow the definition of 

primary care services used in the Shared 

Savings Program to respond more 

quickly to HCPCS/CPT coding changes 

made in the annual PFS rulemaking 

process, we propose to make any future 

revisions to the definition of primary 

care service codes through the annual 

PFS rulemaking process. If we intend to 

add any proposed new HCPCS/CPT or 

revenue center codes to the definition of 

primary care services for purposes of the 

Shared Savings Program, we would 

include a discussion of the proposed 

addition in the preamble to the PFS 

proposed rule to allow an opportunity 

for comment before we announce our 

final decision in the PFS final rule. 

Such an approach would enable the 

Shared Savings Program to be more 

flexible and responsive to incorporate 

any changes to primary care oriented 

codes that are made through the PFS 

rulemaking process. We believe this 

process for making changes to the 

Shared Savings Program’s definition of 

primary care services under § 425.20 

would help to ensure that the definition 

of primary care services used under the 

Shared Savings Program properly 

reflects the full range of primary care 

services that beneficiaries may receive 

under Medicare and that the assignment 

methodology accurately aligns 

beneficiaries with the entities that are 

responsible for managing their overall 

care. In addition, revising the definition 

of primary care services for purposes of 

the Shared Savings Program through the 

annual rulemaking for the PFS would 

enable us to efficiently update and 

revise primary care service codes used 

for purposes of beneficiary assignment 

under the Shared Savings Program to 

reflect any administrative HCPCS/CPT 

coding changes, such as changes to 

reflect successive coding changes. 

Accordingly, we also propose to amend 

the definition of primary care services at 

§ 425.20 to include additional codes 

designated by CMS as primary care 

services for purposes of the Shared 

Savings Program, including new 

HCPCS/CPT codes or revenue codes and 

any subsequently modified or 

replacement codes. 

We seek comments on these 

proposals. In addition, we seek 

comments as to whether there are any 

additional existing HCPCS/CPT codes 

that we should consider adding to the 

definition of primary care services in 

future rulemaking for purposes of 

assignment of beneficiaries to ACOs 

under the Shared Savings Program. It 

would be most helpful if such 

comments include a detailed discussion 

of the basis for such an addition. 

4. Consideration of Physician 

Specialties and Non-Physician 

Practitioners in the Assignment Process 

a. Overview 

Primary care services can generally be 

defined based on the type of service 

provided, the type of provider specialty 

that provides the service, or both. In the 

November 2011 final rule establishing 

the Shared Savings Program (76 FR 

67853 through 67856), we adopted a 

balanced assignment process that 

simultaneously maintains the 

requirement to focus on primary care 

services in beneficiary assignment, 

while recognizing the necessary and 

appropriate role of specialists in 

providing primary care services, such as 

in areas with primary care physician 

shortages. 

Under § 425.402, after identifying all 

patients that had a primary care service 

with a physician who is an ACO 

professional (and who are thus eligible 

for assignment to the ACO under the 

statutory requirement to base 

assignment on ‘‘utilization of primary 

care services’’ furnished by physicians), 

we employ a step-wise approach as the 

basic assignment methodology. This 

step-wise assignment process takes into 

account two particular decisions that we 

described in the November 2011 final 

rule (76 FR 67853 through 67858): (1) 

Our decision to base assignment on the 

primary care services of specialist 

physicians in the second step of the 

assignment process; and (2) our decision 

also to take into account the plurality of 

all primary care services provided by 

ACO professionals, including both 

primary care and specialist physicians 

and certain non-physician practitioners, 

in determining which ACO is truly 

responsible for a beneficiary’s primary 

care in the second step of the 

assignment process. Our current stepwise assignment process thus occurs in 

the following two steps: 

Step 1: In this step, the beneficiary 

would be assigned to the ACO if the 

allowed charges for primary care 

services furnished to the beneficiary by 

primary care physicians who are ACO 

professionals are greater than the 

allowed charges for primary care 

services furnished by primary care 

physicians who are ACO professionals 

in any other ACOs, and greater than the 

allowed charges for primary care 

services billed to Medicare by any other 

solo practice/group containing primary 

care physicians, identified by a 

Medicare-enrolled TIN, that is 

unaffiliated with any ACO. In other 

words, first we add up the allowed 

charges for primary care services billed 

by primary care physicians through the 

TINs of ACO participants in the ACO. 

Next, we add up the allowed charges for 

primary care services furnished by 

primary care physicians that are billed 

through other Medicare-enrolled TINs 

(or through a collection of ACO 

participant TINs in the case of another 

ACO). If the allowed charges for the 

services furnished by ACO participants 

are greater than the allowed charges for 

services furnished by the participants in 

any other ACO or by any non-ACO 

participating Medicare-enrolled TIN, 

then the beneficiary is assigned to the 

ACO in the first step of the assignment 

process. 

Step 2: This step applies only for 

beneficiaries who have not received any 

primary care services from a primary 

care physician. We assign a beneficiary 

to an ACO in this step if the beneficiary 

received at least one primary care 

service from a physician participating in 

the ACO, and more primary care 

services (measured by Medicare allowed 

charges) from ACO professionals 

(physician regardless of specialty, nurse 

practitioner, physician assistant or 

clinical nurse specialist) at the ACO 

than from ACO professionals in any 

other ACO or solo practice/group of 

practitioners identified by a Medicareenrolled TIN or other unique identifier, 

as appropriate, that is unaffiliated with 

any ACO. 

Since publication of the November 

2011 final rule (76 FR 67853 through 

67858), we have gained further 

experience with this assignment 

methodology. We have learned from its 

application for the first 220 ACOs 

participating in the program that, on 

average, about 92 percent of the 

beneficiaries assigned to ACOs are 

assigned in step 1, with only about 8 

percent of the beneficiaries being 

assigned in step 2. 

We have adopted a similar beneficiary 

assignment approach for some other 

programs, such as the PQRS Group 

Practice Reporting Option via the GPRO 

web interface (77 FR 69195 through 

69196). We would note that in the CY 

2015 PFS final rule with comment 

period that appeared in the November 

13, 2014 Federal Register, we revised 

the Value Modifier (VM) beneficiary 

attribution methodology and the PQRS 

GPRO web interface beneficiary 

assignment methodology to make them 

slightly different from the Medicare 

Shared Savings Program assignment 

methodology, namely—(1) eliminating 

the primary care service pre-step that is 

statutorily required for the Shared 

Savings Program; and (2) including NPs, 

PAs, and CNSs in step 1 rather than in 

step 2 of the attribution process (see 79 

FR 67790 and 79 FR 67962). 

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b. Proposed Revisions 

We continue to believe that the 

current step-wise assignment 

methodology generally provides a 

balance between maintaining a strong 

emphasis on primary care while 

ultimately allowing for assignment of 

beneficiaries on the basis of how they 

actually receive their primary care 

services. However, we have received 

several suggestions for possible 

improvements to the assignment 

methodology for consideration. 

Some stakeholders have suggested 

that primary care services by nonphysician practitioners (NPs, PAs, and 

CNSs) should be included in step 1 of 

the assignment methodology rather than 

only in step 2 as they are under the 

current process. These stakeholders 

have indicated that non-physician 

practitioners very often serve as a 

beneficiary’s sole primary care provider, 

based on beneficiary preferences or 

other factors, especially in rural areas 

and other areas where there is a shortage 

of primary care physicians. We 

considered this recommendation for a 

number of reasons. 

As previously explained in the 

November 2011 final rule (76 FR 67853 

through 67858), in establishing the 

Shared Savings Program, we adopted 

certain key features of the Shared 

Savings Program (for example, the 

decision not to include physician 

specialties in step 1 of the assignment 

methodology and the definition of 

primary care physician under § 425.20) 

to align with other Affordable Care Act 

provisions that place a strong emphasis 

on primary care. In particular, we 

referred to section 5501 of the 

Affordable Care Act which established 

the PCIP. For purposes of section 5501 

of the Affordable Care Act, a ‘‘primary 

care practitioner’’ is defined as a 

physician who has a primary specialty 

designation of family medicine, internal 

medicine, geriatric medicine, or 

pediatric medicine or as a ‘‘nurse 

practitioner, clinical nurse specialist, or 

physician assistant.’’ Therefore, we 

believe it would be appropriate to better 

align the assignment methodology 

under the Shared Savings Program with 

the primary care emphasis in other 

provisions of the Affordable Care Act by 

including these non-physician 

practitioners in step 1 of the assignment 

process. Further, we believe that 

including these non-physician 

practitioners in step 1 would be 

supported by the statute as long as we 

continue under § 425.402 to first 

identify all patients that have received 

a primary care service from a physician 

who is an ACO professional and who 

are thus eligible for assignment to the 

ACO under the statutory requirement to 

base assignment on ‘‘utilization of 

primary care services’’ furnished by 

physicians. Finally, we believe that it 

would be appropriate to include 

primary services furnished by NPs, PAs, 

and CNSs in step 1 of the beneficiary 

assignment methodology (after 

satisfying the statutory criterion that 

assignment be based on primary care 

services by physicians). Under section 

1899(b)(2)(D), the ACO is required to 

have sufficient primary care ACO 

professionals to care for the number of 

FFS beneficiaries assigned to the ACO. 

The statute includes NPs, PAs, and 

CNSs in its definition of ACO 

professional; thus recognizing the 

important role played by these nonphysician practitioners in managing and 

coordinating the care of Medicare FFS 

beneficiaries. 

We believe including these 

practitioners in step one of the 

assignment process could also further 

strengthen our current assignment 

process, which we designed to 

simultaneously maintain a primary care 

centric approach to beneficiary 

assignment, by including services 

furnished by physicians from all of the 

primary care specialties in step 1, while 

also recognizing the necessary and 

appropriate role of specialists in 

providing primary care services by 

including services furnished by 

specialist physicians in step 2. 

Including services furnished by NPs, 

PAs, and CNSs in determining the 

plurality of primary care services in step 

1 of the assignment process may help 

ensure that beneficiaries are assigned to 

the ACO (or non-ACO entity) that is 

actually providing the plurality of 

primary care for that beneficiary and 

thus, should be responsible for 

managing the patient’s overall care. In 

this way, all primary care services 

furnished by ACO professionals, 

including the entire primary care 

physician and practitioner team 

(including NPs, PAs, and CNSs working 

in clinical teams in collaboration with 

or under the supervision of physicians), 

would be considered for purposes of 

determining where a beneficiary 

received the plurality of primary care 

services under step 1 of the assignment 

methodology. Accordingly, we are 

proposing to amend the assignment 

methodology to include primary care 

services furnished by NPs, PAs, and 

CNSs in step 1 of the assignment 

process. 

However, we would note that there 

could also be some concerns about 

adding NPs, PAs, and CNSs to step 1 of 

the assignment methodology. Unlike for 

physicians, the CMS self-reported 

specialty codes reported on claims for 

NPs, PAs, and CNSs are not further 

broken down by specific specialty areas 

and therefore do not allow practitioners 

to indicate whether they are typically 

functioning as primary care providers or 

as specialists. Therefore, we are 

concerned that by considering services 

furnished by NPs, PAs, and CNSs in 

step 1, we may ultimately assign some 

beneficiaries to an ACO inappropriately 

based on specialty care over true 

primary care. Thus, while we invite 

comments on our proposal to include 

primary care services furnished by NPs, 

PAs, and CNSs in step 1 of the 

assignment methodology, we also seek 

comment on the extent to which these 

non-physician practitioners provide 

non-primary care services and whether 

there are ways to distinguish between 

primary care services and non-primary 

care services billed by these nonphysician practitioners. 

Some other stakeholders have 

suggested that certain physician 

specialties are inappropriately included 

in the assignment process and therefore 

request that we exclude certain 

physician specialties from step 2 of the 

assignment process. These stakeholders 

are concerned that by being included in 

step 2 of the assignment process, the 

ACO participants that submit claims for 

services furnished by these specialists 

are inappropriately limited to 

participating in only one ACO because 

of the exclusivity requirement under 

§ 425.306(b) of the regulations. This 

requirement is discussed in the 

November 2011 final rule (76 FR 67810 

through 67811). Further, some 

stakeholders have indicated that they 

are confused by the current exclusivity 

requirement and inappropriately believe 

that an ACO participant can participate 

in more than one ACO as long as none 

of the beneficiaries for whom the ACO 

participant has submitted claims for 

primary care services have been 

assigned to the ACO. 

We would like to emphasize that 

under § 425.306(b), the requirement that 

an ACO participant must be exclusive to 

a single ACO applies whenever primary 

care service claims submitted by the 

ACO participant are considered in the 

beneficiary assignment process. The 

application of the current exclusivity 

requirement to an ACO participant is 

not affected by whether or not a FFS 

beneficiary for whom an ACO 

participant has submitted claims for 

primary care services is ultimately 

assigned to the ACO. Rather, an ACO 

participant that submits claims to 

Medicare for primary care services must 

be exclusive to a single ACO because 

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the claims for primary care services 

submitted by the ACO participant are 

used to determine beneficiary 

assignment to the ACO. Additionally, 

the current exclusivity requirement is 

not affected by whether or not the 

primary care services for which the 

ACO participant submits claims are 

services furnished by primary care 

physicians, specialist physicians, or 

NPs, PAs, and CNSs. Furthermore, this 

exclusivity requirement applies only to 

the ACO participant and not to 

individual practitioners. Individual 

practitioners are free to participate in 

multiple ACOs, provided they are 

billing under a different Medicareenrolled TIN for each ACO in which 

they participate. (See 76 FR 67810 

through 67811). For example, there may 

be practitioners who work in multiple 

settings and bill Medicare for primary 

care services through several different 

TINs, depending on the setting. If each 

of these TINs represents an ACO 

participant in a different ACO, then the 

practitioner would be an ACO 

professional in more than one ACO. 

Some stakeholders have argued that 

certain specialties that bill for some of 

the evaluation and management services 

designated as primary care services 

under § 425.20 do not actually perform 

primary care services. This is because 

most of the CPT and other HCPCS codes 

that are included in the definition of 

primary care services under § 425.20 are 

actually more general purpose codes 

used for a wide variety of clinical 

practices that are not specific to primary 

care, such as CPT office visit codes. For 

example, cataract surgeons bill for some 

of the office visit codes included in the 

definition of ‘‘primary care’’ but in 

actual practice these surgeons do not 

perform primary care when they report 

these codes. These commenters believe 

that the wide spread use of these codes 

is the reason that for purposes of PCIP, 

the CPT code-based definition of 

‘‘primary care services’’ is paired with 

the definition of ‘‘primary care 

practitioners’’ under that statute. In 

other words, to identify true primary 

care services, the CPT codes for primary 

care services must be billed by 

practitioners that render primary care 

services. 

We agree that although some 

specialties such as surgeons and certain 

others bill Medicare for some of the 

Shared Savings Program ‘‘primary care’’ 

codes, in actual practice the services 

such specialists perform when reporting 

these codes do not typically represent 

primary care services because the 

definitions of HCPCS/CPT codes for 

office visits and most other evaluation 

and management services are not based 

on whether primary care is provided as 

part of the service. Accordingly, we 

agree that to identify primary care 

services more accurately, the CPT codes 

for primary care services should be 

paired with the specialties of the 

practitioners that render those services 

and that it would be appropriate to 

exclude services provided by certain 

physician specialties from the 

beneficiary assignment process. 

Therefore, we are proposing to 

exclude services provided by certain 

CMS physician specialties from the 

beneficiary assignment process. The net 

effect of this proposal would be to 

exclude certain claims from determining 

the ACO’s assigned population. The 

proposed lists of physician specialties 

that would be included in and excluded 

from the assignment process (provided 

in Tables 1 through 4 of this proposed 

rule) are based on recommendations by 

CMS medical officers knowledgeable 

about the services typically performed 

by physicians and non-physician 

practitioners. However, we note that 

given the many requests and comments 

from specialists and specialty societies 

asking to have their services included in 

the assignment methodology that we 

received during the original rulemaking 

to establish the Shared Savings Program, 

we attempted to limit the list of 

physician specialty types that would be 

excluded from the assignment process 

to those physician specialties that 

would very rarely, if ever, provide 

primary care to beneficiaries. As a 

general rule, for example, we expect that 

physicians with an internal medicine 

subspecialty such as nephrology, 

oncology, rheumatology, endocrinology, 

pulmonology, and cardiology would 

frequently be providing primary care to 

their patients. Especially for 

beneficiaries with certain chronic 

conditions (for example, certain heart 

conditions, cancer or diabetes) but who 

are otherwise healthy, we expect that 

these specialist physicians often take 

the role of primary care physicians in 

the overall treatment of the beneficiaries 

if there is no family practitioner or other 

primary care physician serving in that 

role. In contrast we expect that most 

surgeons, radiologists, and some other 

types of specialists would not typically 

provide a significant amount of primary 

care, if any, and therefore we propose to 

exclude their services from the 

assignment process. 

More specifically, the following 4 

tables display the specific CMS 

physician specialty codes that we are 

proposing to include and exclude for 

beneficiary assignment purposes under 

the Shared Savings Program. 

• Table 1 shows the CMS physician 

specialty codes that would continue to 

be included in step 1. 

• Table 2 lists the physician 

specialties that we are proposing would 

continue to be included in step 2. 

• Table 3 lists the physician 

specialties that we are proposing to 

exclude from the beneficiary assignment 

methodology under step 2. Under this 

proposal, services furnished by these 

physician specialties would also be 

excluded for purposes of determining if 

a beneficiary has received a primary 

care service from a physician who is an 

ACO professional, which under 

§ 425.402(a) is a precondition for 

assignment to an ACO. 

• Table 4 shows the CMS specialty 

codes for NPs, PAs, and CNSs that 

under our proposal would be included 

in beneficiary assignment step 1. 

TABLE 1—CMS PHYSICIAN SPECIALTY

CODES THAT WOULD CONTINUE TO

BE INCLUDED IN ASSIGNMENT STEP

1 

Code Specialty name 

01 ............. General Practice. 

08 ............. Family Practice. 

11 ............. Internal Medicine. 

38 ............. Geriatric Medicine. 

TABLE 2—CMS PHYSICIAN SPECIALTY

CODES THAT WOULD CONTINUE TO

BE INCLUDED IN ASSIGNMENT STEP

2 

Code Specialty name 

03 ............. Allergy/immunology. 

06 ............. Cardiology. 

10 ............. Gastroenterology. 

13 ............. Neurology. 

16 ............. Obstetrics/gynecology. 

17 ............. Hospice and palliative care. 

23 ............. Sports medicine. 

25 ............. Physical medicine and rehabilitation. 

29 ............. Pulmonary disease. 

37 ............. Pediatric medicine. 

39 ............. Nephrology. 

44 ............. Infectious disease. 

46 ............. Endocrinology. 

66 ............. Rheumatology. 

70 ............. Multispecialty clinic or group 

practice. 

82 ............. Hematology. 

83 ............. Hematology/oncology. 

84 ............. Preventive medicine. 

90 ............. Medical oncology. 

98 ............. Gynecology/oncology. 

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TABLE 3—CMS PHYSICIAN SPECIALTY

CODES THAT WE PROPOSE TO EXCLUDE FROM ASSIGNMENT STEP 2 

Code Specialty name 

02 ............. General surgery. 

04 ............. Otolaryngology. 

05 ............. Anesthesiology. 

07 ............. Dermatology. 

09 ............. Interventional pain management. 

12 ............. Osteopathic manipulative therapy. 

14 ............. Neurosurgery. 

18 ............. Ophthalmology. 

20 ............. Orthopedic surgery. 

21 ............. Cardiac electrophysiology. 

22 ............. Pathology. 

24 ............. Plastic and reconstructive surgery. 

26 ............. Psychiatry. 

27 ............. Geriatric psychiatry. 

28 ............. Colorectal surgery. 

30 ............. Diagnostic radiology. 

33 ............. Thoracic surgery. 

34 ............. Urology. 

36 ............. Nuclear medicine. 

40 ............. Hand surgery. 

72 ............. Pain management. 

76 ............. Peripheral vascular disease. 

77 ............. Vascular surgery. 

78 ............. Cardiac surgery. 

79 ............. Addiction medicine. 

81 ............. Critical care (intensivists). 

85 ............. Maxillofacial surgery. 

86 ............. Neuro-psychiatry. 

91 ............. Surgical oncology. 

92 ............. Radiation oncology. 

93 ............. Emergency medicine. 

94 ............. Interventional radiology. 

99 ............. Unknown physician specialty. 

C0 ............ Sleep medicine. 

TABLE 4—CMS NON-PHYSICIAN SPECIALTY CODES THAT WOULD BE INCLUDED IN ASSIGNMENT STEP 1 

Code Specialty name 

50 ............. Nurse practitioner. 

89 ............. Clinical nurse specialist. 

97 ............. Physician assistant. 

The primary benefit of this proposal 

is that it could help ensure that 

beneficiaries are correctly assigned to 

the ACO or other entity that is actually 

providing primary care and managing 

the patient’s overall care. Otherwise, for 

example, a beneficiary could 

inadvertently be assigned to an ACO 

based on services furnished by a 

surgeon who had not provided primary 

care but had provided a number of 

consultations for a specific clinical 

condition. Another important benefit of 

this proposal is that the ACO 

participants that submit claims solely 

for services performed by the categories 

of specialists that we are proposing to 

exclude from the assignment process 

would have greater flexibility to 

participate in more than one ACO if the 

ACO participant does not submit claims 

for any primary care services performed 

by other physicians or non-physician 

practitioners that are included in the 

assignment process. This could 

especially be the case for small 

physician practices which only submit 

claims for specialty services. Allowing 

such ACO participants that are 

composed solely of excluded specialists 

to participate in more than one ACO 

would support our goal of facilitating 

competition among ACOs by increasing 

the number of specialists that can 

participate in more than one ACO. This 

proposal would not be expected to have 

a significant impact on the overall 

number of beneficiaries assigned to each 

ACO because we believe most of the 

specialties that we propose to exclude 

from the assignment methodology 

provide a relatively modest number of 

services under the codes included in the 

definition of primary care services or are 

not typically the only physician that a 

beneficiary sees. For example, patients 

that are furnished consultations by a 

thoracic surgeon would typically also 

concurrently receive care from a 

primary care physician, cardiologist or 

other medical specialist. 

We propose to amend § 425.402 to 

reflect these proposed changes to the 

assignment methodology. Specifically, 

we propose to revise § 425.402(a) to 

include NPs, PAs, and CNSs as ACO 

professionals that would be considered 

in step 1 of the assignment process. In 

addition, we propose to amend 

§ 425.402 by adding a new paragraph (b) 

to identify the physician specialty 

designations that would be considered 

in step 2 of the assignment process. We 

also propose to modify the exclusivity 

requirement at § 425.306(b) to clarify 

how the exclusivity rules would be 

affected by this proposal to exclude 

certain specialists from step 2 of the 

assignment methodology. Specifically, 

we propose to revise § 425.306(b) to 

indicate that each ACO participant that 

submits claims for primary care services 

used to determine the ACO’s assigned 

population (that is, services rendered by 

the primary care physicians or ACO 

professionals listed in Tables 1, 2, and 

4) must be exclusive to one Medicare 

Shared Savings Program ACO. 

In addition, we propose to make 

several conforming and technical 

changes to § 425.402(a). First, we 

propose a modification to provide that 

for purposes of determining whether a 

beneficiary has received a primary care 

service from a physician who is an ACO 

professional, we would consider only 

services furnished by primary care 

physicians or physicians with a 

specialty listed in new paragraph (b). 

Second, we propose to make 

modifications to conform with changes 

in the definitions of ‘‘assignment’’, 

‘‘ACO professional’’, and ‘‘ACO 

provider/supplier’’ in addition to our 

proposal to adopt a prospective 

assignment approach under proposed 

Track 3 in section II.F. of this proposed 

rule. We seek comment on these 

proposals. 

Finally, as part of our process of 

reviewing both recommendations 

discussed previously, we considered 

another alternative approach to 

assignment. We considered whether it 

might be preferable, after excluding the 

specialties listed in Table 3 from step 2 

of the assignment process, to further 

simplify beneficiary assignment by 

establishing an assignment process that 

involves only a single step. More 

specifically, we considered whether we 

should replace the current two step 

assignment methodology with a new 

one step assignment process in which 

the plurality of primary care services 

provided by the physicians listed in 

Tables 1 and 2, and the non-physician 

practitioners in Table 4, would all be 

considered in a single step. Arguably, 

this approach could at least partially 

address the comments we have received 

about the current assignment 

methodology and also help further 

simplify the assignment process. 

However, while it has some attractive 

features, we also have some important 

concerns about this approach. For 

example, beneficiaries receiving 

concurrent care from both primary care 

physicians and specialists could 

inappropriately be assigned to an ACO 

or other entity that is not responsible for 

managing their overall care. To 

illustrate, under an assignment process 

with only one step, if a beneficiary has 

a long term, continuing relationship 

with a family practitioner who is an 

ACO professional but also requires 

specialty care for a chronic allergy 

condition from an allergist who is not 

participating in an ACO, then in any 

given performance year the beneficiary 

could be assigned to the ACO or not 

depending merely on the allowed 

charges for primary care services 

furnished by the family practitioner 

versus the allowed charges for services 

furnished by the allergist. Under our 

current two step assignment 

methodology, this beneficiary would be 

consistently and appropriately assigned 

to the ACO in which the beneficiary’s 

family practitioner participates. We 

believe this result would be appropriate 

because, in this example, the family 

practitioner is responsible for managing 

the overall care of this patient whereas 

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the allergist is providing more 

specialized care. A similar problem 

would exist for some other beneficiaries, 

such as those who temporarily require 

specialty care for an acute condition 

during a performance year. Therefore, 

we are concerned that by establishing an 

assignment methodology based on a 

single step, we may reduce our focus on 

primary care and ultimately assign some 

beneficiaries to an ACO inappropriately 

based on specialty care over true 

primary care. A one-step assignment 

methodology could also introduce 

additional instability into the 

assignment process. Therefore, we are 

not proposing to combine the two steps 

used under the current assignment 

methodology. 

Although we are not proposing this 

change at this time, we seek comments 

as to whether it would be preferable, 

after excluding the physician specialties 

listed in Table 3 from the assignment 

process, to further simplify the 

assignment methodology by establishing 

an assignment process that involves 

only a single step. We will consider 

comments on this issue during the 

development of the final rule. 

We also welcome any comments 

about the possible impact these 

potential changes to the assignment 

methodology might have on other CMS 

programs that use an assignment 

methodology that is generally aligned 

with the Shared Savings Program, such 

as PQRS GPRO reporting via the GPRO 

web interface and VM. We note that as 

previously discussed, we revised the 

assignment methodology for PQRS 

GPRO reporting via the GPRO web 

interface and VM in the CY 2015 PFS 

final rule with comment period that 

appeared in the November 13, 2014 

Federal Register (79 FR 67790 and 79 

FR 67962). 

5. Assignment of Beneficiaries to ACOs 

That Include FQHCs, RHCs, CAHs, or 

ETA Hospitals 

In this section, we summarize the 

regulatory policies in § 425.404 for 

assignment of beneficiaries to ACOs that 

include FQHCs and RHCs as ACO 

participants and subsequent operational 

procedures and instructions that we 

have established in order to allow 

FQHCs and RHCs as well as CAHs 

billing under section 1834(g)(2) of the 

Act (referred to as Method II), and ETA 

hospitals to fully participate in the 

Shared Savings Program. These types of 

providers may submit claims for 

physician and other professional 

services when certain requirements are 

met, but they do not submit their claims 

through the standard Part B claims 

payment system. Accordingly, we have 

established operational processes so that 

we can consider claims for professional 

services submitted by these providers in 

the process for assigning beneficiaries to 

ACOs. However, each of these four 

provider types (that is, FQHCs, RHCs, 

CAHs, ETA hospitals) generally have 

differing circumstances with respect to 

their provider and medical service code 

reporting requirements, claims forms 

used, and the payment methodology 

that applies to professional services. 

Although there are important 

differences between the payment policy 

and claims processing for FQHCs and 

RHCs, they do share some key 

characteristics. Therefore, we will 

discuss FQHCs and RHCs jointly, and 

then address CAHs and ETA hospitals 

separately. 

a. Assignment of Beneficiaries to ACOs 

That Include FQHCs and RHCs 

(1) Overview 

FQHCs and RHCs are facilities that 

furnish services that are typically 

furnished in an outpatient clinic setting. 

They are currently paid an all-inclusive 

rate (AIR) per visit for qualified primary 

and preventive health services 

furnished to Medicare beneficiaries. On 

October 1, 2014, FQHCs began to 

transition to a new FQHC prospective 

payment system (PPS). FQHCs have 

been required to use HCPCS coding on 

all their claims since January 1, 2011, to 

inform the development of the PPS and 

for limited other purposes, and would 

be required to use HCPCS coding for 

payment purposes under the FQHC PPS. 

Under the current payment 

methodology, FQHCs and RHCs submit 

claims for each encounter with a 

beneficiary and receive an interim 

payment based on their AIR for 

qualifying visits. The claims contain 

revenue codes that distinguish general 

classes of services (for example, clinic 

visit, home visit or mental health 

service). Claims submitted by FQHCs 

and RHCs also identify the beneficiary 

to whom the service was provided, and 

include other information relevant to 

determining whether the AIR can be 

paid for the service. The claims contain 

very limited information regarding the 

individual practitioner, or the type of 

health professional (for example, 

physician, PA or NP) who provided the 

service. 

Based on detailed comments from 

some FQHC and RHC representatives, in 

the November 2011 final rule, we 

established a beneficiary assignment 

process that allows primary care 

services furnished in FQHCs and RHCs 

to be considered in the assignment 

process for any ACO that includes an 

FQHC or RHC as an ACO participant. 

This process is codified in the 

regulations at § 425.404. (This 

assignment process also enables FQHCs 

and RHCs to form ACOs independently, 

without the participation of other types 

of eligible entities, provided they meet 

all other eligibility requirements (76 FR 

67814)). Operationally we assign 

beneficiaries to ACOs that include 

FQHCs or RHCs in a manner generally 

consistent with how we assign 

beneficiaries to other ACOs based on 

primary care services performed by 

physicians as described previously. 

However, to address the requirement 

under section 1899(c) of the Act that 

beneficiaries be assigned to an ACO 

based on their use of primary care 

services furnished by physicians, we 

require ACOs that include FQHCs or 

RHCs to identify, through an attestation 

(see § 425.404(a)), the physicians that 

provide direct patient primary care 

services in their ACO participant 

FQHCs or RHCs. This additional step is 

not necessary in the case of other types 

of ACO participants that bill Medicare 

for primary care services because the 

claims clearly identify the practitioner 

furnishing the service. The attestation 

must be submitted to CMS as part of the 

application process for all ACOs that 

include FQHCs or RHCs as ACO 

participants and must include the NPIs 

and other identifying information for 

the physicians that directly provide 

primary care services in the ACO 

participant FQHCs or RHCs (see 

§ 425.204(c)(5)(iii)(A)). Subsequently, 

we use the combination of the FQHC or 

RHC ACO participant TIN (and other 

unique identifier such as CCN, where 

appropriate) and the NPIs of the FQHC 

or RHC physicians provided to us 

through the attestation process to 

identify those beneficiaries that received 

a primary care service from a physician 

in the FQHC or RHC and who are 

therefore eligible to be assigned to the 

ACO as provided under § 425.402(a)(1). 

Then, we assign those beneficiaries to 

the ACO, using the step-wise 

assignment methodology under 

§ 425.402(a)(3) and (4), if they received 

the plurality of their primary care 

services, as determined based on 

allowed charges for the HCPCS codes 

and revenue center codes included in 

the definition of primary care services at 

§ 425.20, from ACO professionals. 

We are able to crosswalk the revenue 

center codes reported by RHCs (and 

FQHCs for services performed prior to 

January 1, 2011) to comparable 

‘‘primary care’’ HCPCS codes based on 

their code definitions. For example, CPT 

codes 99201 through 99215 (office/

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outpatient visits) are cross-walked to 

revenue center code 0521. Because the 

focus of FQHCs and RHCs is on primary 

care, we continue to believe these 

revenue center codes, when reported by 

FQHCs/RHCs, represent primary care 

services and not more specialized care. 

This crosswalk allows us to use the 

available revenue center codes as part of 

the beneficiary assignment process for 

RHC services (and for FQHC services 

furnished prior to January 1, 2011, when 

FQHCs were required to start submitting 

HCPCS codes) in place of the HCPCS 

codes which are used more generally. 

We established and have updated this 

crosswalk through contractor 

instructions. For claims submitted by 

FQHCs on or after January 1, 2011, we 

use the HCPCS codes which are 

included on the claims to identify the 

service provided. 

To summarize, the special procedures 

that we have established in the 

November 2011 final rule and through 

operational program instructions (see 

program specifications on our Web site 

at http://www.cms.gov/Medicare/

Medicare-Fee-for-Service-Payment/

sharedsavingsprogram/Downloads/

Shared-Savings-Losses-AssignmentSpec-v2.pdf) for processing FQHC and 

RHC claims in order to allow these 

services to be considered in the 

beneficiary assignment process for the 

Shared Savings Program are as follows: 

• FQHC and RHC services are billed 

on an institutional claim form and 

require special handling to incorporate 

them into the beneficiary assignment 

process. In general, ACO participants 

are identified through their TIN(s). 

However, the TINs for FQHCs and RHCs 

are not included in the CMS claims 

files. Therefore, we require that the 

CCNs also be reported for FQHCs and 

RHCs that are ACO participants. We use 

the CCN as the unique identifier for an 

individual FQHC or RHC. We require 

ACOs to include the CCN, the TIN, and 

the organizational NPI for FQHCs and 

RHCs that are participating in the ACO 

on their ACO participant lists. For 

example, the instructions for entities 

applying to the Shared Savings Program 

for 2015 were provided on our Web site 

at http://www.cms.gov/Medicare/

Medicare-Fee-for-Service-Payment/

sharedsavingsprogram/Downloads/

HowTo-Participant-List-Template.pdf. 

• For FQHCs/RHCs that are ACO 

participants, we treat a FQHC or RHC 

service reported on an institutional 

claim as a primary care service 

performed by a primary care physician 

if the claim includes a HCPCS or 

revenue center code that is included in 

the definition of a primary care service 

at § 425.20 and the service was 

furnished by a physician that was 

identified as providing direct primary 

care services in the attestation 

submitted as part of the ACO’s 

application. All such physicians are 

considered primary care physicians for 

purposes of the assignment 

methodology and no specialty code is 

required for these claims. 

• A primary care physician is any 

physician NPI included in the 

attestation provided as part of the 

application submitted by an ACO that 

includes an FQHC or RHC as an ACO 

participant. 

• For FQHCs/RHCs that are ACO 

participants, if the claim is for a primary 

care service furnished by someone other 

than a physician listed on the 

attestation, we treat the service as a 

primary care service furnished by a nonphysician ACO professional. We 

established this operational policy in 

order to be able to include these FQHC/ 

RHC primary care services in step 2 of 

the current beneficiary assignment 

methodology, as long as all other 

assignment requirements are met. We 

believe this is a reasonable assumption 

because FQHC/RHC covered services 

represented by the primary care HCPCS 

or revenue center codes would 

primarily represent services furnished 

by a non-physician ACO professional, if 

not by a primary care physician. We 

would note that covered services in 

RHCs or FQHCs include services 

furnished by certain other professionals 

who are not ACO professionals (that is, 

a certified nurse midwife, clinical 

psychologist, clinical social worker or, 

in very limited situations, a visiting 

nurse). However, such services are not 

reported under the HCPCS codes and 

revenue center codes that we have 

defined as being primary care services at 

§ 425.20 for purposes of the Shared 

Savings Program. (See RHC/FQHC 

general billing requirements in the 

Medicare Claims Processing Manual, 

Chapter 9—Rural Health Clinics/

Federally Qualified Health Centers, 

section 100 at http://www.cms.gov/

Regulations-and-Guidance/Guidance/

Manuals/Downloads/clm104c09.pdf). 

• For FQHCs/RHCs that are not ACO 

participants, we treat a FQHC or RHC 

service reported on an institutional 

claim as a primary care service 

performed by a primary care physician 

if the claim includes a HCPCS or 

revenue center code that meets the 

definition of a primary care service at 

§ 425.20. That is, for non-ACO 

participant FQHCs and RHCs, we 

assume a primary care physician 

performed all primary care services. As 

we explained previously in the 

November 2011 final rule (76 FR 67860), 

FQHC/RHC claims contain limited 

information as to the type of practitioner 

providing a service because such 

information is not necessary to 

determine payment rates for services in 

FQHCs/RHCs. Further, the attestation 

requirement at § 425.404(a) does not, of 

course, apply to FQHCs/RHCs that are 

not participating in an ACO. As a result, 

for non-ACO participant FQHCs/RHCs 

we are not able to determine whether a 

primary care service was furnished by a 

primary care physician, and thus should 

be considered in step 1, or was 

furnished by a specialist physician or 

NP/PA/CNS, and thus should be 

considered under step 2 of the 

assignment methodology. We chose to 

assume such primary care services were 

furnished by primary care physicians so 

that these services would be considered 

in step 1 of the assignment 

methodology. We established this 

operational procedure to help make sure 

we do not disrupt established 

relationships between beneficiaries and 

their care providers in non-ACO 

participant FQHCs and RHCs, by 

inappropriately assigning beneficiaries 

to ACOs that are not primarily 

responsible for coordinating their 

overall care. 

To illustrate, we offer the following 

example: Assume Medicare is billed for 

five primary care services (all with 

equal allowable charges) for a particular 

beneficiary during a given performance 

year. One of those primary care services 

was provided by a primary care 

physician who is an ACO provider/

supplier not affiliated with an FQHC. 

Four of the services were provided by 

an FQHC that is not an ACO participant. 

In this case, if we had assumed that the 

FQHC services were performed by NPs/ 

PAs/CNSs, then the beneficiary would 

have been assigned to the ACO under 

step 1 of the assignment methodology 

and not the FQHC. Instead, by assuming 

the non-ACO participant FQHC services 

were performed by primary care 

physicians, this beneficiary would be 

assigned to the FQHC under step 1 and 

not to the ACO. In this scenario we 

believe it would be more appropriate for 

the beneficiary to be assigned to the 

FQHC since the FQHC is the entity that 

is primarily responsible for overseeing 

the care for this beneficiary. Also, we do 

not believe it would be appropriate to 

hold the ACO accountable for the 

beneficiary in this example given that 

the ACO is not providing the plurality 

of primary care. 

(2) Proposed Revisions 

As currently drafted, § 425.404(b) 

conflates the question of whether a 

service billed by an FQHC or RHC is 

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provided by a physician with the 

question of whether the service is a 

primary care service. As a consequence, 

the provision arguably does not address 

situations where the FQHC/RHC claim 

is for a primary care service as defined 

under § 425.20, but the NPI reported on 

the claim is not the NPI of a physician 

included in the attestation submitted 

under § 425.404(a). As with other types 

of ACO participants, under the stepwise assignment methodology we 

believe it is appropriate to separately 

address the questions of whether the 

service is a primary care service, 

whether the service is a primary care 

service provided by an ACO 

professional who is a primary care 

physician, and whether the service is a 

primary care service provided by 

another ACO professional. Therefore, 

we propose to revise § 425.404(b) to 

better reflect the program rules and 

operational practices as previously 

outlined. In addition, we propose to 

revise § 425.404(b) to reflect the 

proposal discussed earlier to revise 

§ 425.402(a)(1) to include services 

furnished by NPs, PAs, and CNSs as 

services that will be considered in step 

1 of the assignment process. Under 

these proposals, we would assign 

beneficiaries to ACOs that include 

FQHCs and RHCs in the following 

manner. 

To address the requirement under 

section 1899(c) of the Act that 

beneficiaries be assigned to an ACO 

based on their use of primary care 

services furnished by physicians, we 

would continue to require ACOs that 

include FQHCs and RHCs to identify, 

through an attestation (see § 425.404(a)), 

the physicians that provide direct 

patient primary care services in their 

ACO participant FQHCs or RHCs. 

Previously, we used this attestation 

information both for purposes of 

determining whether a beneficiary was 

‘‘assignable’’ to an ACO and also for 

purposes of assigning beneficiaries to 

the ACO under step 1. However, we 

now propose to use this attestation 

information only for purposes of 

determining whether a beneficiary is 

assignable to an ACO. We refer to this 

determination under § 425.402(a)(1) as 

being the assignment ‘‘pre-step’’. If a 

beneficiary is identified as an 

‘‘assignable’’ beneficiary in the 

assignment pre-step, then we would use 

claims for primary care services 

furnished by all ACO professionals 

submitted by the FQHC or RHC to 

determine whether the beneficiary 

received a plurality of his or her 

primary care services from the ACO 

under Step 1. We propose to make 

revisions to § 425.404(b) to reflect these 

policies. To illustrate the assignment 

methodology for an ACO that includes 

FQHCs/RHCs we offer the following 

example. Assume Medicare is billed for 

five primary care services (all with 

equal allowable charges) for a particular 

beneficiary during a given performance 

year. One of those primary care services 

was provided by a specialist physician 

who is an ACO professional not 

affiliated with the FQHC. Two of the 

services were provided in an FQHC that 

is an ACO participant in the same ACO. 

Under the presumption discussed 

previously, these services are assumed 

to have been provided by NPs, PAs, or 

CNSs in the FQHC. The remaining two 

services were provided by specialist 

physicians billing under a common TIN 

but unaffiliated with the ACO. In this 

case, the beneficiary would be 

assignable to the ACO because the 

beneficiary had at least one primary care 

service with a physician who is an ACO 

professional. The beneficiary would be 

assigned to the ACO in Step 1 because 

two of the beneficiary’s five primary 

care services during the performance 

year were provided by NPs, PAs, or 

CNSs who are ACO professionals in the 

ACO. These two services would be 

considered in step 1, consistent with the 

proposal to include NP, PA, and CNS 

primary care services in step 1 of the 

assignment methodology. In this 

hypothetical example, if we did not 

consider the FQHC claims for the 

services performed by NPs, PAs, or 

CNSs, the beneficiary would appear to 

have had only three valid claims to be 

used for assignment and would be 

assigned outside the ACO under Step 2 

because there is only one claim for 

primary care services furnished by the 

specialist physician who is an ACO 

professional in the ACO but two of the 

claims were for services furnished by 

specialist physicians outside the ACO. 

However, by considering the FQHC 

claims, the beneficiary would have five 

claims for primary care services and 

would be assigned to the ACO under 

step 1 because two of the services were 

rendered by NPs, PAs, or CNSs who are 

ACO professionals, in contrast to the 

two claims for primary care services 

furnished by specialist physicians 

outside the ACO. 

We have also encountered instances 

where an assignable beneficiary has 

received primary care services from 

FQHCs or RHCs that are not participants 

in an ACO. For non-ACO participant 

FQHCs and RHCs, we have previously 

assumed that all of their primary care 

services are performed by primary care 

physicians. We believe that this 

assumption, which we established in 

operational guidance as noted 

previously, has helped to assure that 

while beneficiaries are appropriately 

assigned to ACOs, we do not disrupt 

established relationships between 

beneficiaries and their care providers in 

FQHCs and RHCs that are not ACO 

participants. However, we note that this 

special assumption for non-ACO 

FQHCs/RHCs would no longer be 

necessary under the proposed revision 

to the assignment methodology at 

§ 425.402 to consider primary care 

services furnished by NPs, PAs, and 

CNSs in step 1 of the assignment 

methodology rather than step 2 because: 

(1) As indicated earlier we believe that 

when a physician provides a service in 

an FQHC or RHC, the physician is 

functioning as a primary care physician, 

regardless of his or her specialty 

designation in the CMS enrollment 

records, and (2) there is no need to 

differentiate between primary care 

services performed by physicians and 

primary care services furnished by NPs, 

PAs, and CNSs for non-ACO FQHCs/

RHCs because the requirement under 

section 1899(c) of the Act that 

beneficiaries be assigned to an ACO 

based on their use of primary care 

services furnished by physicians does 

not apply to entities that are not 

participating in an ACO. Instead, for all 

FQHCs/RHCs regardless of whether or 

not they are ACO participants, we 

would we treat all such claims for 

primary care services that are furnished 

by someone other than a physician 

listed on the attestation submitted by 

the ACO under § 425.404(a) as a service 

furnished by an NP, PA or CNS. 

Therefore, all primary care services 

furnished by non-ACO FQHCs/RHCs 

would be considered in step 1 of the 

assignment methodology, and there 

would no longer be a need to assume 

such primary care services were 

provided by primary care physicians in 

order to achieve this result. 

We recognize the unique needs and 

challenges of rural communities and the 

importance of rural providers in 

assuring access to health care. FQHCs, 

RHCs and other rural providers play an 

important role in the nation’s health 

care delivery system by serving as safety 

net providers of primary care and other 

health care services in rural and other 

underserved areas and for low-income 

beneficiaries. We have attempted to 

develop and implement regulatory and 

operational policies to facilitate full 

participation of rural providers in the 

Shared Savings Program, within the 

statutory requirements for the program. 

We welcome comments on our 

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proposed revisions to § 425.404(b) and 

our current procedures for using claims 

submitted by FQHCs and RHCs in the 

assignment methodology and 

suggestions on how we might further 

support participation of FQHCs and 

RHCs in the Shared Savings Program in 

a manner that is consistent with the 

statutory requirements. 

b. Assignment of Beneficiaries to ACOs 

That Include CAHs 

We briefly addressed certain issues 

regarding ACOs that include CAHs in 

both the proposed rule (76 FR 19538 

through 19539) and final rule (76 FR 

67812 through 67814) establishing the 

Shared Savings Program. We indicated 

that we determined that current 

Medicare payment and billing policies 

could generally support the 

participation of CAHs in ACOs. 

However, we explained that the 

situation is somewhat complicated with 

regard to CAHs because section 1834(g) 

of the Act provides for two different 

payment methods for outpatient CAH 

services. 

CAHs billing under section 1834(g)(1) 

of the Act (referred to as method I) can 

participate in the Shared Savings 

Program by establishing partnerships or 

joint venture arrangements with ACO 

professionals, just like other hospitals. 

CAHs billing under section 1834(g)(2) of 

the Act (referred to as method II) may 

form independent ACOs if they meet the 

eligibility requirements specified in the 

regulations. Professional services billed 

by method II CAHs are reported using 

HCPCS/CPT codes and are paid using a 

methodology based on the PFS. As a 

result, it is possible to use claims 

submitted by method II CAHs in the 

assignment methodology under 

§ 425.402. However, method II CAH 

claims that include professional services 

require special processing because they 

are submitted as part of institutional 

claims. Therefore, we have developed 

operational procedures that allow these 

claims to be considered in the 

assignment process under § 425.402. 

Although we are not making any 

proposals at this time regarding the use 

of services billed by method II CAHs in 

the assignment process, we note that our 

procedures for incorporating claims 

billed by method II CAHs into the 

assignment methodology are available 

on our Web site at http://www.cms.gov/ 

Medicare/Medicare-Fee-for-ServicePayment/sharedsavingsprogram/

Downloads/Shared-Savings-LossesAssignment-Spec-v2.pdf (see section 

3.3.) These technical specifications 

allow interested parties to understand 

how these claims are considered in the 

assignment methodology under 

§ 425.402 and to compare the manner in 

which claims submitted by method II 

CAHs are processed with the processing 

of claims submitted by other providers 

that also require special processing 

before they can be considered in the 

assignment process. We believe this 

additional information in the technical 

specifications allows for a better 

understanding of the differences in our 

procedures, and the reasons for these 

differences. 

One question we frequently receive 

from ACO applicants is about the 

identification numbers we use for 

different provider types. In general, 

ACO participants are identified by 

Medicare-enrolled TINs. However, the 

TINs for method II CAHs are not 

included in the CMS claims files. 

Therefore, in accordance with 

§ 425.204(c)(5)(ii), we require that as 

part of their application, ACO 

applicants also include the CCNs for 

any CAHs that are included as ACO 

participants. In the assignment 

methodology under § 425.402, we use 

the CCN as the unique identifier for an 

individual method II CAH. 

c. Assignment of Beneficiaries to ACOs 

That Include ETA Hospitals 

After finalizing the beneficiary 

assignment rules established at 

§ 425.400 through § 425.404 in the 

November 2011 final rule (76 FR 67851 

through 76 FR 67870), we received 

inquiries regarding whether primary 

care services performed by physicians at 

ETA hospitals would be included in the 

assignment of beneficiaries to ACOs. 

ETA hospitals are hospitals that, under 

section 1861(b)(7) of the Act and 

§ 415.160 of our regulations, have 

voluntarily elected to receive payment 

on a reasonable cost basis for the direct 

medical and surgical services of their 

physicians in lieu of Medicare PFS 

payments that might otherwise be made 

for these services. As a result of this 

election, we do not receive separate 

claims for such physician services 

furnished in ETA hospitals. However, 

ETA hospitals do bill separately for 

their outpatient hospital facility 

services, and these bills include the 

information needed to assign 

beneficiaries to an ACO. Therefore, we 

have developed operational instructions 

and processes (available at Section 3.5 

of the specification document available 

on our Web site at http://www.cms.gov/ 

Medicare/Medicare-Fee-for-ServicePayment/sharedsavingsprogram/

Downloads/Shared-Savings-LossesAssignment-Spec-v2.pdf) that enable us 

to include primary care services 

performed by physicians at ETA 

hospitals in the assignment of 

beneficiaries to ACOs under § 425.402. 

• We include TINs and other 

identifiers (including the hospital CCN) 

for ETA hospitals in the assignment 

algorithm in both steps 1 and 2 of the 

assignment process using claims from 

the outpatient (institutional) file. 

• It is necessary for us to use 

institutional claims submitted by ETA 

hospitals in the assignment process 

because ETA hospitals are paid for 

physician professional services on a 

reasonable cost basis through their cost 

reports and no other claim is submitted 

for such services. However, ETA 

hospitals bill us for their separate 

facility services when physicians and 

other practitioners provide services in 

the ETA hospital and the institutional 

claims submitted by ETA hospitals 

include the HCPCS code for the services 

provided. We use the HCPCS code 

included on this institutional claim to 

identify whether a primary care service 

was rendered to a beneficiary in the 

same way as for any other claim. 

• To determine the rendering 

physician for ETA institutional claims, 

we use the NPI listed in the ‘‘other 

provider’’ NPI field. 

• Then we use PECOS to obtain the 

CMS specialty for the NPI listed on the 

ETA institutional claim. 

• These institutional claims do not 

include allowed charges, which are 

necessary to determine where a 

beneficiary received the plurality of 

primary care services as part of the 

assignment process. Accordingly, we 

use the amount that would otherwise be 

payable under the PFS for the 

applicable HCPCS code, in the 

applicable geographic area as a proxy 

for the allowed charges for the service. 

We believe it is appropriate to use 

ETA institutional claims for purposes of 

identifying primary care services 

furnished by physicians in ETA 

hospitals in order to allow these 

services to be included in the stepwise 

methodology for assigning beneficiaries 

to ACOs. We believe including these 

claims increases the accuracy of the 

assignment process by helping ensure 

that beneficiaries are assigned to the 

ACO or other entity that is actually 

managing the beneficiary’s care. ETA 

hospitals are often located in 

underserved areas and serve as 

providers of primary care for the 

beneficiaries they serve. We believe it is 

appropriate that their patients benefit 

from the opportunity for ETA hospitals 

to fully participate in the Shared 

Savings Program. Therefore, we propose 

to revise § 425.402 by adding a new 

paragraph (c) to provide that when 

considering services furnished by 

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physicians in ETA hospitals in the 

assignment methodology, we would use 

the amount payable under the PFS for 

the specified HCPCS code as a proxy for 

the amount of the allowed charges for 

the service. In addition, because we are 

able to consider claims submitted by 

ETA hospitals as part of the assignment 

process, we also propose to amend 

§ 425.102(a) to add ETA hospitals to the 

list of ACO participants that are eligible 

to form an ACO that may apply to 

participate in the Shared Savings 

Program. 

We invite comments on the use of 

institutional claims submitted by ETA 

hospitals for purposes of identifying 

primary care services furnished by 

physicians in order to allow these 

services to be considered in the 

assignment of beneficiaries to ACOs. We 

also invite comments on whether there 

are any other types of potential ACO 

participants that submit claims 

representing primary care services that 

CMS should also consider including in 

(or excluding from) its methodology for 

assigning beneficiaries to ACOs 

participating in the Shared Savings 

Program. 

6. Effective Date for Finalization of 

Proposals Affecting Beneficiary 

Assignment 

As indicated in section II.A. of this 

proposed rule, the effective date for the 

final rule would be 60 days after the 

final rule is published. However, we 

propose that any final policies that 

affect beneficiary assignment would be 

applicable starting at the beginning of 

the next performance year. We believe 

that implementing any revisions to the 

assignment methodology at the 

beginning of a performance year is 

reasonable and appropriate because it 

would permit time for us to make the 

necessary programming changes and 

would not disrupt the assessment of 

ACOs for the current performance year. 

Moreover, we propose to adjust all 

benchmarks at the start of the first 

performance year in which the new 

assignment rules are applied so that the 

benchmark for the ACO reflects the use 

of the same assignment rules as would 

apply in the performance year. For 

example, any new beneficiary 

assignment policies that might be 

included in a final rule issued in early 

2015 would apply to beneficiary 

assignment starting at the beginning of 

the following performance year, which 

in this example would be January 1, 

2016. In this hypothetical example, we 

would also adjust performance 

benchmarks that apply for the 2016 and 

subsequent performance years, as 

applicable, to reflect changes in our 

assignment methodology. 

In addition, we would not 

retroactively apply any new beneficiary 

assignment policies to a previous 

performance year. For example, if the 

assignment methodology is applied 

beginning in 2016, we would not use it 

in mid-2016 to reconcile the 2015 

performance year. In other words, the 

assignment methodology used at the 

start of a performance year would also 

be used to conduct the final 

reconciliation for that performance year. 

F. Shared Savings and Losses 

1. Background 

Section 1899(d) of the Act establishes 

the general requirements for payments 

to participating ACOs. Specifically, 

section 1899(d)(1)(A) of the Act 

provides that ACO participants will 

continue to receive payment ‘‘under the 

original Medicare fee-for-service 

program under parts A and B in the 

same manner as they would otherwise 

be made,’’ and that an ACO is eligible 

to receive payment for shared Medicare 

savings provided that the ACO meets 

both the quality performance standards 

established by the Secretary, and 

demonstrates that it has achieved 

savings against a benchmark of expected 

average per capita Medicare FFS 

expenditures. Additionally, section 

1899(i)(3) of the Act authorizes the 

Secretary to use other payment models 

in place of the one-sided model outlined 

in section 1899(d) of the Act as long as 

the Secretary determines these other 

payment models will improve the 

quality and efficiency of items and 

services furnished to Medicare 

beneficiaries without additional 

program expenditures. 

In our November 2011 final rule (76 

FR 67904 through 67909) establishing 

the Shared Savings Program, we 

considered a number of options for 

using this authority. For example, 

commenters suggested we consider such 

options as blended FFS payments, 

prospective payments, episode/case rate 

payments, bundled payments, patient 

centered medical homes or surgical 

homes payment models, payments 

based on global budgets, full or partial 

capitation, and enhanced FFS payments 

for care management. However, in the 

November 2011 final rule (76 FR 67905), 

we opted not to use our authority under 

section 1899(i) of the Act to integrate 

these kinds of alternative payment 

models at that time, noting that many of 

the suggested payment models were 

untested. We expressed concern that 

immediately adopting untested and/or 

unproven models with which we had 

little experience on a national scale 

could lead to unintended consequences 

for the FFS beneficiaries we serve or for 

the health care system more broadly. We 

also noted that the Affordable Care Act 

had established a new Center for 

Medicare and Medicaid Innovation 

(Innovation Center) at CMS. The 

Innovation Center is charged with 

developing, testing, and evaluating 

innovative payment and service 

delivery models in accordance with the 

requirements of section 1115A of the 

Act. Many of the approaches suggested 

by stakeholders and commenters on the 

Shared Savings Program rule are the 

subject of ongoing testing and 

evaluation by the Innovation Center. In 

the November 2011 final rule (76 FR 

67905), we noted that while we did not 

yet have enough experience with novel 

payment models to be comfortable 

integrating them into the Shared 

Savings Program at the time, we 

anticipated that what we learned from 

these models might be incorporated into 

the program in the future. 

In the November 2011 final rule 

establishing the Shared Savings Program 

(76 FR 67909), we created two tracks 

from which ACOs could choose to 

participate: A one-sided risk model 

(Track 1) that incorporates the statutory 

payment methodology under section 

1899(d) of the Act and a two-sided 

model (Track 2) that is also based on the 

payment methodology under section 

1899(d) of the Act, but incorporates 

performance-based risk using the 

authority under section 1899(i)(3) of the 

Act to use other payment models. Under 

the one-sided model, ACOs qualify to 

share in savings but are not responsible 

for losses. Under the two-sided model, 

ACOs qualify to share in savings with 

an increased sharing rate, but also must 

take on risk for sharing in losses. 

In the November 2011 final rule (76 

FR 67904), we discussed our belief that 

offering these two tracks would create 

an on ramp for the program to attract 

both providers and suppliers that are 

new to value-based purchasing as well 

as more experienced entities that are 

ready to share in losses. We expressed 

our belief that a one-sided model would 

have the potential to attract a large 

number of participants to the program 

and introduce value-based purchasing 

broadly to providers and suppliers, 

many of whom may never have 

participated in a value-based purchasing 

initiative before. Another reason we 

included the option for a one-sided 

track with no downside risk was our 

belief that this model would be 

accessible to and attract smaller group 

participation. Indeed, commenters 

persuaded us that ACOs new to the 

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accountable care model—particularly 

small, rural, safety net, and physicianonly ACOs—would benefit from 

spending time under a one-sided model 

before being required to accept 

performance-based risk (76 FR 67907). 

We also noted, however, that while a 

one-sided model could provide 

incentives for participants to improve 

quality, it might not be sufficient 

incentive for participants to improve the 

efficiency and cost of health care 

delivery (76 FR 67904). Therefore, we 

used our authority under section 

1899(i)(3) of the Act to create a 

performance-based risk option, Track 2, 

where ACOs would not only be eligible 

to share in savings, but also must share 

in losses. We believed a performancebased risk option would have the 

advantage of providing more 

experienced ACOs an opportunity to 

enter a sharing arrangement that 

provides greater reward for greater 

responsibility. Commenters supported 

our belief that models where ACOs bear 

a degree of financial risk hold the 

potential to induce more meaningful 

systematic change. This input from 

commenters underscored our own views 

regarding the importance of offering a 

pathway for ACOs to transition from the 

one-sided model to risk-based 

arrangements. These comments 

persuaded us that having Track 1 as a 

shared savings only option, while 

offering Track 2 as a shared savings/

losses model, would be the most 

appropriate means to achieve our 

objectives. Thus, we made final these 

two tracks which offered the two-sided 

model under Track 2 to ACOs willing 

and able to take on performance-based 

risk in exchange for a greater share of 

any savings, and also a shared savings 

only model under Track 1 for the 

duration of an ACO’s first 3-year 

agreement period for entities needing 

more experience before taking on risk. 

In the final rule, we required that ACOs 

that participate in Track 1 during their 

first agreement period must transition to 

Track 2 for all subsequent agreement 

periods. We noted our belief that 

offering the two tracks, but requiring a 

transition to Track 2 in subsequent 

agreement periods, would increase 

interest in the Shared Savings Program 

by providing a gentler ‘‘on ramp’’ while 

maintaining the flexibility for more 

advanced ACOs to take on greater 

performance-based risk in return for a 

greater share of savings immediately 

upon entering the program (76 FR 

67907). Therefore, as specified in the 

November 2011 final rule (76 FR 67909), 

ACOs may enter the program in one of 

two tracks: 

Track 1: Under Track 1, the ACO 

operates under the one-sided shared 

savings only model for its initial 3-year 

agreement period. 

Track 2: Under Track 2, the ACO 

operates under the two-sided shared 

savings/losses model for the 3-year 

agreement period. 

Although most of the program 

requirements that apply to ACOs in 

Track 1 and Track 2 are the same, the 

financial reconciliation methodology 

was designed so that ACOs that accept 

performance-based risk under Track 2 

would have the opportunity to earn a 

greater share of savings. Thus, the same 

eligibility criteria, beneficiary 

assignment methodology, benchmark 

and update methodology, quality 

performance standards, data reporting 

requirements, data sharing provisions, 

monitoring for avoidance of at-risk 

beneficiaries, provider screening, and 

transparency requirements apply to 

ACOs under both models. However, the 

financial reconciliation methodology 

was modified for Track 2 in order to 

allow an opportunity for ACOs to earn 

a greater share of savings, in exchange 

for their willingness to accept 

performance-based risk. Specific 

differences between the two tracks 

include the minimum savings rate 

(MSR), the sharing rate based on quality 

performance, and the performance 

payment limit. Table 7 summarizes the 

differences between the existing onesided and two-sided models. 

In this section, we discuss various 

proposals for modifications to the 

program tracks and the financial model 

based on our experience to date, and 

propose to offer organizations an 

additional two-sided model (Track 3) as 

a further option for participation. 

2. Modifications to the Existing Payment 

Tracks 

a. Overview 

Because we believe that payment 

models where ACOs bear a degree of 

financial risk have the potential to 

induce more meaningful systematic 

change in the behavior of providers and 

suppliers, it was our intent in the 

November 2011 final rule to establish 

the Shared Savings Program to 

encourage ACOs not only to enter the 

program, but also to progress to 

increased risk. Therefore, as discussed 

previously, we established a 

requirement that an ACO entering the 

program under Track 1 may only 

operate under the one-sided model for 

its first agreement period. For 

subsequent agreement periods, an ACO 

would not be permitted to operate under 

the one-sided model (§ 425.600(b)). If 

the ACO wishes to participate in the 

program for a second agreement period, 

it must do so under Track 2 (shared 

savings/losses). Additionally, an ACO 

experiencing a net loss during its initial 

agreement period may reapply to 

participate in the program, but the ACO 

must identify in its application the 

cause(s) for the net loss and specify 

what safeguards are in place to enable 

the ACO to potentially achieve savings 

in its next agreement period 

(§ 425.600(c)). In our view, this 

allowance for a full first agreement 

period under the one-sided model and 

required transition to performancebased risk in the subsequent agreement 

period struck a balance between our 

intent to encourage program 

participation by small, rural, or 

physician-only ACOs with the need to 

ensure that ACOs quickly transition to 

taking downside risk. 

We are encouraged by the popularity 

of the Shared Savings Program, 

particularly the popularity of the onesided model. Over 98 percent of ACOs 

participating in the Shared Savings 

Program (over 330 ACOs) have chosen 

Track 1, with only 5 ACOs participating 

under Track 2 as a starting option. 

About half of the ACOs participating in 

the program are small, provider-based, 

or rural ACOs, each having less than 

10,000 assigned beneficiaries. We 

continue to believe that one 3-year 

agreement period under Track 1 is 

sufficient for many organizations to 

progress along the on-ramp to 

performance-based risk. We also 

continue to believe, as discussed in the 

November 2011 final rule (76 FR 67907), 

that payment models where ACOs bear 

a degree of financial risk have the 

potential to induce more meaningful 

systematic change in providers’ and 

suppliers’ behavior, so it remains our 

intent to continue to encourage forward 

movement up the ramp. However, based 

on our experience with the program, we 

recognize that many of the organizations 

that are currently participating in the 

program are risk averse and lack the 

infrastructure and readiness to manage 

increased performance-based risk. Given 

the short time period between 

finalization of the November 2011 final 

rule and the first application cycles, is 

it our impression that many ACOs, 

particularly smaller ACOs, focused 

initially on developing their operational 

capacities rather than on the 

implementation of care redesign 

processes. Therefore, we have some 

concerns about the slope of the on-ramp 

to performance-based risk created by the 

two existing tracks and the policy that 

requires ACOs in Track 1 (shared 

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savings only) to transition to Track 2 

(shared savings/losses) for their second 

agreement period. We are particularly 

concerned that the current transition 

from one- to two-sided risk may be too 

steep for some organizations, putting 

them into a situation where they must 

choose between taking on more risk 

than they can manage or dropping out 

of program participation altogether. For 

instance, we believe that some smaller 

and less experienced ACOs are likely to 

drop out of the program when faced 

with this choice, because the smaller an 

ACO’s assigned beneficiary population, 

the greater the chances that shared 

losses could result from normal 

variation. Also, we are aware of the 

concern among some stakeholders that 

one agreement period under the onesided model may be not be a sufficient 

amount of time for some ACOs to gain 

the level of experience with population 

management or program participation 

needed for them to be comfortable 

taking on performance-based risk. For 

some organizations, having additional 

experience in the Shared Savings 

Program under Track 1 could help them 

be in a better position to take on 

performance-based risk over time. We 

are also concerned that the existing 

features of Track 2 may not be 

sufficiently attractive to ACOs 

contemplating entering a risk-based 

arrangement. Finally, some ACOs have 

reported that establishing the repayment 

mechanism required to participate 

under the two-sided model is difficult 

and ties up capital that otherwise could 

be used to implement the care processes 

necessary to succeed in the program. We 

continue to believe the requirement that 

ACOs entering the two-sided model 

demonstrate an adequate repayment 

mechanism is important for protecting 

the Medicare program. However, as 

discussed in more detail later in this 

section, we are proposing certain 

modifications to the repayment 

mechanism requirements applicable to 

ACOs under the program’s two-sided 

model(s) (Track 2 and proposed Track 

3). These proposed modifications are 

based on our experience with the 

repayment mechanism requirements 

and are intended to reduce the burden 

of these requirements on ACOs. 

Hence, we are revisiting our policies 

related to Tracks 1 and 2 in order to 

smooth the on ramp for organizations 

participating in the Shared Savings 

Program. First, we propose to remove 

the requirement at § 425.600(b) for 

Track 1 ACOs to transition to Track 2 

after their first agreement period. 

Second, we propose to modify the 

financial thresholds under Track 2 to 

reduce the level of risk that ACOs must 

be willing to accept. Taken together, we 

believe there are a number of advantages 

to smoothing the on ramp by 

implementing these proposed policies. 

We believe that removing the 

requirement that ACOs transition to a 

two-sided model in their second 

agreement period will provide 

organizations, especially newly formed, 

less experienced, and smaller 

organizations, more time to gain 

experience in the program before 

accepting performance-based risk. In 

particular, we believe the proposed 

changes would encourage continued 

participation in the program by 

potentially successful ACOs that would 

otherwise drop out because of the 

requirement to transition to the twosided model in their second agreement 

period. We further believe the proposal 

to allow organizations to gain more 

experience under a one-sided model 

before moving forward to a two-sided 

model would encourage earlier adoption 

of the shared savings model by 

organizations concerned about being 

required to transition to performancebased risk before realizing savings under 

a one-sided model. We believe 

incorporating the opportunity for ACOs 

to remain in Track 1 beyond their first 

agreement period could have a 

beneficial effect with respect to the care 

that beneficiaries receive. Specifically, 

to the extent that more ACOs are able 

to remain in the program, a potentially 

broader group of beneficiaries will have 

access to better coordinated care 

through an ACO. In addition, allowing 

ACOs additional time to make the 

transition to performance-based risk 

would reduce the chances that a highperforming ACO, which believes that it 

is not yet ready to assume greater 

financial risk, will either cease to 

participate in the program to avoid risk 

or find it necessary to engage in 

behaviors primarily intended to 

minimize that risk rather than improve 

patient care. 

Further, we believe that ACOs that 

accept financial responsibility for the 

care of beneficiaries have the greatest 

beneficial effects for the Medicare 

program and its beneficiaries. Therefore, 

we expect that ACOs participating in 

the Shared Savings Program move in the 

direction of accepting performancebased risk. Thus, while we believe it is 

appropriate to offer additional time for 

ACOs under a one-sided model, we also 

believe there should be incentives for 

participants to voluntarily take on 

additional financial risk. There should 

also be disincentives to discourage 

organizations from persisting in a 

shared savings only risk track 

indefinitely. Therefore, we believe that 

distinguishing the financial 

attractiveness of the one-sided model 

from the two-sided model by dropping 

the sharing rate in Track 1 for ACOs 

participating in Track 1 for a subsequent 

agreement period and modifying the 

risk inherent in Track 2 would signal to 

ACOs the importance of moving toward 

performance-based risk and encourage 

ACOs to voluntarily enter the two-sided 

model as soon as they are able. Finally, 

we believe that adopting restrictions to 

prevent organizations that have not 

achieved certain minimum performance 

requirements with respect to cost and 

quality of care, based on their 

experience to date, from obtaining 

additional agreement periods under 

Track 1 can serve as an appropriate 

program safeguard against entities 

remaining in the program that are not 

fully committed to improving the 

quality and efficiency of health care 

service delivery. 

b. Proposals Related to Transition From 

the One-Sided to Two-Sided Model 

We considered several options to 

better balance both our intent to 

encourage continued participation by 

ACOs that entered the program under 

the one-sided model but that are not 

ready to accept performance-based risk 

after 3 years of program participation 

with our concern that allowing a shared 

savings only option will discourage 

ACOs capable of taking risk from 

moving to a two-sided model. We 

considered the following options: (1) 

Revising the regulations to allow ACOs 

that enter the program under the onesided model to continue participation in 

Track 1 for more than one agreement 

period; (2) extending the initial 3-year 

agreement period for an additional 2 

years for ACOs that enter the program 

under Track 1, but that do not believe 

that they are ready to advance to a riskbased track; and (3) allowing ACOs to 

continue participation in Track 1 for 

more than one agreement period, but 

revising the one-sided model to 

decrease the financial attractiveness of 

the model, so as to encourage ACOs 

ready to accept performance-based risk 

to transition to a two-sided model. 

Among these options, we believe the 

third option offers a good balance of 

encouraging continued participation in 

addition to encouraging progression 

along the on-ramp to performance-based 

risk. Therefore, we propose to remove 

the requirement at § 425.600(b) that 

ACOs that enter the program under 

Track 1 (one-sided model) must 

transition to Track 2 (two-sided model) 

after one agreement period, if they wish 

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to continue participating in the Shared 

Savings Program. Instead, we propose to 

revise the regulation to permit ACOs 

that have completed a 3-year agreement 

under Track 1 to enter into one 

additional 3-year agreement under 

Track 1. We believe that continued 

participation in the Shared Savings 

Program, generally, should be made 

available to ACOs that demonstrate they 

have been compliant with the program 

requirements, or are working through 

corrective action plans to CMS’ 

satisfaction, with safeguards in place to 

ensure they will meet program 

requirements in the future. In section 

II.C.3. of this proposed rule, we 

proposed criteria for determining 

whether to allow ACOs that are 

currently participating in the program to 

renew their participation agreements for 

subsequent agreement periods. We seek 

to encourage the continued 

participation of ACOs that are 

successful and have the potential to 

move toward accepting greater 

responsibility for the care of their 

beneficiaries, but also encourage their 

progression along the risk continuum. 

Thus, we propose to make the option of 

participating in Track 1 for a second 

agreement period available to only those 

Track 1 ACOs that—(1) meet the criteria 

established for ACOs seeking to renew 

their agreements (as proposed in section 

II.C.3 of this proposed rule, including 

demonstrating to CMS that they 

satisfied the quality performance 

requirements under Subpart F such that 

they were eligible to share in savings in 

at least one of the first two performance 

years of the previous agreement period) 

and (2) in at least one of the first two 

performance years of the previous 

agreement period, they did not generate 

losses in excess of the negative MSR. 

For example, assume a Track 1 ACO has 

15,000 assigned beneficiaries with an 

MSR of 2.7 percent. If we calculate that 

this ACO’s expenditures exceeded the 

ACO’s benchmark by 2.7 percent or 

more in both of the first two 

performance years, then CMS would not 

accept this ACO’s request to renew its 

agreement under the one-sided model. If 

the ACO’s financial performance results 

in expenditures in excess of the negative 

MSR in only one of the first two 

performance years, then we would 

accept this ACO’s request to renew its 

participation agreement under the onesided model, provided all other 

requirements for renewal were satisfied. 

We believe that requiring ACOs to 

meet these requirements in order to 

remain in Track 1 will prevent 

consistently poor performers from being 

able to seamlessly continue in program 

participation under the one-sided model 

while permitting some leeway for ACOs 

that are new to the program and may 

have had some difficulty in cost or 

quality performance in one of the two 

first performance years. We also believe 

that these additional eligibility criteria 

serve as an important safeguard to 

reduce the potential for ACOs to 

participate in the program for reasons 

other than a commitment to improving 

the value of health care services. We 

recognize that because our assessment 

would be based on only 2 years of data, 

we would not have a complete picture 

of the ACO’s performance during the 

agreement period. That is, an ACO may 

financially perform very poorly, 

exceeding the negative MSR in its first 

and second performance years, but 

demonstrate a trend in a direction that 

could ultimately lead to better 

performance in the third year. Under 

our proposal this ACO would not be 

permitted to renew its agreement under 

Track 1 for a second agreement period. 

However, an argument could be made 

that this ACO simply needed the 

additional time under a one-sided 

model to gain experience and start 

improving. We therefore seek comment 

on whether we should also consider the 

direction the ACO’s performance is 

trending when determining whether to 

permit renewal of an ACO’s 

participation agreement under Track 1. 

We also seek comment on whether other 

options for such ACOs, short of refusing 

their participation in a second 

agreement period under Track 1, would 

better serve program goals. We note that 

such ACOs would not be precluded 

from renewing their participation 

agreement in order to participate under 

a two-sided risk track, consistent with 

§ 425.600(c). We also emphasize that in 

addition to meeting the specific criteria 

to be eligible to continue in Track 1, the 

ACO must also demonstrate that it 

meets the requirements to renew its 

agreement under proposed § 425.224, 

which would include the requirement 

that the ACO establish that it is in 

compliance with the eligibility and 

other requirements of the Shared 

Savings Program. 

In addition, as part of our proposal to 

allow ACOs to participate in a second 

agreement period under the one-sided 

model, we propose to reduce the sharing 

rate by 10 percentage points for ACOs 

in a second agreement period under 

Track 1 to make staying in the one-sided 

model less attractive than moving 

forward along the risk continuum. As a 

result, the maximum sharing rate for an 

ACO in a second agreement period 

under Track 1 would be 40 percent. 

Accordingly, in addition to our 

proposed change to § 425.600(b) to 

allow ACOs to participate under Track 

1 for a second agreement period, we 

propose to modify § 425.604(d) to 

provide that the maximum sharing rate 

during a second agreement period under 

Track 1 will be 40 percent. As a result, 

ACOs that continue to participate under 

the one-sided model and are eligible for 

shared savings will receive a smaller 

share of those savings compared to 

ACOs participating under the one-sided 

model in their first agreement period 

and ACOs participating under a twosided model. We believe permitting one 

additional agreement period under 

Track 1, but at a reduced sharing rate, 

will encourage the continued 

participation of ACOs that are 

successful and have the potential to 

move toward accepting greater 

responsibility for the care of their 

beneficiaries, but also encourage their 

progression along the risk continuum. 

However, as discussed later in this 

section, we also recognize that limiting 

ACOs to only two agreement periods 

under Track 1 may encourage ACOs to 

progress along the on-ramp to risk 

earlier than they otherwise might if they 

were permitted to remain under the onesided model for several agreement 

periods. 

We further note that this option to 

participate under the one-sided model 

agreement in a subsequent agreement 

period is only available to ACOs that 

have completed or are in the process of 

completing an agreement under the onesided model. That is, we will not permit 

an ACO under a two-sided model to 

subsequently participate under a onesided model. 

We seek comment on this proposal. In 

particular, we request input on whether 

a 40 percent sharing rate in a second 

agreement period under the one-sided 

model is sufficient to incentivize an 

ACO that may need more time to 

prepare to take on two-sided 

performance-based risk while also 

encouraging ACOs that are ready to take 

on performance-based risk to choose to 

continue participation in the Shared 

Savings Program under a two-sided 

model. 

We also considered other variations 

and options for allowing ACOs 

additional time in the one-sided model. 

For example, we considered allowing 

ACOs to continue under Track 1 for a 

second agreement period without any 

changes to the sharing rate (that is, 

retaining the 50 percent sharing rate in 

the second agreement period); however, 

we do not believe this approach would 

provide sufficient incentive for ACOs to 

be moving in the direction of adopting 

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performance-based risk. We continue to 

believe that participating in a model 

with two-sided risk offers stronger 

incentives for ACOs to improve the 

quality of care and reduce costs. 

Currently, ACOs in their first agreement 

period under Track 1 may share in up 

to 50 percent of the savings generated 

for the Medicare program. We are 

concerned that if ACOs are able to 

continue to receive up to 50 percent of 

savings in a second agreement period 

there may be insufficient incentive for 

many ACOs that may be ready to take 

on two-sided risk to move to a track 

with two-sided risk after their first 

agreement period. As a result, under our 

proposal we would reduce the sharing 

rate for ACOs participating in Track 1 

for a second agreement period in order 

to discourage prolonged participation 

under Track 1 and encourage 

progression along the on ramp to risk 

where an ACO may qualify for a higher 

sharing rate. 

We also considered permitting ACOs 

to participate in multiple agreement 

periods under Track 1 and reducing the 

maximum sharing rate by 10 percentage 

points for each subsequent agreement. 

Such a policy may encourage more 

ACOs to continue to participate in the 

program, but also may reduce the 

urgency for ACOs to progress quickly 

along the on-ramp to risk if they are 

permitted to remain under the one-sided 

model for several agreement periods. 

We also considered offering the 

opportunity to ACOs participating 

under Track 1 to extend their initial 3- 

year participation agreement under 

Track 1 by an additional 2 years. 

However, we note that under this 

option, we would not be able to rebase 

the benchmark, making it more likely 

that organizations would achieve 

savings without further improvements 

in care redesign; yet at the same time, 

it would be more difficult for ACOs 

with losses to turn around their 

performance. Moreover, we are 

concerned that limiting ACOs to only 2 

additional years under Track 1 may not 

be sufficient for all ACOs to take the 

steps necessary to prepare to move to 

performance-based risk. 

We seek comment on our proposal to 

permit ACOs to participate under Track 

1 for a second agreement period and to 

reduce the maximum sharing rate to 40 

percent for ACOs participating under 

Track 1 for a second agreement period. 

We also specifically seek comments on 

the other options we considered, 

including extending an ACO’s Track 1 

agreement period for an additional 2- 

years rather than permitting two 3-year 

agreement periods under Track 1, 

permitting ACOs to participate in a 

second agreement period under Track 1 

with no change to the sharing rate, and 

offering multiple agreement periods 

under Track 1 while reducing the 

sharing rate by 10 percentage points for 

each subsequent agreement. 

In the November 2011 final rule, we 

also addressed the possibility that an 

ACO may terminate or be terminated 

from participation in the Shared Savings 

Program, and the consequences for the 

ACO’s choice of tracks in the event it 

reapplies to the program. We finalized 

a policy that would permit such ACOs 

to reapply to participate in the program 

again only after the date on which the 

term of their original participation 

agreement would have expired if the 

ACO had not been terminated 

(§ 425.222(a)). Under § 425.222(b), to be 

eligible to participate in the Shared 

Savings Program after a previous 

termination, the ACO must demonstrate 

in its application that it has corrected 

the deficiencies that caused it to be 

terminated and that it has processes in 

place to ensure it will remain in 

compliance with the terms of the new 

participation agreement. We note that, 

all applicants undergo screening with 

regard to their program integrity history 

that may result in denial of the 

application (§ 425.304(b)). We also 

provided that an ACO under the onesided model whose participation 

agreement was previously terminated 

may reenter the program only under the 

two-sided model, unless it was 

terminated less than half–way through 

its agreement period under the onesided model, in which case the ACO 

would be allowed to reenter the onesided model (§ 425.222(c)). An ACO 

under Track 2 whose agreement was 

terminated may only re-apply to 

participate in Track 2 (§ 425.222(c)). 

In light of our proposed revisions to 

§ 425.600 to permit an ACO to 

participate under Track 1 for a second 

agreement period, we are proposing to 

make conforming changes to 

§ 425.222(c) to permit previously 

terminated Track 1 ACOs to reapply 

under the one-sided model. We propose 

that, consistent with our existing policy 

under § 425.222(c), an ACO whose 

agreement was terminated less than half 

way through the term of its participation 

agreement under Track 1 would be 

permitted to reapply to the one-sided 

model as if it were applying for its first 

agreement period. If the ACO is 

accepted to reenter the program, the 

maximum sharing rate would be 50 

percent. However, in the case of an ACO 

that was terminated more than half way 

through its initial agreement under the 

one-sided model, we propose to revise 

§ 425.222(c) to permit this ACO to 

reapply for participation under the onesided model, but to provide that the 

ACO would be treated as if it were 

applying for a second agreement period 

under Track 1. Thus, if the ACO is 

approved to participate in the program 

again, the reduced sharing rate of 40 

percent would apply. An ACO whose 

prior agreement under Track 2 was 

terminated would still be precluded 

from applying to participate under 

Track 1. 

We seek comment on this proposal. 

c. Proposals for Modifications to the 

Track 2 Financial Model 

To complement the proposals to 

smooth the on ramp to risk, we are also 

proposing to modify the financial model 

under Track 2 for ACOs choosing this 

two-sided option to further encourage 

ACOs to accept increased performancebased risk. Specifically, we are 

proposing to modify the threshold that 

Track 2 ACOs must meet or exceed in 

order to share in savings (minimum 

savings rate (MSR)) or losses (minimum 

loss rate (MLR)). We believe this 

modification would improve the track’s 

attractiveness for ACOs, particularly for 

ACOs that may be cautious about 

entering a performance-based payment 

arrangement such as some ACOs with 

smaller assigned beneficiary 

populations or those with less 

experience with managing the health of 

populations across sites of care. 

Track 2 was designed to allow more 

advanced ACOs the opportunity to take 

on greater performance-based risk in 

exchange for greater reward 

immediately, as early as their first 

agreement period. In the November 

2011 final rule (76 FR 67904 through 

67905), we discussed concerns that had 

been raised about allowing ACOs to 

participate immediately in a risk-based 

arrangement. Specifically, ACOs might 

try to avoid at-risk beneficiaries in order 

to minimize the possibility of realizing 

losses against their benchmarks or might 

be unable to repay the Medicare 

program if they have losses. We 

explained our belief that the use of 

retrospective beneficiary assignment for 

financial reconciliation and the 

program’s beneficiary notification 

requirements would be sufficient 

safeguards against the prospect that 

ACOs participating in the two-sided 

model might try to avoid at-risk 

beneficiaries (76 FR 67904). Further, the 

requirement that ACOs participating in 

Track 2 establish an adequate 

repayment mechanism provides further 

assurance about their ability to repay 

shared losses to the Medicare program. 

Currently, ACOs participating in 

Track 2 are eligible to share in a greater 

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percentage of savings than ACOs 

participating in Track 1, but are also 

accountable for a share of losses 

compared to their benchmark. ACOs 

may elect to enter Track 2 in their first 

3-year agreement period, or after 

completing one agreement period under 

Track 1. Under the Track 2 financial 

model, an ACO must have savings that 

meet or exceed a 2 percent threshold to 

be eligible to share in savings or 

additional expenditures that meet or 

exceed a 2 percent threshold to be held 

accountable for sharing in losses 

(§ 425.606(b)). As compared to the MSR 

used for Track 1, this fixed percentage 

generally offers a lower savings 

threshold for Track 2 ACOs to meet in 

order to share in savings, and was 

established in recognition of the Track 

2 ACOs’ willingness to assume the risk 

of incurring shared losses (76 FR 

67929). In contrast, although 

organizations participating under the 

Track 1 financial model must also meet 

or exceed a MSR in order to be eligible 

to share in savings (§ 425.604(b)), the 

MSR under the one-sided model is 

established for each ACO using 

increasing nominal confidence intervals 

(CI) based on the size of the beneficiary 

population assigned to the ACO. Thus, 

an ACO with the minimum 5,000 

assigned beneficiaries would have a 

MSR based on a 90 percent CI; an ACO 

with 20,000 assigned beneficiaries 

would have a MSR based on a 95 

percent CI and an ACO with 50,000 

assigned beneficiaries would have an 

MSR based on a 99 percent CI. In 

addition, the MSR under the one-sided 

model is not allowed to fall under 2 

percent for larger ACOs. Table 5 

displays the MSR an ACO participating 

under Track 1 would have to achieve 

before savings could be shared based on 

its number of assigned beneficiaries. 

TABLE 5—MINIMUM SAVINGS RATE FOR TRACK 1 

Number of beneficiaries 

MSR (low end of 

assigned 

beneficiaries) 

(percent) 

MSR (high end of 

assigned 

beneficiaries) 

(percent) 

5,000–5,999 ............................................................................................................................................. 3.9 3.6 

6,000–6,999 ............................................................................................................................................. 3.6 3.4 

7,000–7,999 ............................................................................................................................................. 3.4 3.2 

8,000–8,999 ............................................................................................................................................. 3.2 3.1 

9,000–9,999 ............................................................................................................................................. 3.1 3.0 

10,000–14,999 ......................................................................................................................................... 3.0 2.7 

15,000–19,999 ......................................................................................................................................... 2.7 2.5 

20,000–49,999 ......................................................................................................................................... 2.5 2.2 

50,000–59,999 ......................................................................................................................................... 2.2 2.0 

60,000 + ................................................................................................................................................... 2.0 

As we described in the rulemaking 

establishing the Shared Savings Program 

(76 FR 67927), the MSR thresholds that 

apply under Track 1 were established 

on the basis of standard inferential 

statistics and provide confidence that, 

once the savings achieved by the ACO 

meet or exceed the MSR, the change in 

expenditures represents actual 

performance improvements by the ACO 

as opposed to normal variations. 

Our experience with the program 

suggests that some ACOs, particularly 

ACOs with small assigned populations 

or those with less experience, are 

hesitant to elect Track 2 given the risk 

of losses and their inexperience with 

population management. Therefore, we 

have explored ways to reduce financial 

risk for ACOs participating under Track 

2. One way to reduce financial risk 

under Track 2 would be to modify the 

current MSR and MLR under this track. 

By increasing the MSR and MLR 

thresholds beyond the current 2 percent, 

financial risk would be reduced for 

Track 2 ACOs because they would have 

to incur higher losses in order to be held 

accountable for shared losses. However, 

an ACO would also have to achieve a 

greater level of savings under a higher 

MSR in order to share in savings. In 

exploring potential modifications to the 

MSR and MLR under Track 2, we also 

considered increasing them using a 

fixed percent. For example, we 

considered using an MSR and MLR 

threshold of 3 or 4 percent that would 

apply to all ACOs participating in Track 

2. 

After considering these options, we 

concluded that using the same 

methodology currently used to establish 

the MSR under the one-sided model, 

which is based upon the size of the 

beneficiary population assigned to the 

ACO, to establish both the MSR and 

MLR under Track 2, would serve two 

purposes. Specifically, in comparison 

with the existing fixed 2 percent MSR 

and MLR that currently apply to ACOs 

in Track 2, it would further protect 

ACOs against the risk of losses likely 

due to normal variation while offering 

further protection to the Medicare 

program from paying for shared savings 

likely due to normal variation. The 

methodology that we used to establish 

the MSRs for Track 1 based upon the 

size of the assigned beneficiary 

population was intended to provide 

confidence that shared savings would 

not be earned by random chance alone 

(76 FR 67928). Similarly, basing the 

MLR under Track 2 on the size of an 

ACO’s assigned beneficiary population 

would serve to statistically protect 

ACOs with smaller assigned 

populations from losses that result from 

normal variation, and we believe this 

change would make it more likely that 

such ACOs will be willing to take on 

performance-based risk under Track 2. 

Therefore, we are proposing to retain 

the existing features of Track 2 with the 

exception of revising § 425.606(b) to 

allow the MSR and MLR to vary based 

on the ACO’s number of assigned 

beneficiaries according to the 

methodology outlined for setting the 

MSR under the one-sided model in 

§ 425.604(b) as shown in Table 6. We 

believe that by building in greater 

downside protection, this proposal may 

help smooth the on-ramp to 

performance-based risk for ACOs, 

particularly ACOs with smaller assigned 

populations, making the transition to a 

two-sided model more attractive. 

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TABLE 6—PROPOSED MINIMUM SAVINGS RATE AND MINIMUM LOSS RATE FOR TRACK 2 

Number of beneficiaries 

MSR/MLR (low end 

of assigned 

beneficiaries) 

(percent) 

MSR/MLR (high 

end of assigned 

beneficiaries) 

(percent) 

5,000–5,999 ............................................................................................................................................. 3.9 3.6 

6,000–6,999 ............................................................................................................................................. 3.6 3.4 

7,000–7,999 ............................................................................................................................................. 3.4 3.2 

8,000–8,999 ............................................................................................................................................. 3.2 3.1 

9,000–9,999 ............................................................................................................................................. 3.1 3.0 

10,000–14,999 ......................................................................................................................................... 3.0 2.7 

15,000–19,999 ......................................................................................................................................... 2.7 2.5 

20,000–49,999 ......................................................................................................................................... 2.5 2.2 

50,000–59,999 ......................................................................................................................................... 2.2 2.0 

60,000 + ................................................................................................................................................... 2.0 

With the proposed addition of Track 

3 to the program, discussed later in this 

section, Track 2 can be viewed as a first 

step for some organizations to accepting 

performance-based risk. As such, 

providing an MLR that is more 

protective of ACOs may attract greater 

participation in performance-based risk 

under Track 2, particularly by ACOs 

with smaller assigned populations or 

those with less experience managing 

populations. 

We seek comments on this proposal 

as well as other options that could 

potentially make Track 2 more 

financially attractive to ACOs. We 

request that commenters indicate why 

they believe an alternative option would 

be more attractive to ACOs than the one 

proposed and the specific reason why 

the option would be beneficial. We also 

request that commenters consider 

whether additional safeguards should be 

implemented to appropriately protect 

the Medicare Trust Fund, if an 

alternative approach were to be 

adopted. We also seek comment on 

whether we should consider 

implementing the prospective 

assignment approach proposed for 

Track 3 under Track 2 and whether 

doing so would enhance or erode the 

incentives for organizations to take on 

risk. 

3. Creating Options for ACOs That 

Participate in Risk-Based Arrangements 

a. Overview 

As noted previously, we are pleased 

with the overall interest in the Shared 

Savings Program. However, we would 

also like to increase interest in the 

program by expanding the range of 

opportunities and models for 

organizations to improve the cost and 

quality of care delivered to Medicare 

FFS beneficiaries by assuming greater 

financial risk for their assigned 

beneficiaries. 

In January 2012, the Innovation 

Center began testing the Pioneer ACO 

Model. The Shared Savings Program 

and the Pioneer ACO Model incorporate 

the same fundamental structure with a 

group of healthcare providers and 

suppliers coming together to form an 

ACO that agrees to be accountable for 

the care provided to a population of 

Medicare FFS beneficiaries. The quality 

reporting requirements are the same for 

Shared Savings Program ACOs and 

Pioneer ACOs. However, the Pioneer 

ACO Model and Shared Savings 

Program differ on several key elements, 

including the methodologies used for 

benchmarking, payment reconciliation, 

and assignment. For instance, the 

Pioneer ACO Model offers ACOs a 

greater sharing rate (up to 70 percent 

based on quality performance in 

performance year 2 of the model) 

compared to the Shared Savings 

Program, which currently offers a 

maximum sharing rate of 60 percent for 

ACOs choosing Track 2. Under the 

Pioneer ACO Model, beneficiaries are 

aligned to a Pioneer ACO prospectively 

at the start of each performance year and 

can only be removed from the list of 

aligned beneficiaries retrospectively 

based on certain exclusion criteria. In 

contrast, under the Shared Savings 

Program, beneficiaries are assigned to an 

ACO under Track 1 or Track 2 based 

upon a preliminary prospective 

assignment methodology with 

retrospective reconciliation after the end 

of the performance year that ultimately 

assigns a beneficiary to the ACO based 

on whether ACO professionals provided 

the plurality of primary care services to 

that beneficiary during the performance 

year. All Pioneer ACOs must agree to 

accept performance-based risk, and the 

financial risk increases over the course 

of their agreement period, whereas 

ACOs participating in the Shared 

Savings Program have an option to 

participate in a shared savings only 

model (Track 1) and for those ACOs that 

choose to accept performance-based risk 

(Track 2), the shared loss rate for which 

the ACO is at risk remains same 

throughout the agreement period. There 

are also a number of other differences 

between the two initiatives. Key features 

of the Pioneer ACO Model are explained 

in the Request for Application available 

online at http://innovation.cms.gov/

Files/x/Pioneer-ACO-Model-RequestFor-Applications-document.pdf, and an 

updated table on payment arrangements 

is available online at http://

innovation.cms.gov/Files/x/PioneerACO-Model-Alternative-PaymentArrangements-document.pdf. 

In the November 2011 final rule (76 

FR 67907), we expressed our intent to 

gain experience with alternative 

payment models through the Innovation 

Center before potentially adopting them 

more widely in the Shared Savings 

Program. Currently, testing of the 

Pioneer ACO Model is still underway, 

and we do not yet have a completed 

evaluation of that test. However, we 

have heard from stakeholders that there 

are certain aspects of the Pioneer ACO 

Model that may be appealing to some 

organizations and that we might 

consider incorporating into the Shared 

Savings Program. Therefore, in light of 

our experience with the Shared Savings 

Program, comments from stakeholders, 

and early responses to the Pioneer ACO 

Model, we have considered certain 

modifications to the financial models 

and arrangements available under the 

Shared Savings Program that might 

encourage organizations to take on 

increasing financial risk in order to 

motivate even greater improvements in 

care, and also minimize the barriers 

faced by some ACOs that limit their 

willingness to accept performance-based 

risk. 

In evaluating what features might 

encourage ACOs to take on increasing 

financial risk, we considered several 

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options, including modifying Track 1, 

modifying or eliminating Track 2, 

adding a Track 3 to supplement the 

existing ones, or a combination of these 

options. After reviewing these options, 

we are proposing to use our authority 

under section 1899(i)(3) of the Act to 

create an additional risk-based option 

for ACOs ready to take on increased 

performance-based risk. 

To exercise our authority under 

section 1899(i)(3) of the Act, we must 

demonstrate that this policy; (1) ‘‘ . . . 

does not result in spending more for 

such ACO for such beneficiaries than 

would otherwise be expended . . . if 

the model were not implemented . . . .’’ 

and (2) ‘‘will improve the quality and 

efficiency of items and services 

furnished under this title.’’ We applied 

this authority when proposing a twosided risk-based model in our April 

2011 proposed rule (76 FR 19603), 

which was modified and made final in 

in our November 2011 final rule (76 FR 

67909). As discussed in our final rule 

(76 FR 67904), we believed that Track 

2 would provide an opportunity for 

organizations more experienced with 

care coordination and risk models that 

are ready to accept performance-based 

risk to enter a sharing arrangement that 

provides greater reward for greater 

responsibility. We believe that proposed 

Track 3 would offer an additional 

opportunity for ACOs to accept greater 

responsibility for beneficiary care in 

exchange for the possibility of greater 

reward. Moreover, we do not believe 

that adding a second two-sided risk 

model would result in an increase in 

spending beyond what would otherwise 

occur. To the contrary, as discussed 

later in our Regulatory Impact Analysis, 

our initial estimates suggest that the 

inclusion of Track 3 along with the 

other proposals made in this rule would 

improve savings for the Trust Funds 

resulting from this program. Further, we 

believe that adding Track 3 would 

improve the quality of care furnished to 

Medicare FFS beneficiaries because 

ACOs participating under Track 3 

would have an even greater incentive to 

perform well on the quality measures in 

order to maximize the percentage of 

savings they may receive, while limiting 

their liability for any losses that might 

be incurred. 

Hence, we are proposing to develop a 

new risk-based Track 3 under § 425.610, 

which would be based on the current 

payment methodology under Track 2, 

but would also incorporate some 

different elements that may make it 

more attractive for entities to accept 

increased performance-based risk. 

In general, unless otherwise stated, 

we are proposing to model Track 3 off 

the current provisions governing Track 

2, which in turn are modeled on Track 

1, to have the same general eligibility 

requirements, quality performance 

standards, data sharing requirements, 

monitoring rules, and transparency 

requirements. However, as we discuss 

later in this section, we are proposing 

certain discrete features for Track 3 that 

will differentiate it from Track 2. 

Specifically, we propose to make 

modifications to the beneficiary 

assignment methodology, sharing rate, 

MSR and MLR, and performance 

payment and loss sharing limits. These 

proposals are discussed in detail in the 

following sections. 

b. Proposals for Assignment of 

Beneficiaries Under Track 3 

(1) Background 

Currently, beneficiaries are assigned 

to Shared Savings Program ACOs 

participating under Track 1 and Track 2 

based on the assignment methodology 

that is described in detail in the 

November 2011 final rule and in section 

II.E. of this proposed rule. Beneficiary 

assignment is based on the certified 

ACO participant list and drives a variety 

of program operations described in more 

detail in section II.B. of this proposed 

rule. An assigned beneficiary 

population is determined for each of the 

benchmark years as well as each 

performance year and used to determine 

the average per capita costs of the ACO’s 

assigned FFS population in each of 

those years. Additionally, when an ACO 

enters the program, and on a quarterly 

basis thereafter, we perform a 

preliminary prospective assignment, 

based on the most recent 12 months of 

available claims data, to provide the 

ACO with information about the FFS 

population it has served in the past and 

that is likely to be assigned to the ACO 

at the end of the performance year. After 

the end of each performance year, we 

perform a final retrospective 

reconciliation to generate the final list of 

beneficiaries that chose to receive the 

plurality of their primary care services 

from ACO professionals applying the 

assignment methodology established 

under Subpart E of the regulations. 

Under this methodology, in developing 

the final list of assigned beneficiaries for 

the performance year, beneficiaries are 

both added to and removed from the 

preliminary prospectively assigned 

beneficiary lists provided to ACOs. This 

final list of assigned beneficiaries 

becomes the basis for calculating the 

average per capita expenditures for the 

performance year, and is used for 

financial reconciliation. 

In this section, we discuss our 

proposals to apply a methodology to 

assign beneficiaries prospectively to 

Track 3 ACOs. However, since the 

program’s operations currently center 

on retrospective assignment, we also 

considered a number of issues 

important to implementing prospective 

assignment for Track 3 ACOs. 

Specifically, we discuss our proposals 

for: (1) A prospective assignment 

methodology; (2) the timing for 

performing prospective assignment; (3) 

exclusion criteria to be applied to the 

prospective list at the end of the 

benchmark or performance year; and (4) 

addressing overlap and interactions 

between prospective assignment for 

Track 3 ACOs and the preliminary 

prospective assignment and 

retrospective reconciliation for Track 1 

and Track 2 ACOs. 

(2) Proposal for prospective assignment 

under Track 3 

In the November 2011 final rule that 

established the Shared Savings Program, 

we adopted a preliminary prospective 

assignment model with retrospective 

reconciliation because we believed it 

would provide ACOs with adequate 

information to redesign their care 

processes while also encouraging ACOs 

to standardize these care processes for 

all Medicare FFS beneficiaries instead 

of focusing care management activities 

on a small subset of their FFS 

population. Further, we expressed our 

view that this approach would provide 

sufficient incentives for each ACO to 

provide quality care to its entire 

beneficiary population (76 FR 67864). 

We continue to believe that the 

current Shared Savings Program 

assignment methodology offers strong 

incentives for health system redesign to 

impact the care for all FFS beneficiaries 

that receive care from ACO 

professionals. As a result, we believe the 

assignment methodology currently used 

for the Shared Savings Program limits 

the potential for gaming and reduces the 

motivation to target beneficiaries for 

avoidance. This methodology may also 

improve care for beneficiaries who are 

newly diagnosed with high cost health 

problems during a performance year. 

For example, a FFS beneficiary 

diagnosed with cancer during a 

performance year would benefit from 

interacting with ACO providers/

suppliers that have incentives to be 

vigilant for beneficiaries who are likely 

to be assigned to their ACO 

retrospectively. Intervening early in the 

care of such patients may improve the 

quality and coordination of their care 

and reduce the cost of that care 

compared to what it might have been 

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without the early intervention by the 

ACO and its ACO providers/suppliers. 

On the other hand, while many 

beneficiaries routinely see the same 

providers and suppliers from year to 

year, FFS beneficiaries that are assigned 

to an ACO have freedom to choose their 

healthcare providers and, unlike 

patients enrolled in many managed care 

plans, are not locked into seeing only 

ACO providers/suppliers. As a result, 

there is no absolute certainty that 

preliminarily prospectively assigned 

beneficiaries will continue to receive 

the plurality of their primary care 

services from ACO professionals during 

the performance year. Thus, there can 

potentially be differences between the 

preliminary assigned beneficiary list 

that the ACO receives at the start of the 

performance year, and every quarter 

thereafter, and the final assigned 

beneficiary list that is generated at the 

time of retrospective reconciliation, 

which is based on the actual utilization 

of primary care services by beneficiaries 

during the performance year. Given our 

experience with the Shared Savings 

Program and Physician Group Practice 

Demonstration before it, this is not an 

unexpected or unanticipated result of 

the methodology used to assign FFS 

beneficiaries who retain their freedom 

to choose providers under traditional 

FFS Medicare. That being said, the need 

to account for both the ebb and flow of 

assigned beneficiaries under the 

preliminary prospective assignment 

methodology with retrospective 

reconciliation used in the Shared 

Savings Program may discourage 

participation in risk-based arrangements 

by ACOs that seek greater certainty 

about the population on whom they will 

be assessed. 

As an alternative, beneficiaries could 

be prospectively assigned to an ACO 

prior to the start of the performance 

year. An example of prospective 

alignment can be found in the Pioneer 

ACO Model, where beneficiaries are 

aligned to Pioneer ACOs prior to the 

start of each performance year. Under 

the Pioneer ACO Model, the list of 

prospectively aligned beneficiaries is 

reconciled at the end of the year to 

exclude certain beneficiaries from the 

list, for example, beneficiaries who were 

not eligible for alignment during the 

performance year; however, no new 

beneficiaries are added to the list. This 

alternative assignment methodology 

arguably provides Pioneer ACOs with a 

more targeted set of FFS beneficiaries on 

whom to focus their care redesign 

efforts during the performance year. The 

beneficiary alignment methodology 

used under the Pioneer Model can be 

reviewed in more detail on the 

Innovation Center Web site: http://

innovation.cms.gov/initiatives/PioneerACO-Model/ 

A prospective assignment 

methodology may offer ACOs a more 

narrowly defined target population and 

greater certainty about where to focus 

their care redesign processes. This 

improved certainty may be an important 

factor in an ACO’s willingness to take 

on greater performance-based risk 

because the ACO may be better 

positioned to make decisions regarding 

where to make investments in 

infrastructure to deliver enhanced 

services. Given the higher levels of 

performance-based risk associated with 

the Pioneer ACO Model, the Innovation 

Center elected to use a prospective 

assignment methodology specifically to 

provide participating ACOs with greater 

certainty regarding their assigned 

beneficiary populations in order to 

allow them to better target their care 

coordination efforts to those patients. 

Potential disadvantages of a 

prospective assignment methodology, 

such as the one used under the Pioneer 

ACO Model, are that it may encourage 

ACOs to narrowly focus on a subset of 

FFS beneficiaries in the care of their 

ACO providers/suppliers while not 

doing as much to incentivize 

organizations to broadly redesign care 

processes to improve the care for all FFS 

beneficiaries under the care of providers 

and suppliers participating in the ACO. 

These incentives arise because ACOs 

know in advance the subset of their 

patients for which their performance 

will be measured. 

However, despite these concerns, we 

acknowledge that a prospective 

assignment methodology may offer 

greater certainty and a more narrowly 

defined target population for some 

ACOs, and these may be important 

factors in an ACO’s willingness to take 

on greater performance-based risk where 

the ACO must make decisions regarding 

where to make investments in 

infrastructure to deliver enhanced 

services. We further believe that ACOs 

will have strong incentives to provide 

their prospectively assigned 

beneficiaries high-quality, low-cost care 

in order to discourage them from 

seeking care outside of the ACO and 

that beneficiaries that are prospectively 

assigned to an ACO will continue to be 

protected from concerns related to 

inappropriate limitations on care under 

traditional FFS Medicare because of 

their ability to choose their providers. 

Under the Shared Savings Program, 

there is no lock in for beneficiaries, 

therefore, we believe a prospective 

assignment methodology under the 

Shared Savings Program presents 

limited risks to FFS beneficiaries. Thus, 

having considered the relative 

advantages and disadvantages of 

prospective and retrospective 

assignment methodologies for FFS 

beneficiaries, we are proposing to 

implement a prospective assignment 

methodology for Track 3 ACOs. This 

prospective assignment methodology 

would use the same stepwise 

assignment methodology under 

§ 425.402 to assign beneficiaries to 

ACOs in Track 3 as is currently used to 

assign beneficiaries to ACOs 

participating under Track 1 and Track 2. 

The major difference would be that 

beneficiaries would be assigned to Track 

3 ACOs prospectively, at the start of the 

performance year, and there would be 

no retrospective reconciliation resulting 

in the addition of new beneficiaries at 

the end of the performance year. The 

only adjustments that would be made at 

the end of the performance year would 

be to exclude beneficiaries that 

appeared on the prospective assignment 

list provided to the ACO at the start of 

the performance year that no longer 

meet eligibility criteria. For the reasons 

discussed in the November 2011 final 

rule (76 FR 67851), we believe that this 

proposed prospective assignment 

methodology meets the requirement 

under section 1899(c) of the Act that 

assignment be based on the ‘‘utilization 

of primary care services’’ provided by 

physicians that are ACO professionals. 

We propose to codify this methodology 

in the regulations at § 425.400(a)(3). 

In summary, while we have concerns 

that prospective assignment may 

inadvertently increase incentives for 

gaming and avoidance of at-risk 

beneficiaries, we have taken steps to 

minimize these incentives by retaining 

other Shared Savings Program policies 

and procedures such as risk-adjusting 

expenditures and monitoring ACOs to 

ensure they are not engaging in gaming 

or avoidance of at-risk beneficiaries. 

Moreover, our proposal to exclude only 

those beneficiaries that no longer meet 

the eligibility criteria for assignment to 

an ACO should reduce the probability 

that attempts by the ACO to ‘‘cherry 

pick’’ or avoid at-risk beneficiaries 

during the performance year would 

succeed. Therefore, we believe the 

concerns associated with a prospective 

assignment methodology are balanced 

by the potential that establishing a new 

Track 3 has to encourage ACOs to 

accept greater responsibility and 

financial risk for the care provided to 

their patients in return for the 

possibility of achieving greater rewards. 

We seek comment on these proposals. In 

particular, we seek comment on ways to 

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mitigate concerns regarding gaming and 

avoidance of at-risk beneficiaries under 

a prospective assignment methodology, 

whether implementing a prospective 

approach to assignment will dilute the 

program goals of delivery system 

redesign, and whether there are 

additional programmatic considerations 

that should be taken into account as a 

result of our proposal to apply a 

prospective assignment methodology in 

Track 3. 

Because of the differences between 

the Shared Savings Program and the 

Pioneer ACO Model, we emphasize that 

the proposed prospective assignment 

methodology under Track 3 is not 

identical to the methodology used under 

the Pioneer ACO Model, but is tailored 

to the Shared Savings Program. 

Specifically, we propose to assign 

beneficiaries to an ACO participating 

under Track 3 using the assignment 

algorithm that is specified in Subpart E 

of the Shared Savings Program 

regulations, and described in more 

detail in section II.E. of this proposed 

rule. 

c. Proposed Exclusion Criteria for 

Prospectively Assigned Beneficiaries 

Next we considered how to reconcile 

the prospective beneficiary assignment 

list at the conclusion of the performance 

year. We recognize that changes in 

circumstances may cause prospectively 

assigned beneficiaries to no longer be 

eligible for assignment to an ACO at the 

end of a performance year. For instance, 

during the course of a benchmark or 

performance year a beneficiary may fall 

under one of the assignment exclusion 

criteria specified in proposed 

§ 425.401(b). The proposed exclusion 

criteria, found at § 425.401(b), mirror 

the proposed eligibility criteria under 

§ 425.401(a) with the exception of 

assignment to another Medicare 

initiative involving shared savings. This 

is because we believe it is appropriate 

to exclude only those prospectively 

assigned beneficiaries that are no longer 

eligible to be assigned to an ACO. We 

do not believe, however, that it will be 

necessary to exclude beneficiaries that 

are assigned to another shared savings 

initiative because we intend to adopt 

procedures to ensure that a beneficiary 

who is prospectively assigned to an 

ACO participating under Track 3 would 

not be assigned to another Medicare 

initiative involving shared savings. 

Therefore, we propose to perform a 

limited reconciliation where 

beneficiaries would only be removed 

from the prospective assignment list at 

the end of the year if they were not 

eligible for assignment at that time 

under the criteria in proposed 

§ 425.401(b). For example, if a 

prospectively assigned beneficiary 

chose to enroll in Medicare Advantage 

(MA) at the beginning of the 

performance year, that beneficiary 

would be removed from the beneficiary 

assignment list at the end of the year 

and the beneficiary’s expenditures 

would not be used in determining the 

ACO’s financial performance for that 

year. We note that under this proposal, 

beneficiaries would be removed from 

the prospective list, but would not be 

added as they are in the retrospective 

reconciliation used under Tracks 1 and 

2. Additionally, unlike the preliminary 

prospective assignment methodology 

with retrospective reconciliation used in 

Tracks 1 and 2, we note that under this 

proposal, similar to the methodology 

used under the Pioneer ACO Model, 

beneficiaries would not be removed 

from the prospective beneficiary 

assignment list because the beneficiary 

chose to receive primary care services 

during the performance year from 

practitioners other than those 

participating in the ACO. In other 

words, the ACO will be held 

accountable for all beneficiaries that 

appear on the prospective assignment 

list, with the narrow exception of those 

beneficiaries who are not eligible for 

assignment at the time of reconciliation 

based on the limited set of proposed 

exclusion criteria under proposed 

§ 425.401(b). We believe that this 

methodology will help to mitigate 

concerns that ACOs may attempt to 

avoid caring for high risk beneficiaries 

that appear on their prospective 

beneficiary assignment list because the 

ACO will continue to be held 

accountable for the quality and cost of 

the care furnished to these beneficiaries 

even if the ACO providers/suppliers are 

not directly involved in their care. 

However, we note that this may mean 

that ACOs will be held accountable for 

beneficiaries with whom their ACO 

providers/suppliers have had little 

contact during the year, and therefore 

may have limited opportunity to affect 

their care. We seek comment on our 

proposal to assign FFS beneficiaries 

prospectively to ACOs and to apply 

limited exclusion criteria to reconcile 

the beneficiary assignment list at the 

end of the performance year. 

d. Proposed Timing of Prospective 

Assignment 

We believe it is important to provide 

Track 3 ACOs with their lists of 

prospectively assigned beneficiaries 

close to the start of each performance 

year so that these ACOs may begin to 

target their care coordination processes 

and to support ACO operations. Ideally, 

the prospective list of assigned 

beneficiaries would be generated based 

on the 12 months immediately 

preceding the performance year. 

However, we need a certain amount of 

time to generate and validate 

assignment lists and provide the 

information to the ACOs. Therefore, we 

must find a balance between allowing 

time to produce and deliver prospective 

assignment lists to Track 3 ACOs as near 

as possible to the start of each 

performance year with our desire to 

base prospective assignment on the 

most recent available data. For Tracks 1 

and 2, we assign beneficiaries based on 

a 12 month period. We similarly 

propose to use a 12-month assignment 

period for Track 3. Under Tracks 1 and 

2, we use the most recent available 12 

months of data to determine the list of 

preliminarily prospectively assigned 

beneficiaries and data from the 12 

months of the performance year to 

determine final assignment at the time 

of reconciliation. Ideally, under Track 3, 

we would determine prospective 

assignment for an ACO’s performance 

year based on complete data for the 

most recent prior calendar year, for 

example, the third benchmark year or 

the previous performance year. For 

instance, in prospectively assigning 

beneficiaries to a Track 3 ACO for the 

performance year that begins in January 

1, 2016, we would ideally have 

complete claims data for 2015. 

However, if we were to wait to obtain 

complete claims data for the prior 

calendar year, we would not be able to 

produce and deliver lists of 

prospectively assigned beneficiaries to 

Track 3 ACOs before the start of the 

performance year. In performing 

beneficiary assignment, we determine 

whether ACO professionals 

participating in an ACO have provided 

the plurality of a beneficiary’s primary 

care services as compared to ACO 

professionals in all other ACOs and 

individual practitioners or groups of 

practitioners identified by TINs that are 

not participating in an ACO. We treat 

ACOs as a collection of TINs for the 

purpose of determining whether the 

ACO provided the plurality of the 

beneficiary’s primary care services. 

Further, we accept new ACOs into the 

Shared Savings Program annually, with 

a participation agreement start date of 

January 1 of the following year. To most 

accurately and fairly prospectively 

assign beneficiaries, it is important to 

perform assignment by taking into 

consideration existing ACOs as well as 

new entrants to the program. Therefore, 

to assure that we can accurately 

prospectively assign beneficiaries to 

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ACOs under Track 3, our timeline for 

producing the prospective assignment 

lists for Track 3 ACOs must factor in the 

time frames associated with the 

program’s application cycle (which 

typically concludes in late November/

early December of each calendar year). 

We considered several options for 

establishing the 12-month period for 

prospective assignment under Track 3. 

One option would be to use the most 

recent 12-month period prior to the 

relevant performance year for which 

data are available. That is, we would use 

a 12-month assignment window that is 

offset from the calendar year. For 

instance, to establish the assignment list 

for the performance year beginning 

January 1, 2016, we could use an 

assignment window from October 1, 

2014 through September 30, 2015. We 

also considered the option of using 

complete claims data for the calendar 

year prior to the performance year (this 

would synchronize with the timing of 

the financial calculations for setting the 

ACO’s benchmark, as discussed in more 

detail in II.F.3.f. of this section); 

however, under these parameters Track 

3 ACOs would receive their prospective 

assignment lists well into the first 

quarter of each performance year. We 

believe Track 3 ACOs would find such 

a delay in their receipt of their 

prospective assignment list burdensome 

for carrying out the ACO’s health care 

operations, including care coordination 

processes and data analysis. We believe 

the first option best balances the 

availability of claims data with our 

belief that it is important to produce and 

deliver these prospective beneficiary 

assignment lists near the start of each 

performance year. Therefore, we are 

proposing to base prospective 

assignment on a 12-month assignment 

window (off-set from the calendar year) 

prior to the start of the performance 

year. We further propose to define an 

‘‘assignment window’’ at § 425.20 as the 

12-month period used to assign 

beneficiaries to an ACO. The assignment 

window for Tracks 1 and 2 would be 

based on a calendar year while the 

assignment window for Track 3 would 

be based on the most recent 12 months 

for which data are available, and which 

would be off-set from the calendar year. 

We propose to make conforming 

changes to the regulations to refer to the 

assignment window where appropriate. 

e. Proposals for Addressing Interactions 

Between Prospective and Retrospective 

Assignment Models 

Because there are markets in which 

there are multiple ACOs, we anticipate 

that there will be interactions between 

prospective assignment for Track 3 

ACOs and preliminary prospective 

assignment with retrospective 

reconciliation for Track 1 and Track 2 

ACOs. Under the Shared Savings 

Program, a beneficiary may only be 

assigned to a single ACO for purposes 

of determining the ACO’s financial and 

quality performance during a 

performance year. Accordingly, a 

beneficiary that is prospectively 

assigned to a Track 3 ACO would 

remain assigned to the Track 3 ACO for 

the performance year even if the 

beneficiary chose to receive a plurality 

of his or her care outside the ACO. 

Furthermore, we propose that the 

beneficiary would remain assigned to 

the Track 3 ACO even if we determine 

as part of the retrospective 

reconciliation for Track 1 and Track 2 

ACOs that the beneficiary actually 

received the plurality of his or her care 

from ACO professionals in another 

ACO. Similarly, a beneficiary 

prospectively assigned to a Track 3 ACO 

would remain assigned to that ACO 

even if we subsequently determine the 

beneficiary actually received the 

plurality of his or her primary care from 

ACO professionals participating in 

another Track 3 ACO. In other words, 

we propose that once a beneficiary is 

prospectively assigned to a Track 3 

ACO, the beneficiary will not be eligible 

for assignment to a different ACO, even 

if the beneficiary chose to receive a 

plurality of his or her primary care 

services from ACO professionals in that 

ACO during the relevant performance 

year. As an aside, we note that it is 

unlikely that such a beneficiary would 

be assigned prospectively to that same 

Track 3 ACO for the next performance 

year. 

f. Proposals for Determining Benchmark 

and Performance Year Expenditures 

Under Track 3 

As specified in the November 2011 

final rule, we establish the historical 

benchmark for ACOs in Tracks 1 and 2 

by determining the per capita Parts A 

and B fee-for-service expenditures for 

beneficiaries that would have been 

assigned to the ACO in any of the 3 

most recent years prior to the start of the 

agreement period using the ACO 

participant TINs identified at the start of 

the agreement period (§ 425.602(a)). For 

each benchmark year that corresponds 

to a calendar year, this includes 

calculating the payment amounts 

included in Parts A and B fee-for-service 

claims using claims received within 3 

months following the end of the 

calendar year (referred to as a ‘‘3 month 

claims run out’’) with a completion 

factor, excluding IME and DSH 

payments and considering individually 

beneficiary-identifiable payments made 

under a demonstration, pilot or time 

limited program (§ 425.602(a)(1)). 

Similarly in determining shared savings 

and losses for Tracks 1 and 2 (under 

§ 425.604 and § 425.606), we use a 3- 

month claims run out with a completion 

factor to calculate an ACO’s per capita 

expenditures for each performance year. 

Calculations of the ACO’s performance 

year expenditures include the payment 

amounts of Part A and B fee-for-service 

claims. These calculations similarly 

exclude IME and DSH payments, and 

take into consideration individually 

beneficiary identifiable payments made 

under a demonstration, pilot or time 

limited program. We believe this 

approach is well accepted and therefore 

propose to use the same general 

methodology for determining 

benchmark and performance year 

expenditures under Track 3. We also 

propose to add a new regulation at 

§ 425.610 to address the calculation of 

shared savings and losses under Track 

3. 

In establishing the historical 

benchmark for Track 3 ACOs, we 

propose to determine the beneficiaries 

that would have been prospectively 

assigned to the ACO during each of the 

3 most recent years prior to the start of 

the agreement period; basing benchmark 

year assignment on a 12-month 

assignment window offset from the 

calendar year prior to the start of each 

benchmark year. However, we propose 

that we would still determine the Parts 

A and B fee-for-service expenditures for 

each calendar year, whether it is a 

benchmark year or a performance year, 

using a 3-month claims run out with a 

completion factor for these 

prospectively assigned beneficiaries. We 

would exclude IME and DSH payments 

and account for individually 

beneficiary-identifiable payments made 

under a demonstration, pilot or time 

limited program during the calendar 

year that corresponds to the benchmark 

or performance year. For example, for 

an ACO entering Track 3 beginning 

January 1, 2016, we would determine 

the benchmark based on CYs 2013, 

2014, and 2015. We would determine a 

prospective list of beneficiaries using 

the assignment window for each year 

(based on an off-set 12 month period 

such as October 1, 2011 through 

September 30, 2012 for BY1) as 

discussed previously. However, the 

claims used to determine the per capita 

expenditures for BY1 would be based on 

claims submitted during the calendar 

year from January 1, 2013 through 

December 31, 2013. The same pattern 

would be used to determine the 

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assignment and per capita expenditures 

for BY2 and BY3. We would apply the 

same pattern going forward to calculate 

per capita expenditures for the 

performance years. 

We believe this methodology is 

advantageous for several reasons. First, 

this methodology would remove 

actuarial bias between the 

benchmarking and performance years 

for assignment and financial 

calculations, since the same method 

would be used to determine the 

assignment and financial calculations 

for each benchmark and performance 

year. Second, basing the financial 

calculations on the calendar year is 

necessary to align with actuarial 

analyses with respect to risk score 

calculations and data inputs based on 

national FFS expenditures used in 

program financial calculations that 

depend on the calendar year (for 

example, national FFS trend factors for 

the historical benchmark, national FFS 

growth factors used in creating the 

updated benchmark, and truncation 

points). 

We note that the timing of the 

generation of historical benchmark 

reports for Track 3 ACOs would also be 

consistent with the current schedule for 

generating these reports for ACOs in 

Tracks 1 and 2. That is, for an ACO that 

begins Track 3 in 2016, the prospective 

beneficiary assignment list would be 

available immediately at the beginning 

of the performance year and the 

historical benchmark report would be 

available following the 3 month claims 

run out, sometime after the first quarter 

of 2016. 

g. Proposals for Risk Adjusting the 

Updated Benchmark for Track 3 ACOs 

Another aspect of the financial 

models used under the Shared Savings 

Program that we considered when 

developing Track 3 is our methodology 

for risk adjusting an ACO’s updated 

benchmark expenditures to account for 

changes in severity and case mix for 

beneficiaries assigned in the current 

performance year. Currently, under 

Track 1 and Track 2, the risk adjustment 

methodology differentiates between 

newly and continuously assigned 

beneficiaries, as defined under § 425.20. 

A newly assigned beneficiary is a 

beneficiary assigned in the current 

performance year who was neither 

assigned to nor received a primary care 

service from any of the ACO 

participants during the most recent 

prior calendar year. A continuously 

assigned beneficiary is a beneficiary 

assigned to the ACO in the current 

performance year who was either 

assigned to or received a primary care 

service from any of the ACO 

participants during the most recent 

prior calendar year. As specified under 

§ 425.604(a), and § 425.606(a), we use 

updated CMS–HCC prospective risk 

scores to account for changes in severity 

and case mix for newly-assigned 

beneficiaries. We use demographic 

factors to adjust for these changes in 

severity and case mix for continuously 

assigned beneficiaries. However, if the 

CMS–HCC prospective risk scores for 

the continuously assigned population 

show a decline, we use the lower risk 

score to adjust for changes in severity 

and case mix for this population. As we 

explained in the November 2011 final 

rule (76 FR 67918), we believe that this 

approach to risk adjustment strikes a 

fair balance between accounting for 

changes in the health status of an ACO’s 

population while not encouraging 

changes in coding practices for care 

provided to beneficiaries who remain 

continuously assigned to the ACO or 

avoidance of high risk beneficiaries. We 

believe that the existing risk adjustment 

methodology has been effective in 

achieving this balance under Tracks 1 

and 2, which use a retrospective 

assignment methodology for purposes of 

financial reconciliation, and that it 

would be appropriate to apply a similar 

approach to risk adjusting the updated 

benchmark for Track 3 ACOs, even 

though we are proposing a prospective 

beneficiary assignment methodology. 

We believe that this risk adjustment 

methodology is relevant to updating 

ACO benchmarks under both a 

retrospective assignment model and a 

prospective assignment model. We 

believe that as in the existing Tracks, it 

is important to ensure that ACOs 

participating under the proposed Track 

3 are not encouraged to modify their 

coding practices in order to increase the 

likelihood of earning shared savings; 

rather, shared savings should result 

from actual reductions in Medicare 

expenditures for assigned beneficiaries. 

Therefore, we carefully considered 

the risk adjustment methodology in the 

context of our proposal to use a 

prospective assignment methodology 

under Track 3. We determined that 

while the same general risk adjustment 

methodology could be used, there are 

certain minor modifications that must 

be made to accommodate the 

prospective assignment approach. 

Specifically, we determined that the 

existing definitions of newly and 

continuously assigned beneficiaries 

must be adjusted for Track 3 ACOs. 

Both definitions refer to determining 

whether the beneficiary was assigned to 

the ACO or received primary care 

services from an ACO participant in the 

‘‘prior calendar year’’. However, our 

proposal for Track 3 assignment does 

not correspond to the 12 months in a 

calendar year. Instead, as proposed in 

the section, we would use an off-set 12- 

month period prior to the relevant 

performance or benchmark year to 

prospectively assign beneficiaries. If we 

continue to use a calendar year as the 

basis for determining continuously and 

newly assigned beneficiaries, very few 

beneficiaries would be designated as 

newly assigned for each performance 

year and we would expect that the 

majority of assigned beneficiaries would 

be designated as continuously assigned. 

As a consequence, the major risk 

adjustment applied under Track 3 

would be based on demographic factors 

only. We do not believe this policy 

would strike the same balance achieved 

when applied under a model with 

retrospective assignment (Track 1 and 

Track 2). 

Therefore, we propose refining our 

definitions of newly and continuously 

assigned beneficiaries at § 425.20 to also 

be consistent with our proposed 

prospective assignment approach for 

Track 3. Specifically, we propose to 

replace the reference to ‘‘most recent 

prior calendar year’’ with a reference to 

‘‘the assignment window for the most 

recent prior benchmark or performance 

year.’’ Thus, for Track 3 the reference 

period for determining whether a 

beneficiary is newly or continuously 

assigned will be most recent prior 

prospective assignment window (the 

off-set 12 months) before the assignment 

window for the current performance 

year and the reference period for 

determining whether a Track 1 or 2 

beneficiary is newly or continuously 

assigned will continue to be the most 

recent prior assignment window (the 

most recent calendar year). Our 

proposed risk adjustment methodology 

for Track 3 is reflected in the proposed 

new regulation at § 425.610(a). 

h. Proposals for Final Sharing/Loss Rate 

and Performance Payment/Loss 

Recoupment Limit under Track 3 

Currently, an ACO that meets all the 

requirements for receiving shared 

savings payments under the one-sided 

(Track 1) model can qualify to receive 

a shared savings payment of up to 50 

percent of all savings under its updated 

benchmark, not to exceed 10 percent of 

its updated benchmark, as determined 

on the basis of its quality performance. 

Likewise, a Track 2 ACO can potentially 

receive a shared savings payment of up 

to 60 percent of all savings under its 

updated benchmark, not to exceed 15 

percent of its updated benchmark. The 

higher sharing rate and performance 

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payment limit under Track 2 were 

established as incentives for ACOs to 

accept greater financial risk for their 

assigned beneficiaries in exchange for 

potentially higher financial rewards. 

Additionally, a Track 2 ACO is 

accountable for between 40 to 60 

percent of all losses under its updated 

benchmark, depending on the ACO’s 

quality performance. The amount of 

shared losses for which an ACO is 

liable, however, may not exceed 5 

percent of its updated benchmark in the 

first performance year, 7.5 percent in 

the second performance year, and 10 

percent in the third performance year 

and any subsequent performance year 

(§ 425.606(g)). In the November 2011 

final rule (76 FR 67937), we stated that 

we believe these progressively higher 

caps on losses ‘‘achieve an appropriate 

balance between providing ACOs with 

security about the limit of their 

accountability for losses while 

encouraging ACOs to take increasing 

responsibility for their costs and 

protecting the Medicare Trust Funds.’’ 

We note that under one of the payment 

arrangements available under the 

Pioneer ACO Model, a Pioneer ACO can 

qualify to receive up to 75 percent of 

shared savings, not to exceed 15 percent 

of its benchmark. Under this payment 

arrangement, Pioneer ACOs may also be 

responsible for shared losses of up to 15 

percent of their benchmark. 

Currently, only five of the ACOs 

participating in the Medicare Shared 

Savings Program are participating under 

Track 2. Given this level of ACO 

participation under this model, we 

considered options for improving the 

attractiveness of the final sharing rate 

and performance payment limit in a risk 

model. For example, we considered 

whether the current sharing rate under 

Track 2 is insufficient to encourage ACO 

participation under a risk-based model 

and whether increasing the sharing rate 

would better attract organizations to 

take on performance-based risk. We also 

observed that the higher sharing rates 

available under the Pioneer ACO model 

have appeared to be helpful in 

encouraging ACO participation. Further, 

we believe it is important to draw a 

distinction between the sharing rates 

available under Track 2 and the 

proposed Track 3. As discussed later in 

this section, we are proposing that 

ACOs participating in Track 3 would be 

subject to a fixed 2 percent MLR 

(compared to the proposed revisions 

that would allow the MSR and MLR 

under Track 2 to vary between 2.0 

percent and 3.9 percent). Thus, we 

believe it is important to reward Track 

3 ACOs with a greater level of savings 

for taking on this greater level of risk. 

Accordingly, we are proposing to set the 

sharing rate under Track 3 at 75 percent. 

Likewise, we considered whether the 

current 15 percent performance 

payment limit for Track 2 ACOs may 

discourage participation under a riskbased model. In our November 2011 

final rule (76 FR 67935 through 67936), 

we noted a range of commenters had 

urged us either to eliminate the limits 

on shared savings or to apply higher 

payment limits for both models, with 

limits as high as 25 percent. We 

explained that retaining the 

performance payment limits is 

necessary to comply with the statute 

and important for ensuring against 

providing an overly large incentive that 

may encourage ACOs to generate 

savings through inappropriate limits on 

necessary care. As was the case when 

we issued that rule, we continue to 

believe that retaining a performance 

payment limit is necessary. However, 

we believe that a modest increase in the 

performance payment limit for ACOs 

willing to take on the greater level of 

risk under Track 3 may balance our 

concerns while increasing the 

attractiveness of the model. 

Accordingly, for Track 3 ACOs, we are 

proposing a performance payment limit 

not to exceed 20 percent of the ACO’s 

updated benchmark. We note that the 

shared loss rate would similarly 

increase to a maximum of 75 percent to 

retain symmetry within the model 

which is comparable to the approach we 

used to establish the shared loss rate for 

Track 2 ACOs. 

To establish even stronger incentives 

for encouraging ACOs to assume greater 

responsibility for the quality and cost of 

the care furnished to their assigned 

beneficiaries, we are also considering 

variations on the previous proposals. 

Currently, under the two-sided model, 

an ACO’s quality score is taken into 

account when calculating the ACO’s 

final sharing rate. Under Track 2, an 

ACO with poor quality performance 

may be responsible for repaying 

Medicare up to 60 percent of losses 

while an ACO with very high quality 

performance may be responsible for 

repaying Medicare only 40 percent of 

the losses incurred (see § 425.606(f)). If 

we retain symmetry between the shared 

savings and shared losses 

methodologies under Track 3, an ACO 

with very low quality performance 

could be responsible for repaying 

Medicare up to 75 percent of losses 

while a Track 3 ACO with very high 

quality performance would only be 

responsible for 25 percent of losses. 

However, it may not be desirable 

under Track 3 to allow such a broad 

range for shared losses, which could be 

viewed as increasing the potential 

reward without similarly increasing 

risk. Therefore, we considered other 

options for increasing potential shared 

savings while also increasing risk, or 

holding risk constant compared to Track 

2. Under one option we considered, 

Track 3 ACOs would be responsible for 

the maximum percentage of losses, that 

is, 75 percent, but quality performance 

would only protect them to the same 

extent it protects Track 2 ACOs, such 

that ACOs with very high quality scores 

would limit their percentage of losses to 

40 percent. Alternatively, we could 

retain the minimum and maximum 

shared loss rates found under Track 2 

(that is, the range of 40 percent to 60 

percent, depending on quality 

performance) but the maximum shared 

savings rate would be increased to 75 

percent in order to encourage 

participation in a model with increased 

risk. 

After considering these options, in 

§ 425.610(d) and (f) we are proposing to 

increase the sharing rate for Track 3 

ACOs so that they may qualify for up to 

75 percent of all savings under their 

updated benchmark in conjunction with 

accepting risk for up to 75 percent of all 

losses, depending on the quality 

performance of the organization for the 

reasons articulated previously. We are 

also proposing under new 

§ 425.610(e)(2) to increase the 

performance payment limit to 20 

percent of an ACO’s updated 

benchmark. Additionally, rather than 

gradually increasing the cap on shared 

losses for Track 3 ACOs (as is done 

under Track 2), in § 425.610(g), we are 

proposing that the amount of shared 

losses for which an ACO may be liable 

may not exceed 15 percent of its 

updated benchmark in each year of the 

ACO’s 3-year agreement period. We 

believe that capping losses at 15 percent 

would provide adequate protection to 

the Medicare Trust Funds while 

limiting risk to ACOs, thereby 

encouraging them to progress along the 

risk continuum. We also propose that 

ACOs with high quality performance 

would not be permitted to reduce the 

percentage of shared losses for which 

they would be responsible for each year 

of the agreement period below 40 

percent. We believe it is important for 

Track 3 ACOs to be held responsible for 

at least the same amount of downside 

risk as Track 2 ACOs. We seek comment 

on whether this percentage is high 

enough to protect the Trust Funds or 

whether it should be increased, for 

example, to 50 percent or 60 percent. 

We also seek comment on whether our 

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proposal to establish a range of 40 

percent to 75 percent for shared losses 

should, in turn, impact the amount of 

shared savings available to Track 3 

ACOs. For example, should we permit 

Track 3 ACOs to earn a parallel range 

of 40 percent to 75 percent of shared 

savings. In other words, once the ACO 

has met criteria for sharing in savings, 

the minimum guaranteed amount of 

shared savings would be 40 percent 

with a maximum of 75 percent. 

We seek comments on these proposals 

and the proposed new regulation at 

§ 425.610. In particular, we request 

comment on the appropriate minimum 

percentage of shared losses under Track 

3. We also seek comment on the 

appropriate percentage for the 

performance payment limit and loss 

recoupment limit and whether there are 

reasons to set these at 15 percent and 10 

percent respectively, rather than our 

proposal of 20 percent and 15 percent 

respectively. 

Finally, we are also proposing to 

make certain technical, conforming 

changes to § 425.606, which governs the 

calculation of shared savings and losses 

under Track 2, to reflect our proposal to 

incorporate a second two-sided risk 

model into the Shared Savings Program. 

We seek comments on these proposed 

changes and on any other technical 

changes to our regulations that may be 

necessary in order to reflect the 

proposal to add a new Track 3. 

i. Proposals for Minimum Savings Rate 

and Minimum Loss Rate in Track 3 

In this proposed rule, we are 

proposing to replace the current fixed 2 

percent minimum savings rate (MSR) 

and minimum loss rate (MLR) under 

Track 2 with a MSR and MLR that will 

vary based on the number of 

beneficiaries assigned to the ACO, 

mirroring the methodology currently 

used to determine the MSR under Track 

1. We proposed this change as a way to 

reduce financial risk and thereby 

increase the attractiveness of Track 2 to 

prospective ACOs and ACOs continuing 

in the program for a second or 

subsequent agreement period. 

Specifically, we believe it is important 

to offer a risk-based option attractive to 

smaller ACOs that may be hesitant to 

take on performance-based risk. Under 

the proposed modifications to Track 2, 

smaller ACOs would have an MLR 

greater than 2 percent, which would 

provide additional protection to these 

ACOs against incurring losses as a result 

of normal variations in expenditures. 

Moreover, while reducing financial risk 

for Track 2 ACOs, the proposal would 

also offer greater protection to the 

Medicare program by raising the savings 

threshold that must be achieved before 

an ACO would be eligible to share in 

savings for all but the largest ACOs. 

As discussed previously in this 

section, we are proposing to establish a 

new Track 3 as an additional option for 

participation in the Shared Savings 

Program with stronger incentives to 

encourage ACOs to accept greater 

responsibility and risk for their 

beneficiaries. Hence, for Track 3 ACOs, 

we are proposing to apply the same 

fixed 2 percent MSR and MLR that 

currently apply to Track 2 ACOs. As we 

discussed in the November 2011 final 

rule (76 FR 67929), establishing the 

Shared Savings Program, the use of an 

MSR and MLR remains important under 

a two-sided risk model to guard against 

normal variations in costs, so that ACOs 

share savings or losses with the program 

only under those circumstances in 

which we can be confident that those 

savings and losses are the result of the 

ACOs’ actions rather than normal 

variation. As we noted in that final rule, 

it is more appropriate to employ a fixed 

MSR under a two-sided model than 

under the one-sided model. First, given 

the potential for shared loss, the greater 

predictability of a fixed MSR is more 

likely to attract organizations to 

participate under the model. Second, 

there is greater protection for the 

Medicare Trust Fund from normal 

variation under a two-sided model 

because ACOs accept the risk of 

repaying the Medicare program for 

shared losses. Therefore, in the 

November 2011 final rule (76 FR 67929), 

we adopted a fixed 2 percent MSR and 

MLR for ACOs participating under 

Track 2. We selected 2 percent because 

this is the lowest MSR under the oneside model and was also the MSR that 

was used in the PGP demonstration. As 

discussed previously in this section, we 

are now proposing to modify the MSR 

and MLR under Track 2 to vary based 

upon the size of the ACO. We believe 

this change would improve the 

attractiveness of Track 2 by offering 

ACOs that may be less experienced with 

performance-based risk greater 

protection against shared losses. 

However, because Track 3 is intended 

for ACOs that are willing to accept a 

greater degree of risk in exchange for the 

opportunity to share in a greater 

percentage of shared savings, we believe 

it is appropriate to use a fixed 2 percent 

MSR and MLR under this track. We 

believe that setting the MSR and MLR 

at this level would offer greater 

predictability, which may attract more 

ACOs to participate in Track 3. In 

addition, as we discussed in the 

November 2011 final rule (76 FR 67929), 

the requirement that ACOs repay shared 

losses offers additional protection to the 

Medicare Trust Funds, which allows for 

the application of a lower, fixed MSR. 

Accordingly, we propose to apply the 

same fixed 2 percent MSR and MLR that 

currently apply to Track 2 ACOs to 

ACOs that elect to participate in Track 

3. This proposal is reflected in 

paragraph (b) of the proposed new 

regulation at § 425.610. We seek 

comments on this proposal. 

Although we are proposing to apply a 

fixed MSR and MLR of 2 percent under 

Track 3, we also considered other 

options for establishing the MSR and 

MLR for Track 3 ACOs, including an 

option that would remove the MSR and 

MLR entirely. Under this option, ACOs 

would be subject to normal variation 

around their benchmark so that they 

would be held responsible for all losses 

when performance year expenditures 

were above the benchmark in addition 

to sharing in any savings if performance 

year expenditures fell below the 

benchmark. Another option could be to 

set both the MSR and MLR to 1 percent 

instead of 2 percent. This would serve 

to increase both risk of sharing losses 

and savings, but not as much as doing 

away with the MSR and MLR entirely. 

We specifically seek comment on 

whether it would be desirable to remove 

the MSR and MLR entirely under Track 

3 as well as alternative levels at which 

to set the MSR and MLR for ACOs 

participating under Track 3. We will 

consider comments that are received 

regarding these alternatives in 

determining the final MSR and MLR 

that would apply under Track 3. 

4. Seeking Comment on Ways To 

Encourage ACO Participation in 

Performance-Based Risk Arrangements 

We are encouraged by stakeholder 

interest in the Shared Savings Program. 

Since implementation of the Shared 

Savings Program in 2012, there are now 

more than 330 organizations 

participating. Based on the initial 

experience we have gained with the 

Shared Savings Program, however, we 

believe ACOs are very reluctant to 

accept two-sided performance-based 

risk arrangements in which ACOs 

would share in both Medicare savings 

and losses because only a small number 

of ACOs have agreed to participate in 

the Shared Savings Program under 

Track 2, which provides for two-sided 

performance-based risk. Ninety-eight 

percent of the ACOs participating in the 

Shared Savings Program have elected to 

participate under Track 1 (shared 

savings only). We believe that under a 

two-sided performance-based risk 

model, ACOs have much stronger 

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incentives to achieve high quality and to 

avoid unnecessary costs, which is why 

we are proposing Track 3 as a possibly 

more attractive alternative to Track 2. 

The incentive for ACOs to achieve high 

quality and avoid unnecessary costs 

under a two-sided performance-based 

risk model is supported by the impact 

analyses performed by the CMS actuary 

provided in section V. of this proposed 

rule. Accordingly, in order for the 

Shared Savings Program to be effective 

and sustainable over the long term, we 

believe we may need to further 

strengthen our efforts to transition the 

Shared Savings Program to a two-sided 

performance-based risk program in 

which ACOs would share in both 

Medicare savings and losses. 

We received a wide range of 

suggestions from ACOs, the Brookings 

Institution, MedPAC, and other 

stakeholders of ways to improve the 

Shared Savings Program and to address 

ACO concerns that they believe are 

essential to the longer term success of 

the program. The Brookings Institution 

has identified a number of critical issues 

that warrant further discussion and 

consideration for ensuring the 

continued success of ACOs in the 

Medicare Program. See ‘‘Issue Brief: 

How to Improve the Medicare 

Accountable Care Organization (ACO) 

Program’’ at: http://www.brookings.edu/ 

∼/media/research/files/papers/2014/06/

16%20medicare%20aco%20

challenges%20and%20alternatives/

2%20mcclellan%20et%

20al%20%20medicare%

20aco%20program%2062014.pdf. 

In a June 16, 2014 letter to CMS 

(http://www.medpac.gov/documents/

06162014_ACO_issue_letter_2014_

COMMENT.pdf), MedPAC raises several 

issues for consideration in connection 

with CMS ACO models in the short and 

long term. MedPAC indicates that ACOs 

represent an opportunity to transform 

the delivery system, but MedPAC 

believes that realizing that opportunity 

would require providers to change their 

practices and take a risk on this new 

payment system, and that we would 

need to be flexible and responsive as the 

program evolves. MedPAC’s 

recommendations are based on 

discussions with representatives from 

many ACOs, structured interviews and 

case studies with Pioneer ACOs, 

analysis of early data on ACO 

performance, and reviewing progress 

with CMS staff. MedPAC reports that 

many ACO providers/suppliers who 

they have spoken with have patients in 

both MA plans and FFS Medicare. 

Under MA, providers can furnish 

services and use techniques that are not 

available under FFS Medicare or, by 

extension, under the current rules 

governing the Shared Savings Program. 

For example, pursuant to section 1861(i) 

of the Act, FFS Medicare requires a 3- 

day inpatient hospital stay before a SNF 

services will be covered under Medicare 

Part A, but MA plans can offer a waiver 

of the 3 day prior inpatient 

hospitalization requirement as a 

supplemental benefit. ACOs have 

indicated that they like the flexibility 

that capitated payments would give 

them to redesign care and benefits to 

meet the needs of their patient 

populations. 

Under the current Medicare FFS 

system, providers have a financial 

incentive to increase their volume of 

services. As a result, many current 

Medicare regulations are designed to 

prevent overuse of services and the 

resulting increase in Medicare spending 

in this context. In brief, MedPAC 

believes that moving to two-sided 

performance-based risk under the 

Shared Savings Program would provide 

strong incentives for organizations to 

control costs, which should, in turn, 

open up the opportunity for regulatory 

relief across a broad range of issues. 

Removing certain regulatory 

requirements may provide ACOs with 

additional flexibility to innovate further, 

which could in turn lead to even greater 

cost savings. These views are supported 

by analyses performed by CMS actuaries 

that suggest two-sided performancebased risk provides stronger incentives 

for ACOs to achieve savings. Thus, 

ACOs and MedPAC have encouraged us 

to consider relaxing certain specific FFS 

Medicare payment and other rules 

under two-sided performance-based risk 

models in the Shared Savings Program. 

In the sections that follow, we solicit 

comment on several options that are 

currently under consideration for 

inclusion in the Shared Savings 

Program. We first consider options that 

would implicate the waiver authority 

under section 1899(f) of the Act and 

then consider other options that could 

be implemented independent of waiver 

authority. Although we are not 

specifically proposing these options at 

this time, we will consider the 

comments that are received regarding 

these options during the development of 

the final rule, and may consider 

adopting one or more of these options 

in the final rule. 

a. Payment Requirements and Other 

Program Requirements That May Need 

To Be Waived in Order To Carry Out the 

Shared Savings Program 

As noted previously, few 

organizations have chosen to participate 

in the Shared Savings Program under 

two-sided performance-based risk. In 

addition to the elements designed to 

enhance participation in a two-sided 

performance-based risk track under the 

proposed new Track 3, we believe it 

may be necessary and appropriate to 

provide for additional program 

flexibilities to increase ACOs’ 

willingness to participate in the Shared 

Savings Program under two-sided 

performance-based risk arrangements to 

increase quality and decrease cost 

growth. These possible additional 

flexibilities could include use of our 

waiver authority to waive certain 

Medicare Program rules under section 

1899(f) of the Act, which provides 

authority for the Secretary to waive 

‘‘such requirements of . . . title XVIII of 

this Act as may be necessary to carry out 

the provisions of this section.’’ This 

provision affords broad authority for the 

Secretary to waive statutory program 

requirements as necessary to carry out 

the provisions of section 1899 of the 

Act. In order to waive FFS payment or 

other program rules, the waiver must be 

determined to be necessary for CMS to 

carry out the provisions of section 1899 

of the Act, which govern the Shared 

Savings Program. (The authority at 

section 1899(f) of the Act has been used 

by the Office of Inspector General and 

CMS to issue an interim final rule with 

comment period setting forth waivers of 

certain fraud and abuse authorities (76 

FR 67992), which was published 

concurrently with the November 2011 

final rule establishing the Shared 

Savings Program. This rulemaking does 

not address fraud and abuse waivers, 

and we are not soliciting comment on 

such waivers.) 

As noted previously, we are 

encouraged by the robust participation 

of organizations under the one-sided 

model of the Shared Savings Program. 

However, we continue to believe that 

the long term effectiveness and 

sustainability of the program depend on 

encouraging ACOs to progress along the 

performance-based risk continuum. 

Given the very limited ACO interest 

thus far in two-sided performance-based 

risk, and the comments and suggestions 

by stakeholders, we now believe that the 

authority under section 1899(f) of the 

Act to waive certain payment or other 

program requirements may be necessary 

to carry out the provisions of the Shared 

Savings Program and to permit effective 

implementation of two-sided 

performance-based risk tracks under the 

program. As discussed previously, on 

the April 2011 proposed rule, both we 

and many commenters believe that 

models where ACOs bear a degree of 

financial risk hold the potential to 

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induce more meaningful systematic 

change than one-sided models. We 

believe that ACOs that bear financial 

risk would have a heightened incentive 

to restrain wasteful spending by their 

ACO participants and ACO providers/

suppliers. This, in turn, may reduce the 

likelihood of over-utilization. In these 

circumstances, waiver of certain 

payment and other programmatic rules 

for ACOs with two-sided risk may be 

appropriate to give providers more 

flexibility under FFS Medicare to 

provide appropriate care for 

beneficiaries. 

We would point out that while we are 

considering these waiver issues under 

the Shared Savings Program, we are also 

actively moving forward with testing 

certain payment rule and other waivers 

as part of models tested by the 

Innovation Center under section 1115A 

of the Act, including the Pioneer ACO 

Model. For example, as explained 

below, we already have a few months of 

data from our initial test of the waiver 

of the SNF 3-day rule under the Pioneer 

ACO Model, and we are in the process 

of testing beneficiary attestation under 

the Pioneer ACO Model. In addition, 

under the demonstration authority in 

section 402 of Public Law 90–248, as 

amended (42 U.S.C. 1395b–1), we 

granted Massachusetts General Hospital 

(MGH) the ability to admit certain 

patients enrolled in its Care 

Management for High Cost Beneficiaries 

Demonstration directly into a SNF 

without a 3-day prior inpatient 

hospitalization, and we intend to release 

a report evaluating this waiver later this 

year. Based on our experience with the 

waiver of the SNF 3-day rule in the MA 

program, and an initial, limited 

assessment of the MGH waiver 

performed by CMS actuaries, we expect 

that the waiver of the SNF 3-day rule 

under the Pioneer ACO Model will 

result in savings for the Medicare Trust 

Funds. 

We are learning from these tests and 

would seek to refine our policies as we 

move forward. Through such testing we 

frequently identify issues that neither 

we nor stakeholders had previously 

identified. Developing and 

implementing such policies in a test 

environment provides an opportunity 

for us to better understand the effects on 

providers, beneficiaries, and Medicare 

as well as to further fine tune the 

operations. 

We welcome comments on possible 

waivers under section 1899(f) of the Act 

of certain Medicare payment or other 

program requirements suggested by 

stakeholders that might be necessary to 

permit effective implementation of twosided performance-based risk in the 

Shared Savings Program. As noted 

previously, we will consider the 

comments that are received during the 

development of the final rule, and in the 

final rule may consider waiving certain 

requirements if we conclude that such 

a waiver is necessary in order to carry 

out the Shared Savings Program. We are 

especially interested in comments 

explaining how such waivers may be 

necessary to encourage ACOs to accept 

performance-based risk arrangements 

under the Shared Savings Program, and 

how such waivers could provide ACOs 

with additional ways to increase quality 

of care and reduce unnecessary costs 

that are not permitted under FFS 

Medicare, but that could be 

appropriately used in the context of an 

ACO model that incorporates two-sided 

performance-based risk. What program 

integrity and beneficiary protection 

risks could be introduced by waivers of 

the payment and program rules 

described later in this section of this 

proposed rule and how could we 

mitigate those risks? Would a waiver of 

these requirements impact notification 

to beneficiaries of participation in the 

Shared Savings Program as required 

under § 425.312? What operational 

issues do ACOs and CMS need to 

consider and what processes would 

ACOs need to have in place to 

implement these alternative payment 

and other program policies? What 

implications would there be for ACO 

infrastructure including IT and other 

systems and processes? What provider 

education would be needed? What other 

issues should be considered when 

making use of waiver authority with 

respect to payment and program rules? 

Should any waivers apply to all twosided performance-based risk tracks or 

should they be limited to a specific twosided risk track? Should waivers be 

available only for those organizations 

willing to take on the greatest 

performance-based risk under the 

Shared Savings Program? For example, 

should waivers be limited to the use of 

organizations participating in Track 3 

because participants in Track 3 would 

agree to be held accountable for up to 

75 percent of shared losses compared to 

participants in Track 2 who would agree 

to be held accountable for up to 60 

percent of shared losses? Should the 

waivers be made available to all 

organizations participating in the 

applicable risk tracks or only to those 

ACOs that have successfully 

participated in the Shared Savings 

Program or another ACO model 

previously? 

We also note that the ability to 

implement any waivers of payment or 

program rules may vary for ACOs 

participating under Track 2 and Track 3 

because of the differences in how 

beneficiaries are assigned to ACOs 

under those Tracks. We are considering 

whether a waiver that applies only to 

beneficiaries assigned to the ACO would 

perhaps be more appropriately 

implemented under a model in which 

there is prospective assignment of 

beneficiaries, such as proposed Track 3. 

Under prospective assignment, 

beneficiaries would be assigned to the 

ACO for the entire performance year, 

and it would thus be clear as to which 

beneficiaries the waiver applied. Having 

clarity as to the beneficiary to which a 

waiver applies may be important for the 

ACO to comply with the conditions of 

the waiver and could also improve 

CMS’ ability to monitor waivers for 

misuse. Another option would be to 

apply the waivers to any FFS 

beneficiary cared for by an eligible ACO. 

Then the waiver could be available to 

all ACOs participating in a two-sided 

risk track, regardless of whether the 

assignment is prospective or 

retrospective. Another option would be 

to apply such waivers to beneficiaries 

that appear on the quarterly lists of 

preliminarily prospectively assigned 

beneficiaries. Under this approach, the 

population for whom the waiver is 

available would likely change from 

quarter to quarter. We seek comment on 

whether any waivers of payment or 

program rules would be more viable 

under proposed Track 3, which includes 

prospective beneficiary assignment, 

versus Track 2 in which beneficiaries 

are assigned using a preliminary 

prospective assignment methodology 

with final retrospective reconciliation. 

Specifically, would a waiver require a 

fully prospective list of assigned 

beneficiaries for the performance year or 

would it be feasible to use a preliminary 

prospective list of beneficiaries that is 

likely to change at the end of the 

performance year? What are the other 

operational issues we should consider? 

Specific payment and program rules 

for which we believe waivers could be 

necessary under the Shared Savings 

Program to support ACO efforts to 

increase quality and decrease costs 

under two-sided performance-based risk 

arrangements and for which we invite 

comments are as follows: 

(1) SNF 3-Day Rule 

The Medicare SNF benefit is for 

beneficiaries who require a short-term 

intensive stay in a SNF, requiring 

skilled nursing and/or skilled 

rehabilitation care. Pursuant to section 

1861(i) of the Act, beneficiaries must 

have a prior inpatient hospital stay of no 

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fewer than 3 consecutive days in order 

to be eligible for Medicare coverage of 

inpatient SNF care. We refer to this as 

the SNF 3-day rule. As discussed 

previously, we believe that the long 

term effectiveness and sustainability of 

the Shared Savings Program depend on 

encouraging ACOs to progress along the 

performance-based risk continuum. 

Given the very limited ACO interest 

thus far in two-sided performance-based 

risk, and the comments and suggestions 

by stakeholders, we now believe that the 

authority under section 1899(f) of the 

Act to waive certain payment or other 

program requirements may be necessary 

to carry out the provisions of the Shared 

Savings Program and to permit effective 

implementation of two-sided 

performance-based risk tracks under the 

program. Models where ACOs bear a 

degree of financial risk hold the 

potential to induce more meaningful 

systematic change. We believe that 

under a two-sided performance-based 

risk ACO model it could be medically 

appropriate and more efficient for some 

patients to receive skilled nursing care 

and or skilled rehabilitation services 

provided at SNFs without a prior 

inpatient hospitalization or with an 

inpatient hospital length of stay of less 

than 3 days. A waiver of this 

requirement could allow ACOs to 

realize cost savings and improve care 

coordination, such that they could be 

more willing to accept two-sided risk, 

which we believe is required to promote 

the long term effectiveness and 

sustainability of the Shared Savings 

Program. 

We note that the SNF 3-day rule has 

been waived or is not a requirement for 

Medicare SNF coverage under a few 

CMS models or programs. For instance, 

the Pioneer ACO Model has recently 

started testing whether a tailored waiver 

of the SNF 3-day rule will enable the 

Pioneer ACOs to improve quality of care 

for a subset of beneficiaries requiring 

skilled nursing and/or skilled 

rehabilitation care while also reducing 

expenditures. ACOs under the Pioneer 

Model are accountable for the total costs 

of care furnished to their assigned 

beneficiary population, and must accept 

performance-based risk in the event that 

costs exceed their benchmark. This type 

of performance-based risk arrangement 

has the potential to mitigate the 

incentive to overuse SNF benefits. MA 

plans already have the flexibility not to 

apply the SNF 3-day rule, and we 

believe this flexibility is appropriate 

because of the financial incentives for 

MA plans, which operate under a 

capitated payment arrangement, to 

control total cost of patient care. As in 

the case of the MA program, the Pioneer 

ACO Model’s use of shared risk 

arrangements is expected to deter 

unnecessary referral of patients to SNFs, 

as Pioneer ACOs are accountable for the 

total cost of care furnished to their 

assigned beneficiaries. While the 

financial incentive to control total cost 

of care in a shared savings model is not 

as great as in a capitated model, all 

Pioneer ACOs are at significant 

performance-based risk for exceeding 

their expenditure benchmarks and are 

clearly focused on reducing total cost of 

care. 

The waiver of the SNF 3-day rule 

under the Pioneer ACO Model went into 

effect on April 7, 2014, for Pioneer 

ACOs that demonstrate through an 

application process that they have the 

capacity and infrastructure to identify 

and manage clinically eligible 

beneficiaries prospectively assigned to 

Pioneer ACOs who may be admitted to 

a SNF without the required 3-day 

inpatient hospital stay. All other 

requirements for coverage of the 

Medicare SNF benefit remain 

unchanged under the Pioneer ACO 

Model. Only beneficiaries that require 

skilled nursing and/or skilled 

rehabilitation care are eligible for SNF 

coverage without a prior 3-day inpatient 

hospitalization under the Pioneer ACO 

Model waiver. All Pioneer ACOs are 

eligible to apply for a waiver of the SNF 

3-day rule for their prospectively 

assigned beneficiaries, but must 

demonstrate that they have the capacity 

to identify and manage patients who 

would be either directly admitted to a 

SNF or admitted to a SNF after an 

inpatient hospitalization of fewer than 3 

days, by describing the staff and 

processes involved in the clinical 

management of these beneficiaries. 

Further, patients eligible for coverage 

of SNF admissions under the terms of 

the waiver include only FFS Medicare 

beneficiaries prospectively aligned to a 

Pioneer ACO who do not reside in 

nursing homes for long-term custodial 

care at the time of the decision to admit 

to a SNF. Patients must be medically 

stable, have certain and confirmed 

diagnoses and thus not require 

additional diagnostic testing, not require 

an inpatient evaluation or treatment, 

and have a skilled nursing or 

rehabilitation need that could not be 

provided as an outpatient. Eligible 

beneficiaries must be admitted to SNFs 

at the direction of admitting Pioneer 

providers/suppliers and not at the 

direction of SNFs or non-Pioneer 

providers/suppliers. Pioneer ACOs are 

required to submit to CMS for approval 

a SNF or group of SNFs with which they 

wish to partner for purposes of this 

waiver. The designated SNFs must have 

the appropriate staff capacity and 

necessary infrastructure to carry out the 

activities proposed in the Pioneer ACO’s 

application. The SNF may be, but is not 

required to be, a Pioneer provider/

supplier. The SNF must also have, at the 

time of application submission, a 

quality rating of 3 or more stars under 

the CMS 5-Star Quality Rating System 

as reported on the Nursing Home 

Compare Web site. Commenters suggest 

that a similar waiver of the SNF 3-day 

rule would be appropriate for certain 

ACOs under the Shared Savings 

Program. When Congress enacted the 

original Medicare legislation in 1965, it 

created SNF coverage as a less 

expensive alternative to what would 

otherwise be the final, convalescent 

portion of a beneficiary’s inpatient 

hospital stay. Accordingly, the Medicare 

SNF benefit was narrowly focused on 

‘‘post-hospital extended care’’ to serve 

as a relatively brief and skilled 

‘‘extension’’ of an acute care stay in a 

hospital. Thus, the requirement for a 

prior 3-day qualifying stay in an 

inpatient hospital was included to 

effectively target the limited population 

that the SNF benefit was designed to 

cover: Beneficiaries who require a shortterm, intensive stay in a SNF, requiring 

skilled care. 

Because of changes in medical care 

over the half century since enactment of 

the original Medicare legislation, it may 

now be medically appropriate for some 

patients to receive skilled nursing care 

and or rehabilitation services provided 

by SNFs without a prior inpatient 

hospitalization, or with an inpatient 

hospital length of stay of less than 3 

days. It may be medically appropriate 

for patients to go to SNFs earlier, due to 

changes in medical care, given that 

hospital lengths of stay are shorter than 

they were decades ago, and the types of 

patients that were staying 3 days in an 

inpatient hospital in 1965 are no longer 

staying 3 days in an inpatient hospital 

now. Because of this, over time, we have 

repeatedly expressed interest in testing 

alternatives to the SNF 3-day rule. We 

have found that financial incentives 

need to properly align so that the 

appropriate patients receive SNF care. 

That is, we believe care must be 

coordinated in a manner that allows for 

control of total patient cost and 

mitigates the incentive to overutilize the 

SNF benefit. If alternatives to the SNF 

3-day rule were to be implemented, we 

believe that most treatment would 

continue to be appropriately furnished 

in a hospital, either on an inpatient or 

outpatient basis, rather than furnished 

at a SNF. Therefore, we do not believe 

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that application of such a waiver should 

result in overutilization of SNF care at 

the expense of appropriate acute 

hospital care. We would also note that 

under a model of accountability for total 

costs of care for assigned beneficiaries 

such as the Pioneer ACO Model or a 

two-sided risk track under the Shared 

Savings Program, the greatest savings 

would most likely be achieved by 

permitting the elimination, where 

appropriate, of the entire prior hospital 

stay (and therefore the hospital DRG 

payment) and improving quality of care 

for patients who can instead receive 

appropriate care through direct 

admission to a SNF. Permitting a 

shortened (less than 3 days) inpatient 

hospital stay prior to SNF admission 

would not necessarily produce 

significant savings to the Medicare Trust 

Funds, as Medicare would still pay the 

applicable MS–DRG amount to the 

hospital. Commenters, however, 

suggested that allowing ACOs to 

carefully identify beneficiaries with a 

prior hospital stay of less than 3 days, 

for whom SNF care would be clinically 

appropriate, could still produce cost 

savings for hospitals that improve their 

financial performance, and could 

contribute to ACOs’ success and 

continued participation in the Shared 

Savings Program. 

We believe it could be necessary to 

waive the SNF 3-day rule for ACOs 

participating under a two-sided risk 

track in the Shared Savings Program 

because the financial incentives for such 

ACOs to control total patient costs for 

their prospectively assigned 

beneficiaries are arguably similar to 

certain incentives that currently exist 

for MA plans and Pioneer ACOs. If we 

were to conclude that a waiver of the 

requirement for a prior 3-day qualifying 

stay in an inpatient hospital under 

waiver authority in section 1899(f) of 

the Act is necessary for purposes of 

implementing two-sided performancebased risk models under the Shared 

Savings Program, we would likely 

initially limit this waiver to ACO 

participants and ACO providers/

suppliers under proposed Track 3. 

Under Track 3 beneficiaries would be 

prospectively assigned to the ACO for 

the entire year and it would thus be 

clear as to which beneficiaries the 

waiver applied. In addition, under 

Track 3 as proposed, organizations 

would agree to be held accountable for 

up to 75 percent of any losses compared 

to organizations participating under 

Track 2 who agree to be held 

accountable for up to 60 percent of any 

losses. Since a few organizations have 

been willing to participant under Track 

2 without waivers, this may represent 

the limit of risk organizations are 

willing to take on without waiving the 

SNF 3-day rule. As mentioned 

previously, we believe a prospective 

assignment approach creates a potential 

pathway for improving the appropriate 

use of waivers by ACOs and a method 

for CMS to monitor its use, in addition 

to offering a higher sharing rate. For 

these reasons, we believe Track 3 may 

make it a better candidate for these 

waivers than Track 2. However, we seek 

comment on whether such a waiver 

should apply to all performance-based 

risk tracks. Another option would be to 

allow the waiver to apply to any FFS 

beneficiary cared for by the ACO and 

then the waiver could be available to all 

ACOs participating in a two-sided risk 

track, regardless of whether assignment 

is prospective or retrospective. Another 

option would be to apply any waiver to 

beneficiaries that appear on the 

quarterly lists of preliminarily 

prospectively assigned beneficiaries. In 

this case, the beneficiaries to whom the 

waiver applies would likely change 

from quarter to quarter. We anticipate 

that we would offer the opportunity to 

apply for such a waiver to ACOs using 

a framework similar to the one currently 

being tested under the Pioneer ACO 

Model, with appropriate revisions as 

necessary to accommodate the 

differences in beneficiary assignment 

methodology, as needed. 

Under such a waiver, ACOs would be 

required to submit to CMS for approval 

of a SNF or group of SNFs with which 

they wish to partner. The designated 

SNFs must have the appropriate staff 

capacity and necessary infrastructure to 

carry out the activities described in the 

ACO’s application for the waiver. The 

SNF would likely be required to be an 

ACO participant or ACO provider/

supplier. We believe it would be 

appropriate to limit such a waiver to 

SNFs that are ACO participants or ACO 

providers/suppliers, because we believe 

these entities would have incentives 

that are most directly aligned with those 

of the ACO. ACOs also have stronger 

control and oversight over such entities 

because such entities are subject to 

Shared Savings Program requirements. 

Under such a waiver, we would 

anticipate establishing additional 

requirements to ensure program 

transparency and help reduce the 

possibility for abuse of the waiver. For 

example, we would anticipate requiring 

ACOs to indicate their intent to use the 

waiver as part of their applications or 

requests for renewal of their 

participation agreement, and remain in 

compliance with program rules. To 

further substantiate an ACO’s intent to 

use the waiver, we anticipate requiring 

that the ACO submits as part of its 

application documentation showing that 

its governing body has made and duly 

authorized a bona fide determination 

that the ACO will use the waiver (if 

approved by CMS) and will comply 

with all requirements of the waiver. As 

part of its application for the waiver, we 

would require the ACO to submit a 

written plan describing how it would 

use the waiver to meet the clinical 

needs of its assigned beneficiaries. We 

would reserve the right to deny or 

revoke a waiver to an ACO if it is not 

in compliance with requirements under 

the Shared Savings Program, if it does 

not use the waiver as described in its 

application, or if it does not successfully 

meet the quality reporting standard. 

ACOs with approved waivers would be 

required to post their use of the waivers 

as part of public reporting (see 

§ 425.308) on the dedicated ACO Web 

page. Use of the waiver and its 

authorization by the governing body 

would be required to be documented 

and the documentation retained, 

consistent with § 425.314. We would 

anticipate that any waiver would be 

effective on the start date of the ACO’s 

participation agreement and would not 

extend beyond the end of the ACO’s 

participation in the Shared Savings 

Program. However, if CMS terminates 

the participation agreement, then the 

waiver would end on the date of the 

termination notice. We also reserve the 

authority to withdraw the waiver in the 

event we determine that there has been 

an abuse of the waiver. The proposed 

payment waivers would not protect 

financial arrangements between ACOs, 

ACO participants, ACOs providers/

suppliers, or other individuals or 

entities providing services to ACO 

patients from liability under the fraud 

and abuse laws or any other applicable 

laws. 

We note that we would retain the 

right to monitor and audit the use of 

such waivers. We would anticipate 

implementing heightened monitoring of 

entities that bill under payment waivers 

to help reduce the possibility for abuse 

of the waiver. We seek comment on 

what specific activities should be 

monitored to ensure that items and 

services are properly delivered to 

eligible patients, that patients are not 

being discharged prematurely to SNFs, 

and that patients are able to exercise 

freedom of choice and are not being 

steered inappropriately. We would also 

likely consider monitoring ACOs’ 

marketing of services subject to payment 

waivers to prevent coercive or 

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misleading marketing and to assess the 

effect on the delivery of care. 

We invite comments on whether it is 

necessary to provide for a waiver of the 

SNF 3-day rule using our authority 

under Section 1899(f) of the Act for 

ACOs that choose to participate in the 

Shared Savings Program under twosided performance-based risk financial 

arrangements. If so, what criteria would 

be appropriate to determine waiver 

eligibility under the Shared Savings 

Program? We note that any waiver 

under the Shared Savings Program for 

this purpose would have to be 

implemented consistently across all 

eligible ACOs. In other words, 

application of the waiver would be 

uniformly applied, and there would not 

be customization of the waiver or 

conditions for the waiver for particular 

eligible ACOs. With this in mind, would 

it be appropriate to apply the same 

criteria discussed earlier that are 

currently being used under the Pioneer 

ACO Model? If not, how would the 

criteria have to be modified? What 

assurances should ACOs have to make 

in order to be eligible to use the waiver? 

Are there current Shared Savings 

Program rules and requirements that 

would have to be modified to permit 

this waiver? Should we require that a 

beneficiary be admitted to a SNF that is 

an ACO participant or ACO provider/

supplier in order for the waiver to 

apply? We invite comment on whether 

or not the SNF should be required to be 

an ACO provider/supplier. Would a 

waiver under certain conditions create 

any unexpected concerns about access 

to SNF services for the patients who 

need them most (that is, those 

beneficiaries admitted following a 3-day 

or longer hospital stay). Would a waiver 

of the SNF 3-day rule align with our 

policy of including primary care 

services furnished in SNFs in the 

beneficiary assignment process? Would 

the ACO quality measures such as the 

new Skilled Nursing Facility 30-Day 

All-Cause Readmission Measure (79 FR 

67910) and the other measures used in 

establishing the quality performance 

standards that ACOs must meet in order 

to be eligible for shared savings provide 

sufficient beneficiary protections from 

inappropriate care or withheld care? Are 

there other quality standards that 

should apply to ACOs or post-acute care 

facilities that use this waiver? What 

other monitoring activities should be 

considered to guard against unintended 

consequences of a waiver of the SNF 3- 

day rule? What other criteria, 

operational issues or other concerns 

should we consider? We invite 

comment on these issues. 

(2) Billing and Payment for Telehealth 

Services 

Under section 1834(m) of the Act, 

Medicare pays for telehealth services 

furnished by a physician or practitioner 

under certain conditions even though 

the physician or practitioner is not in 

the same location as the beneficiary. 

The telehealth services must be 

furnished to a beneficiary located in one 

of the eight types of originating sites 

specified in section 1834(m)(4)(C)(ii) of 

the Act and the site must satisfy at least 

one of the requirements of section 

1834(m)(4)(C)(i)(I) through (III) of the 

Act. Generally, for Medicare payment to 

be made for telehealth services under 

the Physician Fee Schedule several 

conditions must be met (§ 410.78(b)). 

Specifically, the service must be on the 

Medicare list of telehealth services and 

meet all of the following other 

requirements for payment: 

• The service must be furnished via 

an interactive telecommunications 

system. 

• The service must be furnished to an 

eligible telehealth individual. 

• The individual receiving the 

services must be in an eligible 

originating site. 

When all of these conditions are met, 

Medicare pays a facility fee to the 

originating site and provides separate 

payment to the distant site practitioner 

for the service. 

Section 1834(m)(4)(F)(i) of the Act 

defines Medicare telehealth services to 

include professional consultations, 

office visits, office psychiatry services, 

and any additional service specified by 

the Secretary, when furnished via a 

telecommunications system. For the list 

of Medicare telehealth services, see the 

CMS Web site at www.cms.gov/

teleheath/. Under section 

1834(m)(4)(F)(ii) of the Act, CMS has an 

annual process to consider additions to 

and deletions from the list of telehealth 

services. CMS does not include any 

services as telehealth services when 

Medicare does not otherwise make a 

separate payment for them. 

We also note that a number of CMS 

demonstrations include or have 

included testing of interventions that 

use electronic health records, remote 

monitoring, and mobile diagnostic 

technology as part of strategies to 

increase quality of care and decrease 

costs. For example, for the Medicare 

Health Support Programs (see https://

www.cms.gov/Medicare/MedicareGeneral-Information/CCIP/index.html), 

participants utilized a variety of 

telephonic care management services 

and related interventions. These 

services included nurse-based health 

advice for the management and 

monitoring of symptoms, health 

education (via health information, 

videos, online information), health 

coaching to encourage self-care and selfmanagement of chronic health 

conditions and medications, and health 

promotion and disease prevention 

coaching. Likewise, under the 

Independence at Home Demonstration, 

physician and nurse practitioner 

directed home-based primary care teams 

use electronic health records, remote 

monitoring, and mobile diagnostic 

technology to help reduce expenditures 

and improve health outcomes for 

Medicare beneficiaries with multiple 

chronic conditions (see CMS Web site at 

http://www.cms.gov/Medicare/

Demonstration-Projects/

DemoProjectsEvalRpts/MedicareDemonstrations-Items/

CMS1240082.html). 

As discussed previously in section 

II.B.8.a of this proposed rule, section 

1899(b)(2)(G) of the Act requires a 

Shared Savings Program ACO to ‘‘define 

processes to . . . coordinate care, such 

as through the use of telehealth, remote 

patient monitoring, and other such 

enabling technologies.’’ Commenters 

suggest that technologies that enable 

health care providers to deliver care to 

patients in locations remote from 

providers are being increasingly used to 

complement face-to-face patientprovider encounters in both urban and 

rural areas. In these cases, the use of 

remote access technologies may 

improve the accessibility and timeliness 

of needed care, increase communication 

between providers and patients, 

enhance care coordination, and improve 

the efficiency of care. ACOs and other 

commenters have suggested that a 

waiver of certain Medicare telemedicine 

payment requirements would help 

encourage a broader range of ACOs to 

more fully utilize telehealth, remote 

patient monitoring, and other such 

enabling technologies. 

We note that certain professional 

services that are commonly furnished 

remotely using telecommunications 

technology are paid under the same 

conditions as in-person physicians’ 

services, and thus do not require a 

waiver. Such services that do not 

require the patient to be present in 

person with the practitioner when they 

are furnished are covered and paid in 

the same way as services delivered 

without the use of telecommunications 

technology when the practitioner is inperson at the medical facility furnishing 

care to the patient. Such services 

typically involve circumstances where a 

practitioner is able to visualize some 

aspect of the patient’s condition without 

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the patient being present and without 

the interposition of a third person’s 

judgment. Visualization by the 

practitioner can be possible by means of 

x-rays, electrocardiogram or 

electroencephalogram tracings, tissue 

samples, etc. For example, the 

interpretation by a physician of an 

actual electrocardiogram or 

electroencephalogram tracing that has 

been transmitted via telephone (that is, 

electronically, rather than by means of 

a verbal description) is a covered 

physician’s service. These remote 

services are not Medicare telehealth 

services as defined under section 

1834(m)(4)(F)(i) of the Act. Rather, these 

remote services that utilize 

telecommunications technology are 

considered physicians’ services in the 

same way as services that are furnished 

in person without the use of 

telecommunications technology, and 

they are paid under the same conditions 

as in-person physicians’ services, with 

no requirements regarding permissible 

originating sites. 

A waiver of certain Medicare 

telehealth requirements could be 

supported by section 1899(b)(2)(G) of 

the Act in that it gives the use of 

enabling technologies, such as 

telehealth, as an example of a process to 

coordinate care, and the statute does not 

limit ACOs to being in rural or shortage 

areas where Medicare payment is 

available for telehealth services. As we 

indicated in section II.B.8.a. of this 

proposed rule, we welcome information 

from ACOs and other stakeholders about 

the use of such technologies to 

coordinate care for assigned 

beneficiaries. If we conclude that a 

waiver of certain telehealth 

requirements under section 1899(f) of 

the Act is necessary in order to carry out 

the Shared Savings Program, we would 

likely provide for a waiver of the 

originating site requirements of section 

1834(m)(4)(C)(i)(I) through (III) of the 

Act that limit telehealth payment to 

services furnished within specific types 

of geographic areas or in an entity 

participating in a Federal telemedicine 

demonstration project approved as of 

December 31, 2000, and would also 

likely provide for a waiver of the 

originating site requirements of section 

1834(m)(4)(C)(ii)(I) through (VIII) of the 

Act that specify the particular sites at 

which the eligible telehealth individual 

must be located at the time the service 

is furnished via a telecommunications 

system. Waiver of this requirement 

could allow ACOs to realize cost savings 

and improve care coordination, such 

that they would more willing to take on 

two-sided risk which we believe is 

required to promote the long term 

effectiveness and sustainability of the 

Shared Savings Program. 

If we were to implement a waiver 

then we believe it would be appropriate 

to limit the use of such waivers to 

beneficiaries that are assigned to the 

ACO during the applicable performance 

year. We believe this would be best 

accomplished by permitting ACOs to 

use these waivers when they have a 

prospectively assigned population. In 

other words, the waivers would be 

limited to ACOs participating in Track 

3. Prospectively assigned beneficiaries 

under Track 3 would be assigned to the 

ACO for the entire year and it would 

thus be clear to ACOs and CMS as to the 

beneficiaries for which a waiver 

applied. As mentioned previously, we 

believe a prospective assignment 

approach creates a potential pathway for 

improving the appropriate use of 

waivers by ACOs and a method for CMS 

to monitor its use. In addition, under 

Track 3 there would be greater 

opportunity for risk. For these reasons, 

we believe that Track 3 is potentially a 

better candidate for such a waiver than 

Track 2. However, we seek comment on 

whether these waivers should apply to 

all two-sided performance-based risk 

tracks. Another option would be for the 

waivers would apply to any FFS 

beneficiary cared for by an ACO and 

then the waiver could be available to 

ACOs participating in any two-sided 

risk track, regardless of whether the 

assignment is prospective or 

retrospective. Another option would be 

to apply such waivers to beneficiaries 

that appear on the quarterly lists of 

preliminarily prospectively assigned 

beneficiaries. Under this approach, the 

population for whom the waiver is 

available would likely change from 

quarter to quarter. 

Under a waiver of the telehealth 

requirements, we would anticipate 

establishing additional requirements to 

ensure program transparency and help 

reduce the possibility for abuse of the 

waiver. For example, we would 

anticipate requiring ACOs to indicate 

their intent to use the waiver in a form 

and manner specified by CMS, as part 

of either their applications or requests 

for renewal of their participation 

agreement, and to remain in compliance 

with program rules. To further 

substantiate an ACO’s intent to use the 

waiver, we anticipate requiring that the 

ACO submit as part of its application 

documentation showing that its 

governing body has made and duly 

authorized a bona fide determination 

that the ACO will use the waiver (if 

approved by CMS) and will comply 

with all requirements of the waiver. As 

part of its application for the waiver, we 

would require the ACO to submit a 

written plan describing how it would 

use the waiver to meet the clinical 

needs of its assigned beneficiaries. We 

would reserve the right to deny or 

revoke a waiver to an ACO if it is not 

in compliance with requirements under 

the Shared Savings Program, if it does 

not use the waiver as described in its 

application, or if it does not successfully 

meet the quality reporting standard. 

ACOs with approved waivers would be 

required to post their use of the waivers 

as part of public reporting (see 

§ 425.308) on the dedicated ACO Web 

page. Use of the waiver and its 

authorization by the governing body 

would be required to be documented, 

and the documentation retained, 

consistent with § 425.314. We would 

anticipate that any waiver would be 

effective on the start date of the ACO’s 

participation agreement and would not 

extend beyond the end of the ACO’s 

participation in the Shared Savings 

Program. However, if CMS terminates 

the participation agreement, then the 

waiver would end on the date of the 

termination notice. We also reserve the 

authority to withdraw the waiver in the 

event we determine that there has been 

an abuse of the waiver. The proposed 

payment waivers would not protect 

financial arrangements between ACOs, 

ACO participants, ACOs providers/

suppliers, or other individuals or 

entities providing services to ACO 

patients from liability under the fraud 

and abuse laws or any other applicable 

laws. 

We note that we would retain the 

right to monitor and audit the use of 

such waivers. We would anticipate 

implementing heightened monitoring of 

entities that bill under payment waivers 

to help reduce the possibility for abuse 

of the waiver. We seek comment on 

what specific activities should be 

monitored to ensure that items and 

services are properly delivered to 

eligible patients. We would also likely 

consider monitoring ACOs’ marketing of 

services subject to payment waivers to 

prevent coercive or misleading 

marketing and to assess the effect on the 

delivery of care. 

In addition to welcoming comments 

related to the questions we raised in 

section II.B.8.a of this proposed rule, we 

also welcome specific comments on 

whether it is necessary to use our 

authority under Section 1899(f) of the 

Act to provide for a waiver for ACOs 

participating in the Shared Savings 

Program of any Medicare telehealth 

rules, especially for those ACOs that 

have elected to participate under a twosided performance-based risk 

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arrangement. We seek comment on the 

telehealth rules that would require a 

waiver and the circumstances under 

which a waiver would be necessary. 

Specifically, what aspects of current 

Medicare telehealth payment and other 

rules would it be necessary to waive in 

order to effectively incorporate twosided performance-based risk into the 

Shared Savings Program? What factors 

should CMS consider if it were to 

provide for such a waiver to allow ACOs 

additional flexibility to provide a 

broader range of telehealth services or 

services in a broader range of geographic 

areas? Also, how should telehealth be 

defined? While ‘‘telehealth’’ is not 

consistently defined across payers, 

‘‘telehealth’’ typically refers to a broader 

set of services, including ‘‘store and 

forward’’ services, which are not 

currently covered by Medicare outside 

of demonstration projects. Under what 

circumstances should payment for 

telehealth and related services be made? 

What types of services should be 

included—remote monitoring, remote 

visits and/or e-consults? What 

capabilities or additional criteria should 

ACOs meet in order to qualify for 

payments for telehealth services under 

such a waiver? In your comments, 

please consider quality and outcomes 

metrics, other requirements to ensure 

protection of beneficiaries and the 

Medicare Trust Funds, and any other 

design factors you think may be 

important. 

(3) Homebound Requirement Under the 

Home Health Benefit 

In order for Medicare to pay for home 

health services, a beneficiary must be 

determined to be ‘‘home-bound.’’ 

Specifically, sections 1835(a) and 

1814(a) of the Act require that a 

physician certify (and recertify) that in 

the case of home health services under 

the Medicare home health benefit, such 

services are or were required because 

the individual is or was ‘‘confined to the 

home’’ and needs or needed skilled 

nursing care on an intermittent basis, or 

physical or speech therapy or has or had 

a continuing need for occupational 

therapy. A beneficiary is considered to 

be confined to the home if the 

beneficiary has a condition, due to an 

illness or injury, that restricts his or her 

ability to leave home except with the 

assistance of another individual or the 

aid of a supportive device (such as 

crutches, a cane, a wheelchair, or a 

walker), or if the beneficiary has a 

condition such that leaving his or her 

home is medically contraindicated. 

While a beneficiary does not have to be 

bedridden to be considered confined to 

the home, the condition of the 

beneficiary must be such that there 

exists a normal inability to leave home 

and leaving home requires a 

considerable and taxing effort by the 

beneficiary. Absent this condition, it 

would be expected that the beneficiary 

could typically get the same services in 

an outpatient or other setting. Thus, the 

homebound requirement provides a way 

to help differentiate between patients 

that require medical care at home versus 

patients who could more appropriately 

receive care in a less costly outpatient 

setting. Additional information 

regarding the homebound requirement 

is available in the Medicare Benefit 

Manual (Pub 100–02); Chapter 7, ‘‘Home 

Health Services’’, Section 30.1.1, 

‘‘Patient Confined to the Home’’. 

Some ACOs and other commenters 

have suggested that a waiver of this 

requirement would be appropriate 

under the Shared Savings Program, 

especially for ACOs that have elected to 

participate under a two-sided 

performance-based risk arrangement. 

They suggest that home health care 

would be appropriate for additional 

beneficiaries and could result in lower 

overall costs of care in some instances. 

For example, commenters suggest, based 

on their experiences outside of the 

Medicare FFS program, that if a 

beneficiary is allowed to have home 

health care visits, even if the beneficiary 

is not considered home-bound, the 

beneficiary may avoid a hospital 

admission. 

If we conclude that a waiver of the 

homebound requirement under section 

1899(f) of the Act is necessary in order 

to carry out the Shared Savings 

Program, we would expect to offer the 

opportunity to provide home health 

services to additional beneficiaries to 

ACOs participating under Track 3 using 

a process similar to the approach we 

discussed above for a waiver of the SNF 

3-day rule for ACOs in Track 3. 

Specifically, ACOs participating under 

Track 3 have a significant financial 

incentive to control total patient costs. 

In addition, under Track 3 beneficiaries 

would be prospectively assigned to the 

ACO for the entire year, and it would 

thus be clear as to which beneficiaries 

the waiver applied. As mentioned 

previously, we believe a prospective 

assignment approach creates a potential 

pathway for improving the appropriate 

use of waivers by ACOs and a method 

for CMS to monitor its use. In addition, 

under Track 3 there would be greater 

opportunity for risk. For these reasons, 

we believe that Track 3 is potentially 

making a better candidate for such a 

waiver than Track 2. All ACOs 

participating under Track 3 would be 

eligible to apply for a waiver of the 

home-bound requirement for their 

prospectively assigned beneficiaries; 

however, we seek comment on whether 

these waivers should apply to all 

performance-based risk tracks. Another 

option would be that the waivers would 

apply to any FFS beneficiary cared for 

by the ACO and then the waiver could 

be available to all ACOs participating in 

a two-sided risk track, regardless of 

whether assignment is prospective or 

retrospective. Another option would be 

to apply any waiver to beneficiaries that 

appear on the quarterly lists of 

preliminarily prospectively assigned 

beneficiaries. In this case, the 

beneficiaries to whom the waiver 

applies would likely change from 

quarter to quarter. We believe we could 

authorize waiver of the homebound 

requirement under the home health 

benefit for those ACOs that demonstrate 

through the application process or in a 

request for renewal of their participation 

agreement that they have the capacity 

and infrastructure to identify and 

manage clinically beneficiaries who are 

not homebound, but are otherwise 

eligible for services under the home 

health benefit, and would benefit from 

receiving these services. As part of the 

application for the waiver, we would 

expect to require ACOs to describe the 

staff and processes that would be 

involved in the clinical management of 

beneficiaries receiving services pursuant 

to the waiver. All other requirements for 

the Medicare home health benefit would 

remain unchanged. Thus, under such a 

waiver, only beneficiaries that otherwise 

meet all program requirements to 

receive home health services would be 

eligible for coverage of home health 

services without being homebound. 

In addition, we would require that 

home health services provide pursuant 

to the waiver at the direction of an ACO 

provider/supplier that is not a home 

health agency, to help ensure that the 

waiver is used appropriately. The home 

health agency would also likely be 

required to be an ACO provider/

supplier. We believe it would be 

appropriate to limit such a waiver to 

home health agencies that are ACO 

participants or ACO providers/

suppliers, because we believe these 

entities would have incentives that are 

most directly aligned with those of the 

ACO. ACOs also have stronger control 

and oversight over such entities and 

such entities are subject to Shared 

Savings Program requirements. We 

invite comment on whether or not the 

home health agency should be required 

to be an ACO provider/supplier. In 

either case, an ACO would be required 

to submit to CMS for approval the home 

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health agency or group of home health 

agencies with which it wishes to partner 

in providing services pursuant to this 

waiver. The designated home health 

agency or agencies would be required to 

have the appropriate staff capacity and 

necessary infrastructure to carry out the 

processes described in the ACO’s 

application for the waiver. In addition, 

a designated home health agency would 

be required to have, at the time of 

application submission, a quality rating 

of 3 or more stars under the CMS 5-Star 

Quality Rating System as reported on 

the Home Health Compare Web site. 

(For detailed information, see http://

blog.cms.gov/2014/06/18/star-qualityratings-coming-soon-to-compare-siteson-medicare-gov/.) 

Under such a waiver, we would 

anticipate establishing additional 

requirements to ensure program 

transparency and help reduce the 

possibility for abuse of the waiver. For 

example, we would anticipate requiring 

ACOs to indicate their intent to use the 

waiver in a form and manner specified 

by CMS, as part of either their 

applications or requests for renewal of 

their participation agreement, and to 

remain in compliance with program 

rules. To further substantiate an ACO’s 

intent to use the waiver, we anticipate 

requiring that the ACO submit as part of 

its application documentation showing 

that its governing body has made and 

duly authorized a bona fide 

determination that the ACO will use the 

waiver (if approved by CMS) and will 

comply with all requirements of the 

waiver. As part of its application for the 

waiver, we would require the ACO to 

submit a written plan describing how it 

would use the waiver to meet the 

clinical needs of its assigned 

beneficiaries. We would reserve the 

right to deny or revoke a waiver to an 

ACO if it is not in compliance with 

requirements under the Shared Savings 

Program or if it does not successfully 

meet the quality reporting standard. 

ACOs with approved waivers would be 

required to post their use of the waivers 

as part of public reporting (see 

§ 425.308) on the dedicated ACO Web 

page. Use of the waiver and its 

authorization by the governing body 

would be required to be documented, 

and documentation retained, consistent 

with § 425.314. We would anticipate 

that any waiver would be effective on 

the start date of the ACO’s participation 

agreement and would not extend 

beyond the end of the ACO’s 

participation in the Shared Savings 

Program. However, if CMS terminates 

the participation agreement, then the 

waiver would end on the date of the 

termination notice. We would also 

reserve the authority to withdraw the 

waiver in the event we determine that 

there has been an abuse of the waiver. 

The proposed payment waivers would 

not protect financial arrangements 

between ACOs, ACO participants, ACOs 

providers/suppliers, or other 

individuals or entities providing 

services to ACO patients from liability 

under the fraud and abuse laws or any 

other applicable laws. 

We note that we would retain the 

right to monitor and audit the use of 

such waivers. We would anticipate 

implementing heightened monitoring of 

entities that bill under payment waivers 

to help reduce the possibility for abuse 

of the waiver. We seek comment on 

what specific activities should be 

monitored to ensure that items and 

services are properly delivered to 

eligible patients, and that patients are 

able to exercise freedom of choice and 

are not being steered inappropriately. 

We would also likely consider 

monitoring ACOs’ marketing of services 

subject to payment waivers to prevent 

coercive or misleading marketing and to 

assess the effect on the delivery of care. 

We invite comments on whether it is 

necessary to waive the homebound 

requirement under the home health 

benefit using our authority under 

Section 1899(f) of the Act for ACOs that 

choose to participate in the Shared 

Savings Program under two-sided 

performance risk financial 

arrangements. We also welcome 

comments on the potential waiver 

requirements discussed previously. For 

example, what criteria would be 

appropriate to determine eligibility for 

such a waiver under the Shared Savings 

Program? Are there specific categories of 

providers or beneficiaries to whom the 

waiver should (or should not) apply? If 

implemented under a two-sided 

performance-based risk model, are there 

additional protections for the Medicare 

Trust Funds or for beneficiaries that 

should be considered? How would a 

waiver complement Medicare payment 

for physician home visits for medically 

complex patients? What considerations, 

if any, should we take into account 

when adapting current 60-day episode 

payment amounts that require patients 

to be homebound in applying them to 

services furnished to a non-homebound 

population? What quality metrics 

should be incorporated into the quality 

measure framework for ACOs and our 

monitoring program to measure the 

quality of care for non-homebound 

home health recipients? When should 

the waiver be applied? Would there be 

specific circumstances when home 

health services should be available at 

any point without first being triggered 

by some health event? If so, what 

criteria would be necessary to 

differentiate these circumstances from 

non-covered custodial care? What other 

criteria or operational issues or other 

concerns should we also consider? We 

are also concerned that under a 

homebound waiver, beneficiaries may, 

in effect, be steered toward those 

agencies that can provide enhanced 

home health services to patients who 

are not homebound. Any such 

homebound waiver would not override 

Medicare patients’ freedom of choice 

and that beneficiaries would remain free 

to select any eligible home health 

agency. We seek comments on ways to 

ensure that beneficiaries retain their 

freedom of choice in practice under a 

waiver. 

We would also note that the 

Independence at Home (IAH) 

Demonstration builds on existing 

Medicare benefits by providing 

chronically ill patients with a complete 

range of primary care services in the 

home setting. Medical practices led by 

physicians or nurse practitioners 

provide primary care home visits 

tailored to the needs of beneficiaries 

with multiple chronic conditions and 

functional limitations. See the CMS 

Web site at http://innovation.cms.gov/

initiatives/independence-at-home/. How 

could the findings from Independence 

at Home demonstration apply to the 

population of beneficiaries assigned to 

ACOs or receiving care furnished by 

ACO providers/suppliers? 

(4) Waivers for Referrals to Postacute 

Care Settings 

As a condition of participation (CoP) 

in Medicare, a hospital must have in 

effect a discharge planning process that 

applies to all patients, as required under 

§ 482.43. The Interpretative Guidelines 

for this requirement found in the State 

Operations Manual, Publication 100–07, 

Appendix A—Survey Protocol, 

Regulations and Interpretive Guidelines 

for Hospitals, section A–0799, define 

hospital discharge planning as a process 

that involves determining the 

appropriate post-hospital discharge 

destination for a patient; identifying 

what the patient requires for a smooth 

and safe transition from the hospital to 

his or her discharge destination; and 

beginning the process of meeting the 

patient’s identified postdischarge needs. 

Alternative terminology, such as 

‘‘transition planning’’ or ‘‘community 

care transitions’’ is preferred by some, 

since it moves away from a focus 

primarily on a patient’s hospital stay to 

consideration of transitions among the 

multiple types of patient care settings 

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that may be involved at various points 

in the treatment of a given patient. This 

approach recognizes the shared 

responsibility of health care 

professionals and facilities as well as 

patients and their support persons 

throughout the continuum of care, and 

the need to foster better communication 

among the various groups. At the same 

time, the term ‘‘discharge planning’’ is 

used both in section 1861(ee) of the Act 

as well as in § 482.43. 

The discharge planning CoP 

specifically addresses the role of the 

patient, or the patient’s representative, 

by requiring the hospital to develop a 

discharge planning evaluation at the 

patient’s request and to discuss the 

evaluation and plan with the patient. 

This is consistent with the hospital 

patient’s rights CoP regulations at 

§ 482.13(b)(1) and (2), which provide 

that the patient has the right to 

participate in the development and 

implementation of his or her plan of 

care, and to make informed decisions 

regarding his or her care. Accordingly, 

hospitals must actively involve patients 

or their representatives throughout the 

discharge planning process. Further, the 

specific discharge planning evaluation 

requirement to assess a patient’s 

capability for post-discharge self-care 

requires the hospital, as needed, to 

actively solicit information not only 

from the patient or the patient’s 

representative, but also from family, 

friends, or other support persons. The 

hospital must include in the discharge 

plan, when applicable in terms of the 

types of post-discharge care needs 

identified, a list of home health agencies 

(HHAs) or SNFs that are available to the 

patient, that are participating in the 

Medicare program and that serve the 

geographic area (as defined by the HHA) 

in which the patient resides, or in the 

case of a SNF, in the geographic area 

requested by the patient. HHAs must 

request to be listed by the hospital as 

available (see § 482.43(c)(6)) for further 

details). Further, under the CoP 

regulations at § 482.43(c)(7), a hospital, 

as part of the discharge planning 

process, must inform the patient or the 

patient’s family of their freedom to 

choose among participating Medicare 

providers of post-hospital care services 

and must, when possible, respect 

patient and family preferences when 

they are expressed. The hospital must 

not specify or otherwise limit the 

qualified providers that are available to 

the patient. The discharge plan must 

identify any HHA or SNF to which the 

patient is referred in which the hospital 

has a disclosable financial interest, as 

specified by the Secretary, and any HHA 

or SNF that has a disclosable financial 

interest in a hospital under Medicare 

(See § 482.43(c)(8)). 

The State Operations Manual (SOM), 

Appendix A at Section A–0823, 

provides additional guidance for these 

requirements. During the discharge 

planning process the hospital must 

inform the patient of his or her freedom 

to choose among Medicare-participating 

post-hospital providers and must not 

direct the patient to specific provider(s) 

or otherwise limit which qualified 

providers the patient may choose 

among. Hospitals have the flexibility 

either to develop their own lists or to 

print a list of skilled nursing facilities 

and home health agencies in the 

applicable geographic areas from the 

CMS Web sites, Nursing Home Compare 

(www.medicare.gov/NHcompare) and 

Home Health Compare 

(www.medicare.gov/

homehealthcompare). If hospitals 

develop their own lists, they are 

expected to update them at least 

annually (69 FR 49226). Hospitals may 

also refer patients and their families to 

the Nursing Home Compare and Home 

Health Compare Web sites for additional 

information regarding Medicarecertified SNFs and HHAs, as well as 

Medicaid-participating nursing 

facilities. The data on the Nursing Home 

Compare Web site include an overall 

performance rating, nursing home 

characteristics, performance on quality 

measures, inspection results, and 

nursing staff information. 

Home Health Compare provides 

details about every Medicare-certified 

home health agency in the country. 

Included on the Web site are quality 

indicators such as managing daily 

activities, managing pain and treating 

symptoms, treating wounds and 

preventing pressure sores, preventing 

harm, and preventing unplanned 

hospital admissions. The hospital might 

also refer the patient and his or her 

representatives to individual State 

agency Web sites, the Long-Term Care 

Ombudsman Program, Protection and 

Advocacy Organizations, Citizen 

Advocacy Groups, Area Agencies on 

Aging, Centers for Independent Living, 

and Aging and Disability Resource 

Centers for additional information on 

long term care facilities and other types 

of providers of post-hospital care. 

Having access to the information found 

at these sources may assist beneficiaries 

and their families and other caregivers 

in the decision making process 

regarding post-hospital care options. 

When the patient or the patient’s family 

has expressed a preference, the hospital 

must attempt to arrange post-hospital 

care with an HHA or SNF, as applicable, 

consistent with that preference. If the 

hospital is unable to make the preferred 

arrangement, (for example, if there is no 

bed available in the preferred SNF), it 

must document the reason the patient’s 

preference could not be fulfilled and 

explain that reason to the patient. 

ACOs and MedPAC have indicated 

that as ACOs have started to analyze 

claims data on their beneficiaries, they 

are recognizing that certain providers 

may deliver higher-quality and lowercost care than others. For example, some 

SNFs may deliver higher-quality care 

and thus appropriately lower rates of 

readmissions to hospitals. ACOs have 

indicated that they would like to have 

the ability to recommend high-quality 

SNF and HHA providers with whom 

they have established relationships, 

rather than presenting all options 

equally. In particular, ACOs and their 

ACO providers/suppliers would like to 

have the ability to clearly state to 

beneficiaries which providers they 

believe are best and why. However, it is 

not clear to them that they have the 

authority to do so, especially for 

referrals to post-acute care. ACOs 

suggest that the ability to make more 

specific recommendations would enable 

them to build robust networks across 

the continuum of care, and thus help 

them to give beneficiaries as much 

continuity as possible as they move 

across sites of care. Therefore, ACOs 

have asked that we provide clear 

direction on how preferred providers 

can be presented to beneficiaries and 

what represents clear notification of the 

beneficiary’s freedom to choose among 

participating Medicare providers. 

Based on these comments from ACOs 

and MedPAC, we have reviewed the 

relevant statutory provisions, 

regulations, and guidance. While we 

believe these materials make clear the 

requirements regarding how preferred 

providers can be represented to 

beneficiaries and what represents clear 

notification of beneficiary freedom of 

choice of providers, we believe we have 

identified one requirement that might be 

need to be waived. Specifically, we are 

considering whether it might be 

necessary to waive the requirement 

under section 1861(ee)(2)(H) of the Act 

that a hospital ‘‘not specify or otherwise 

limit the qualified provider which may 

provide post-hospital home services’’ 

and the portions of the hospital 

discharge planning CoP at § 482.43 that 

implement this requirement, using our 

waiver authority under Section 1899(f) 

of the Act for ACOs participating in 

two-sided risk tracks under the Shared 

Savings Program. If we were to 

implement such a waiver, we would 

anticipate making it a very narrow 

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waiver. In addition, we are considering 

whether such a waiver would be most 

appropriately implemented under Track 

3 in which there is prospective 

assignment of beneficiaries. Under 

Track 3 beneficiaries would be 

prospectively assigned to the ACO for 

the entire year and it would thus be 

clear as to which beneficiaries the 

waiver applied. As mentioned 

previously, we believe a prospective 

assignment approach creates a potential 

pathway for improving the appropriate 

use of waivers by ACOs and a method 

for CMS to monitor its use. In addition, 

under Track 3 there would be greater 

opportunity for risk. For these reasons, 

we believe that Track 3 is potentially a 

better candidate for such a waiver than 

Track 2. Another option is that the 

waiver would apply to any FFS 

beneficiary cared for by the ACO and 

then the waiver could be available to all 

ACOs participating in a two-sided risk 

track, regardless of whether the 

assignment is prospective or 

retrospective. Another option would be 

to apply any waiver to beneficiaries that 

appear on the quarterly lists of 

preliminarily prospectively assigned 

beneficiaries. In this case, the 

beneficiaries to whom the waiver 

applies would likely change from 

quarter to quarter. We would also 

anticipate imposing additional 

documentation requirements upon those 

ACOs that seek to use the waiver. 

Specifically, because the Shared Savings 

Program is built on FFS Medicare, and 

because we continue to support and 

protect beneficiaries’ right to choose 

their providers under FFS Medicare, we 

are not considering a complete waiver of 

the requirement that a hospital, as part 

of the discharge planning process, not 

specify or otherwise limit the qualified 

providers that are available to the 

patient. This requirement is reflected in 

the hospital CoPs at § 482.43(c)(7). In 

other words, under the terms of any 

waiver, hospitals still would be required 

to inform the patient or the patient’s 

family of their freedom to choose among 

participating Medicare providers of 

post-hospital care services and must, 

when possible, respect patient and 

family preferences when they are 

expressed. In addition, the hospital 

must also present a complete list and 

may not limit the qualified providers 

that are available to the patient. 

However, under a waiver of the 

prohibition on the specification of 

qualified providers, discharge planners 

in hospitals that are ACO participants or 

ACO providers/suppliers would have 

the flexibility to recommend high 

quality post-acute providers with whom 

they have relationships (either financial 

and/or clinical) for the purpose of 

improving continuity of care across sites 

of care. Such a waiver would not cover 

a situation in which a post-acute 

provider paid the ACO participant or 

ACO provider/supplier to be included 

as a recommended post-acute provider. 

We believe it would be appropriate to 

limit such a waiver to hospitals that are 

ACO participants or ACO providers/

suppliers because we believe these 

entities would have incentives that are 

most directly aligned with those of the 

ACO. ACOs also have stronger control 

and oversight over such entities and 

such entities are subject to Shared 

Savings Program requirements. We 

anticipate that under a such waiver 

discharge planners would be required to 

document that the patient or the 

patient’s family was informed of their 

freedom to choose a provider of posthospital services and presented with a 

complete list of participating Medicare 

providers of post-hospital care services 

as well as information regarding the 

Medicare provider of post-hospital care 

services recommended by the discharge 

planner. We also anticipate that under 

such a waiver discharge planners would 

be required to document the data and 

the rationale they used as the basis for 

recommending any specific provider of 

post-hospital services. If implemented 

across all risk tracks, we anticipate it 

would apply to all FFS beneficiaries 

receiving services from hospitals 

participating in the ACO. We would 

additionally anticipate requiring the use 

of certain quality criteria for 

recommended providers (such as 

requiring that SNFs meet a minimum 

Star rating of 3 or more stars under the 

CMS 5-Star Quality Rating System as 

reported on the Home Health Compare 

Web site. For detailed information, see 

http://blog.cms.gov/2014/06/18/starquality-ratings-coming-soon-tocompare-sites-on-medicare-gov/.) and 

documentation that the patient or the 

patient’s family was informed of the 

recommended provider’s quality of care, 

the clinical and/or financial relationship 

that the ACO has with the 

recommended provider, and any other 

reasons why the provider is being 

recommended. Furthermore, we would 

continue to require that the ACO respect 

the patient or the patient’s family’s 

preference regarding the choice of postacute provider. Under such a waiver, we 

would anticipate establishing additional 

requirements to ensure program 

transparency and help reduce the 

possibility for abuse of the waiver. For 

example, we would anticipate requiring 

ACOs to indicate their intent to use the 

waiver in a form and manner specified 

by CMS, as part of either their 

applications or requests for renewal of 

their participation agreement, and to 

remain in compliance with program 

rules. To further substantiate an ACO’s 

intent to use the waiver, we anticipate 

requiring that the ACO submit as part of 

its application documentation showing 

that its governing body has made and 

duly authorized a bona fide 

determination that the ACO will use the 

waiver (if approved by CMS) and will 

comply with all requirements of the 

waiver. As part of its application for the 

waiver, we would require the ACO to 

submit a written plan describing how it 

would use the waiver to meet the 

clinical needs of its assigned 

beneficiaries. We would reserve the 

right to deny or revoke a waiver to an 

ACO if it is not in compliance with 

other requirements under the Shared 

Savings Program, if it does not use the 

waiver as described in its application, or 

if it does not successfully meet the 

quality reporting standard. ACOs with 

approved waivers would be required to 

post their use of the waivers as part of 

public reporting (see § 425.308) on the 

dedicated ACO Web page. Use of the 

waiver and its authorization by the 

governing body would be required to be 

documented, and the documentation 

retained, consistent with § 425.314. We 

would anticipate that any waiver would 

be effective on the start date of the 

ACO’s participation agreement and 

would not extend beyond the end of the 

ACO’s participation in the Shared 

Savings Program. However, if CMS 

terminates the participation agreement, 

then the waiver would end on the date 

of the termination notice. We also 

reserve the authority to withdraw the 

waiver in the event we determine that 

there has been an abuse of the waiver. 

The proposed payment waivers would 

not protect financial arrangements 

between ACOs, ACO participants, ACOs 

providers/suppliers, or other 

individuals or entities providing 

services to ACO patients from liability 

under the fraud and abuse laws or any 

other applicable laws. 

We would retain the right to monitor 

and audit the use of such waivers. We 

would implement heightened 

monitoring of entities that bill under 

payment waivers to help reduce the 

possibility for abuse of the waiver. We 

seek comment on what specific 

activities should be monitored to ensure 

that items and services are properly 

delivered to eligible patients, and that 

patients are able to exercise freedom of 

choice and are not being steered 

inappropriately. We would also likely 

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consider monitoring ACOs’ marketing of 

services subject to payment waivers to 

prevent coercive or misleading 

marketing and to assess the effect on the 

delivery of care. 

We seek comment on this potential 

approach to using our waiver authority 

to permit ACOs flexibility in specifying 

certain Medicare providers of posthospital care services to patients and 

their families. We further seek comment 

on the criteria discussed above. Are 

there other cost and quality criteria that 

should be considered? Specifically to 

what hospitals and post-hospital 

providers should the waiver apply? For 

example, as discussed above, should the 

ability to recommend a post-hospital 

provider be available only to those 

hospitals that are ACO participants or 

ACO provider/suppliers, since these 

entities would have incentives that are 

most directly aligned with those of the 

ACO? Should a hospital be permitted to 

recommend any post-hospital provider 

or only post-hospital providers that are 

ACO participants or ACO provider/

suppliers? We anticipate that if a waiver 

is found to be necessary, we would 

establish a waiver that would apply to 

all hospitals that are ACO participants 

or ACO providers/suppliers and that 

these hospitals would have the ability to 

recommend any post-hospital provider; 

however, we would be interested to 

receive comments on alternative 

approaches. 

Overall, we are supportive of 

hospitals recommending certain posthospital providers based on quality and 

a beneficiary’s specific needs, as long as 

the beneficiaries understand their other 

options and retain their freedom of 

choice. In the event a waiver is found 

to be necessary, are there other 

parameters that should be established 

around how hospitals formulate their 

lists of post-acute providers and what 

information would be shared with 

beneficiaries? Under such a waiver 

would it be appropriate for hospitals to 

share only information on quality that is 

publically reported, such as on Home 

Health Compare, or would it be 

appropriate for hospitals to also share 

information that they have generated 

internally? We would be concerned if 

hospitals might steer beneficiaries to 

providers based on quality information 

that has not been properly vetted. Also, 

we would be concerned if hospitals 

recommended only their partnering 

providers, when there may be other 

providers of equal or better quality. 

Since the CoP requirements apply to all 

patients of a participating hospital 

regardless of their insurer or insured 

status, we are also seeking comment on 

whether it would be feasible to 

implement a system where the CoP 

requirement to not make 

recommendations is waived for the ACO 

participating hospitals only in the case 

of certain Medicare FFS beneficiaries. 

We are further seeking comments on 

whether it might be necessary for 

purposes of carrying out the Shared 

Savings Program and what benefits and 

risks might arise for non-Medicare 

inpatients if we were to waive this 

portion of the regulation for ACO 

participating hospitals with respect to 

all of their patients. We welcome 

comments on whether it would be 

appropriate to limit any such a waiver 

to ACOs participating under two-sided 

risk financial arrangements, or whether 

such a waiver should be available more 

broadly to all ACOs participating in the 

Shared Savings Program. Alternatively, 

should the waiver apply only to 

beneficiaries that are prospectively 

assigned to ACOs participating in Track 

3? What operational considerations/

concerns would implementation of such 

a waiver raise? What additional 

beneficiary protections and safeguards 

should be considered and put in place 

to prevent abuse of such a waiver? 

(5) Waiver of Other Payment Rules 

We welcome suggestions on whether 

there are any additional Medicare FFS 

payment rules that it may be necessary 

to waive using our authority under 

section 1899(f) of the Act in order to 

effectively implement two-sided risk 

financial arrangements under the 

Shared Savings Program by providing 

additional mechanisms for ACOs to 

increase quality and decrease costs. We 

would establish any such waivers 

through the rulemaking process. As a 

result, any suggestions submitted by 

commenters would be helpful to CMS in 

developing future proposals regarding 

the waiver of any Medicare FFS rules 

that might be necessary to carry out the 

provisions of the Shared Savings 

Program, and in particular to implement 

two-sided risk models under the 

program. 

b. Other Options for Improving the 

Transition to Two-Sided PerformanceBased Risk Arrangements 

(1) Beneficiary Attestation 

Under 1899(c) of the Act, 

beneficiaries are required to be assigned 

to an ACO participating in the Shared 

Savings Program based on the 

beneficiary’s utilization of primary care 

services rendered by physicians. Thus, 

beneficiary choice, as indicated by their 

utilization of primary care service 

furnished by physicians, must 

determine beneficiary assignment to an 

ACO under the Shared Savings Program. 

Therefore, we developed a methodology 

for assigning beneficiaries based on 

whether the ACO provided the plurality 

of the beneficiary’s primary care during 

a particular performance year. In the 

November 2011 final rule (76 FR 67851 

through 67870), we outlined the major 

considerations in beneficiary 

assignment to an ACO. 

First, we emphasized that unlike 

managed care programs, Medicare FFS 

beneficiaries do not enroll in the Shared 

Savings Program, and they retain the 

right to seek treatment from any 

Medicare-enrolled provider of their 

choosing. Thus, the ‘‘assignment’’ 

methodology in no way implies a lockin or enrollment process. To the 

contrary, the statutory term 

‘‘assignment’’ in this context refers only 

to an operational process by which we 

determine whether a beneficiary has 

chosen to receive a sufficient level of 

the requisite primary care services from 

a specific ACO so that the ACO may be 

appropriately designated as being 

accountable for that beneficiary’s care, 

and we can measure its quality and 

financial performance on patients for 

whom it is in the best position to direct 

and influence their care. No exclusions 

or restrictions based on health 

conditions or similar factors are applied 

in the assignment of Medicare FFS 

beneficiaries. 

Additionally, we noted that the 

statute requires that assignment be 

based on beneficiary utilization of 

primary care services furnished by 

physicians. We explored several options 

for assigning beneficiaries to an ACO 

based on whether the beneficiary 

received the plurality of primary care 

services from providers and suppliers 

participating in the ACO. The primary 

options we considered were whether to 

assign beneficiaries to an ACO 

prospectively, at the beginning of the 

performance year, or whether to assign 

beneficiaries to an ACO retrospectively, 

at the end of the performance year. 

Under the retrospective approach, the 

ACO would be held accountable for 

beneficiaries that chose to receive the 

plurality of their primary care services 

from practitioners in the ACO during 

the course of the performance year. 

These beneficiaries necessarily would 

be identified at the end of the 

performance year. The advantage of this 

approach is that the ACO is assessed 

based on beneficiaries with whom its 

providers and suppliers had visits with 

during the performance year and had 

the greatest opportunity to impact care. 

Another advantage is that this 

methodology encourages organizations 

to improve care for all Medicare FFS 

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patients seen by ACO professionals 

during a performance year. The 

disadvantage that some ACOs have 

articulated is that retrospective 

assignment can pose challenges when 

an organization has limited resources. 

Such organizations may prefer to target 

specific FFS beneficiaries for enhanced 

care improvement activities, and be 

confident that those specific 

beneficiaries will be the population 

used to determine the ACO’s 

performance on cost and quality at the 

end of the year. 

Under a prospective assignment 

approach, a beneficiary’s utilization of 

primary care services during a 

timeframe prior to the start of the 

performance year would be used to 

assign a list of beneficiaries to the ACO 

at the beginning of a particular 

performance year (as we have proposed 

under Track 3). The total cost and 

quality of the care furnished to 

beneficiaries on the prospective 

assignment list would be used at the 

end of the performance year to 

determine the ACO’s performance. As 

some ACOs have articulated, an 

advantage to this approach is that the 

organization can target its resources and 

care coordination activities to the 

specific FFS beneficiaries that appear on 

the prospective assignment list, 

confident that these are the beneficiaries 

that will determine the ACO’s quality 

and efficiency performance at the end of 

the year. However, in the November 

2011 final rule, we discussed several 

disadvantages to this approach. First, 

we believed that such an approach 

would erode the incentive for ACOs to 

improve their care processes to benefit 

the broader Medicare FFS population 

served by the ACO and its ACO 

participants and ACO providers/

suppliers. We stated that since the goal 

of the Shared Savings Program is to 

change the care experience for all FFS 

beneficiaries, ACO participants and 

ACO provider/suppliers should have 

incentives to treat all patients equally; 

using standardized evidence-based care 

processes, to improve the quality and 

efficiency of the care they provide to all 

FFS beneficiaries (76 FR 67861). 

Second, we noted that since FFS 

beneficiaries retain the freedom to 

choose their providers, it was likely that 

some prospectively assigned 

beneficiaries would choose not to obtain 

the plurality of their primary care 

services from ACO professionals during 

the performance year; however, the 

ACO would still be held accountable for 

the total cost and quality of the care 

furnished to those beneficiaries. 

After considering stakeholder 

comments on these main approaches, 

we finalized a hybrid policy that 

provided for a preliminary prospective 

assignment methodology with final 

retrospective reconciliation (76 FR 

67867). We finalized this hybrid 

approach in an effort to realize the most 

positive aspects of both prospective and 

retrospective assignment and avoid, to 

the extent possible, the major 

disadvantages of each. Therefore, we 

finalized a policy in which we 

prospectively assign beneficiaries to 

ACOs in a preliminary manner at the 

beginning of a performance year based 

on most recent 12 months of data. We 

then update this information quarterly, 

based on a rolling 12 months of data. 

Final assignment is determined after the 

end of each performance year based on 

the 12 months of data from the 

performance year. This policy 

determines assignment to an ACO under 

the Shared Savings Program based on a 

statistical determination of a 

beneficiary’s utilization of primary care 

services, rather than on a process of 

enrollment or ‘‘voluntary selection’’ by 

beneficiaries. Beneficiaries are assigned 

to no more than one ACO, and the 

specific methodology (the ‘‘step-wise’’ 

approach) is described in § 425.402. We 

finalized this policy because we 

believed that the methodology would 

balance beneficiary freedom to choose 

providers under FFS Medicare with the 

ACO’s desire to have information about 

the FFS beneficiaries that were likely to 

be assigned at the end of the 

performance year. We also felt this 

approach would provide adequate 

incentives for each ACO to redesign care 

processes for and provide high quality 

care to its entire FFS beneficiary 

population instead of just focusing on a 

subset of patients. Finally, the ACO’s 

performance would be assessed on the 

basis of the care furnished to those 

beneficiaries that chose to receive the 

plurality of primary care services from 

ACO professionals during the 

performance year, and for whom the 

ACO had the greatest opportunity to 

impact care. 

A retrospective claims-based 

assignment methodology necessarily 

creates more year-to-year variability or 

‘‘churn’’ in the list of assigned 

beneficiaries compared to managed care 

programs where patients enroll in and 

are locked in at the beginning of the 

year. Based on our experience and the 

data generated from the Physician 

Group Practice Demonstration (which 

used a similar retrospective assignment 

methodology), approximately 75 percent 

of beneficiaries assigned at the end of 

one performance year remained 

assigned at the end of the next 

performance year. The other 25 percent 

of beneficiaries were no longer assigned 

to the PGP site because they either were 

no longer eligible to be assigned or 

chose not to receive the plurality of 

their primary care services from the PGP 

practitioners. This statistic was recently 

confirmed when evaluating ‘‘churn’’ in 

the Shared Savings Program context. On 

average, 76 percent (range = 58 percent 

to 88 percent) of beneficiaries assigned 

to a Shared Savings Program ACO at the 

end of one year are assigned to the same 

ACO at the end of the subsequent 

performance year. In other words, ACOs 

experience a ‘‘churn rate’’ of 24 percent 

on average. However, when combined 

with the information provided on 

quarterly updates to the assigned 

beneficiary list, ‘‘churn’’ from quarter to 

quarter decreases to an average of 10 

percent. In other words, on average, 91 

percent of the beneficiaries assigned in 

one quarter appear on the next quarter’s 

assignment list (range = 77 percent to 95 

percent). These data indicate that 

‘‘churn’’ varies from ACO to ACO, and 

that our hybrid assignment methodology 

performed according to expectations, 

that is, the quarterly assignment reports 

provide the ACO with relevant 

information during the performance 

year about its patient population for 

purposes of more effectively planning 

and coordinating care. 

As in the PGP demonstration, the 24 

percent ‘‘churn rate’’ found in the 

Shared Savings Program reflects 

beneficiaries that either became 

ineligible to be assigned or chose not to 

receive the plurality of their primary 

care services from ACO professionals. 

Beneficiaries who were assigned in one 

performance year, but fall off the 

assignment list at the end of the 

subsequent performance year may do so 

for a variety of reasons including: 

• Beneficiary did not seek primary 

care services from any Medicareenrolled physicians during the 

subsequent performance year. 

• Beneficiary chose to receive all 

primary care services or the plurality of 

his or her primary care services from 

providers outside the ACO during the 

subsequent performance year. Reasons 

for this could include: 

++ The beneficiary received short 

term care (for example, referral care, 

SNF care) from ACO professionals 

during the earlier performance year but 

did not continue the relationships in the 

subsequent year. 

++ Beneficiary moved his/her 

residence and now seeks care from 

practitioners unaffiliated with the ACO. 

• Beneficiary chose to enroll in MA 

or is otherwise no longer a FFS 

Medicare beneficiary in the subsequent 

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performance year (that is, the 

beneficiary is no longer eligible for 

assignment). 

• A new ACO entered the market in 

the subsequent performance year and its 

ACO professionals furnish the plurality 

of primary care services to the 

beneficiary compared to the established 

ACO. 

We estimate that on average, 76 

percent of beneficiaries assigned to a 

Shared Savings Program ACO remain 

assigned from one year to the next. 

However, the retention rate varies from 

58 percent to 88 percent across ACOs, 

and correspondingly, the turnover 

varies from 12 percent to 42 percent. On 

average, 7 percent of previously 

assigned beneficiaries are no longer 

eligible for assignment to an ACO and 

17 percent of previously assigned 

beneficiaries remain eligible to be 

assigned, but do not receive the 

plurality of their primary care services 

from ACO professionals the ACO during 

the subsequent performance year. Of the 

17 percent of previously assigned 

beneficiaries who remain eligible for 

assignment— 

• Six percent had at least one primary 

care physician visit with a physician 

who is an ACO professional, but the 

plurality of their primary care services 

were rendered outside the ACO; 

• Three percent had no physician or 

non-physician primary care visits 

during the subsequent year; 

• Seven percent had at least one 

physician or non-physician primary 

care visit, but none with ACO 

professionals; 

• One percent had at least one nonphysician primary care visit with an 

ACO professional, but had no primary 

care visits with physicians who are ACO 

professionals in the ACO; and 

• Seven percent had at least one 

primary care visit with a physician in 

the ACO, but did not receive the 

plurality of their primary care services 

from ACO professionals. 

As suggested by these statistics, some 

percentage of beneficiaries may believe 

a certain primary care practitioner 

affiliated with an ACO has ultimate 

responsibility for coordinating their 

care, even when it is necessary for them 

to receive primary care services from 

other practitioners, including 

practitioners who are not participating 

in the same ACO with which the 

practitioner is affiliated. Such a 

beneficiary could become unassigned if 

his or her primary care service 

utilization shifted away from 

practitioners in the ACO in a year. For 

example, a beneficiary living in a small 

town may have had a primary care 

service visit during a performance year 

with a primary care provider who is an 

ACO professional with whom the 

beneficiary has a long-standing 

relationship and the beneficiary believes 

this ACO professional is responsible for 

coordinating his/her care. If this 

beneficiary chooses to go to a large 

health system in the next town for 

primary care services and receives 

primary care services from practitioners 

that are unaffiliated with the ACO 

during the performance year, at the end 

of the performance year it may be 

determined that ACO professionals did 

not render the plurality of the primary 

care services for that beneficiary and 

therefore the ACO would not be held 

accountable for the total quality and 

cost of the beneficiary’s care for that 

performance year. However, 

commenters have suggested that 

beneficiaries should have the ability to 

designate which providers (and by 

extension, the ACOs with which they 

are affiliated) are responsible for 

overseeing their overall care, regardless 

of where the beneficiary received the 

plurality of his or her primary care 

services. These commenters argue that 

creating a methodology that takes into 

account what provider a beneficiary 

believes has ultimate responsibility for 

his or her care could reduce ‘‘churn’’ 

from year to year, and increase the 

chances that an ACO would see a return 

on the investments it makes in the care 

of specific beneficiaries. Commenters 

argue this is particularly important in 

two-sided models where ACOs face 

amplified levels of performance-based 

risk. 

Patient advocacy groups and ACOs 

have expressed interest in and support 

for enhancing claims-based assignment 

of beneficiaries to ACOs by taking into 

account beneficiary attestation regarding 

the provider that they consider to be 

responsible for coordinating their 

overall care. Stakeholders believe that 

incorporating this information and 

giving beneficiaries the opportunity to 

voluntarily ‘‘align’’ with the ACO in 

which their primary healthcare provider 

participates will improve the patientcenteredness of the assignment 

methodology. 

To begin to address these concerns, 

the Pioneer ACO Model is currently 

conducting a test of beneficiary 

attestation for the 2015 performance 

year. Specifically, the Innovation Center 

has designed a test in which 

participating ACOs mail cover letters to 

beneficiaries aligned to the Pioneer ACO 

in either the 2013 or 2014 performance 

years, explaining the process by which 

a beneficiary may indicate whom they 

consider to be their ‘‘main doctor’’, each 

with a form that asks the beneficiary to 

confirm their ‘‘main doctor’’. In the form 

the beneficiary is asked to confirm 

whether or not the listed provider or 

supplier is their ‘‘main doctor.’’ 

Beneficiaries who confirm a care 

relationship with the provider/supplier 

listed on the form (who is an ACO 

participating provider/supplier 

identified by the Pioneer ACO) and 

meet all other eligibility criteria for 

alignment (or example, they did not 

drop either Part A or B coverage or join 

a MA plan), would be aligned to the 

Pioneer ACO for the following 

performance year, regardless of whether 

or not the practitioners participating in 

the Pioneer ACO rendered the plurality 

of the beneficiary’s primary care 

services during the performance year. 

The Innovation Center will conduct 

claims-based attribution using the 

methodology established for the Pioneer 

ACO Model, but will include in the 

Pioneer’s aligned beneficiary population 

not only those beneficiaries aligned 

through claims, but also those 

beneficiaries who returned the form 

confirming that a Pioneer ACO 

provider/supplier is their main doctor. 

Beneficiaries who do not return the 

form or who return the form, but 

indicate the provider listed is not their 

main doctor, will not be included in the 

ACO’s assigned beneficiary population 

unless they are assigned through the 

existing claims-based attribution 

methodology. This means that if the 

beneficiary does not return the form and 

the beneficiary is not assigned to the 

Pioneer ACO through the claims-based 

attribution methodology, then the 

beneficiary would not be assigned to the 

Pioneer ACO. 

Due to program integrity concerns and 

the additional administrative burden for 

ACOs participating in the Pioneer 

Model, discussions of beneficiary 

attestation or receipt of confirmation 

forms at the point of care were 

precluded under this first test of 

beneficiary attestation. Rather, in this 

initial test, the Innovation Center seeks 

only to evaluate the effectiveness of 

different types of mailed forms with 

respect to beneficiary willingness to 

attest that a particular practitioner has 

the primary responsibility for their care. 

Additional testing in the future is 

planned under the Pioneer ACO Model 

that will build upon lessons learned 

from this initial test and in which we 

would seek to enhance the 

meaningfulness of dialogue between 

beneficiaries and their providers 

regarding the nature of the care 

relationship. 

Although we are not making any 

specific proposals related to beneficiary 

attestation, we welcome comments on 

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whether it would be appropriate to offer 

a beneficiary attestation process to 

ACOs that choose to participate in the 

Shared Savings Program under twosided risk financial arrangements. We 

intend to carefully consider any 

comments on this issue during the 

development of the final rule, and will 

make an assessment at that time as to 

whether any change to our assignment 

methodology to include beneficiary 

attestation would be appropriate. We are 

interested in receiving comments and 

suggestions on a wide variety of policy 

and operational issues related to 

beneficiary attestation. For example, 

which beneficiaries should be eligible to 

attest into an ACO? Should this option 

be available to all beneficiaries or only 

to currently or previously aligned 

beneficiaries? What implications would 

attestation or voluntary alignment have 

for the assignment of beneficiaries to an 

ACO under a prospective versus a 

preliminary prospective method? Which 

types of care relationships should be 

considered—those with primary care 

physicians, specialists or other types of 

providers? How should beneficiaries 

receive communications about claimsbased and voluntary alignment and who 

would provide the information? What 

method or process should be used to 

obtain beneficiary confirmation and 

when would this occur? Under what 

circumstances and how could 

beneficiaries reverse their decisions? 

Although we believe the option 

suggested would protect beneficiary 

freedom to choose, we seek comment on 

whether there are additional ways to 

protect beneficiaries from coercion and 

ensure proper monitoring and 

safeguards under the Shared Savings 

Program. What implications would 

there be for ACO information or other 

administrative systems? What provider 

education would be needed? Should 

there be additional application or 

eligibility requirements for ACOs in 

tracks under which beneficiary 

attestation is offered? We would note 

that if we were to offer a beneficiary 

attestation process for ACOs that choose 

to participate in the Shared Savings 

Program under two-sided risk financial 

arrangements, such beneficiaries would 

be eligible to be included in the sample 

for GPRO quality reporting by ACOs 

participating in the Shared Savings 

Program (76 FR 67900), even if the 

beneficiary did not chose to receive care 

from the ACO professionals during the 

performance year, as might be the case 

under Track 3 under the proposed 

prospective assignment methodology. 

Also, we are concerned about creating 

additional administrative burdens for 

ACOs that might discourage them from 

accepting two-sided risk arrangements. 

Are there ways that beneficiary 

attestation could be operationally 

implemented to reduce administrative 

burdens on ACOs and CMS and limit 

beneficiary confusion? We anticipate 

that if we were to offer a beneficiary 

attestation process for ACOs that choose 

to participate in the Shared Savings 

Program under two-sided risk financial 

arrangements, then at least initially we 

would anticipate implementing this 

beneficiary attestation in a manner 

consistent with the current beneficiary 

attestation under the Pioneer ACO 

Model. We believe this would be an 

appropriate starting point for 

beneficiary attestation under the Shared 

Savings Program because it allows us to 

take advantage of the policies and 

processes that have already been 

developed for the Pioneer ACO Model. 

Additionally, we believe it is unlikely 

that such a policy would impact 

‘‘churn’’ for Track 3 ACOs during a 

performance year, given our proposals 

for prospectively assigning 

beneficiaries. However, beneficiary 

attestation may have a minor impact on 

‘‘churn’’ during a performance year 

related to the preliminary prospective 

with retrospective reconciliation 

approach such as the methodology 

employed under Track 2. This process 

may also have a minor impact in 

stabilizing the beneficiary assignment 

list from one performance year to the 

next for all ACOs. 

In addition, we seek comments on 

whether a beneficiary attestation 

process under the Shared Savings 

Program could bias performance year 

results compared to the ACO’s 

benchmark. For example, we believe 

that such biases could occur because the 

beneficiaries used to establish 

performance benchmarks would not 

have had the same opportunity to 

designate their ‘‘main doctor.’’ Rather, 

for purposes of the benchmark years, all 

beneficiaries would be assigned using 

the established claims-based assignment 

methodology. Would it be appropriate 

for us to use our authority to adjust an 

ACO’s benchmark to account for 

‘‘beneficiary characteristics’’ to address 

any such potential biases? 

In connection with any 

implementation of beneficiary 

attestation, we would revise our 

regulations as necessary, to protect 

beneficiaries from undue coercion or 

influence in connection with whether 

they choose to attest or not. Beneficiary 

attestation is not intended to be used as 

a mechanism for ACOs (or ACO 

participants, ACO providers/suppliers, 

ACO professionals, or others) to target 

potentially lucrative beneficiaries or 

avoid those less likely to produce 

savings. To this end, we do not believe 

ACOs or others should be permitted to 

offer gifts or other inducements to 

beneficiaries, nor should they be 

allowed to withhold or threaten to 

withhold items or services, for the 

purpose of coercing or influencing their 

alignment decisions. The current 

regulations at § 425.304(a)(1) prohibit 

ACOs, ACO participants, ACO 

providers/suppliers, and other 

individuals or entities performing 

functions or services related to ACO 

activities from providing gifts or other 

remuneration to beneficiaries as 

inducements for receiving items or 

services from, or remaining in, an ACO. 

The regulation at § 425.304(a)(2) permits 

certain in-kind items or services to be 

provided to beneficiaries if there is a 

reasonable connection between the 

items and services and the medical care 

of the beneficiary and certain other 

conditions are met. We would consider 

any inducement intended to coerce or 

influence a beneficiary attestation 

decision to be prohibited under 

§ 425.304(a)(1) and not be considered 

reasonably connected to medical care 

under § 425.304(a)(2). We would not, 

however, prohibit an ACO or its ACO 

participants and ACO providers/

suppliers from providing a beneficiary 

with accurate descriptive information 

about the potential patient care benefits 

of aligning with an ACO. We are also 

soliciting comments on this issue. 

(2) Seeking Comment on a Step-Wise 

Progression for ACOs To Take on 

Performance-Based Risk 

Under the current Shared Savings 

Program rules, an ACO may not include 

an entity on its list of ACO participants 

unless all ACO providers/suppliers 

billing through the entity’s Medicareenrolled TIN have agreed to participate 

in the program and comply with the 

program rules (see discussion in section 

II.B. of this proposed rule). Furthermore, 

it is not possible under our current 

regulations for some ACO providers/

suppliers to participate in Track 1, 

while other ACO providers/suppliers 

that may be more ready to accept 

performance-based risk participate 

under Track 2. Some stakeholders have 

commented that requiring all ACO 

providers/suppliers billing through an 

ACO participant TIN to participate in 

the same risk track could deter some 

ACOs from entering higher risk 

arrangements (Tracks 2 or 3) if they do 

not believe that all of the ACO 

providers/suppliers billing through a 

given ACO participant TIN are prepared 

to operate under high levels of risk. 

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Conversely, we have heard from other 

stakeholders that requiring all ACO 

providers/suppliers billing though an 

ACO participant TIN to enter the same 

risk track can motivate an organization 

to work toward a common performance 

goal and implement uniform care 

processes that streamline patient care 

within and between various sites of 

care. We believe that the program works 

best when the incentives within an 

organization are aligned among all 

providers and suppliers in that 

organization. Given our policy 

objectives to encourage ACOs to 

redesign their care processes and move 

to increasing levels of financial risk, we 

are not proposing at this time to change 

our regulations in order to allow 

providers and suppliers billing through 

the same ACO participant TIN to 

participate in different tracks under the 

Shared Savings Program. However, we 

are interested in stakeholder opinion on 

this issue and seek comment on what 

options the program might consider in 

the future to encourage organizations to 

participate in the program while 

permitting the providers and suppliers 

within that organization to accept 

varying degrees of risk. In particular, we 

are interested in stakeholders’ input on 

the advantages and disadvantages of 

allowing Shared Savings Program ACOs 

that wish to enter a track with increased 

risk to split their ACO participants into 

different tracks or split ACO provider/ 

suppliers billing through a given 

Medicare-enrolled TIN so that a subset 

participate in a track that offers a higher 

sharing rate in exchange for taking on a 

greater degree of performance-based 

risk, while the remainder participate in 

a lower risk track. We intend to 

carefully review any comments that are 

received on these issues during the 

development of the final rule and will 

make an assessment at that time as to 

whether any change to our current 

policy is necessary and appropriate. 

For reasons already stated in the 

November 2011 final rule (76 FR 67808 

through 67811), we believe it is 

appropriate to use the Medicareenrolled TINs that make up each ACO 

as the basis for a number of operational 

processes under the Shared Savings 

Program, including beneficiary 

assignment, and that, as a result, all 

providers and suppliers billing through 

the TIN of an ACO participant must 

agree to participate in the ACO and 

comply with program regulations in 

order for the ACO to include the entity 

on its ACO participant list. Therefore, 

we do not believe it would be necessary 

or ideal to adopt an approach under 

which ACOs would be permitted to pick 

and choose ACO provider/suppliers for 

participation. However, we are 

considering ways to encourage 

organizations to move in a step-wise 

progression to taking on performancebased risk when some entities on its 

ACO participant list are ready. 

Therefore, if we were to make 

modifications to our current policies to 

permit organizations to split their ACO 

participant TIN list into different risk 

tracks, we would anticipate the 

following: 

• The ACO must have completed a 

full agreement period under Track 1 and 

meet requirements for renewing its 

agreement under Track 1 as proposed in 

this proposed rule. 

• The ACO must submit an ACO 

participant list in the form and manner 

designated by CMS and by a deadline 

established by us. 

• The ACO must indicate, in the form 

and manner specified by CMS, which 

ACO participants would continue under 

Track 1 and which would participate 

under a performance-based risk track. 

We would consider this list to be a 

‘‘segmented list’’ of ACO participants. 

• The ACO as a whole would be 

required to meet the eligibility 

requirements to participate in the 

program, including the requirement that 

the ACO have at least 5,000 assigned 

beneficiaries and the governance 

requirements. 

• Regarding quality measures 

submission, we considered whether the 

ACO as a whole would be responsible 

for submitting quality data in 

accordance with subpart F of the Shared 

Savings Program regulations. On the one 

hand, the ability of the ACO to report 

quality measures once on behalf of both 

segmented lists would reduce quality 

reporting burden with the same 

aggregate quality score applying to each 

segment of the ACO participants. On the 

other hand, if each segmented list was 

required to report quality separately, we 

may be able to get a more accurate 

assessment of the quality of care by each 

segmented list leading to a more 

accurate determination of shared 

savings or losses. 

• Regarding benchmarking and 

assignment of beneficiaries, we 

considered whether each half of the 

segmented list of ACO participants 

would have its own benchmark and list 

of assigned beneficiaries. Under this 

option, the two groups of ACO 

participants would each receive their 

own performance reports from CMS and 

be subject to the data sharing rules 

appropriate for their track, and the 

determination of shared savings would 

occur according to the rules of the 

chosen track. Another option would be 

to develop one benchmark and list of 

assigned beneficiaries for the ACO as a 

whole. This option would require a 

uniform assignment methodology to be 

applied, regardless in which track the 

segmented lists are participating. 

Alternatively, we could limit segmented 

lists to participation in only Tracks 1 

and 2 because these tracks have an 

assignment methodology that does not 

conflict. 

• Regarding changes in the ACO 

participant lists during the agreement 

period, we considered whether an ACO 

would be permitted to add or delete 

ACO participants from the segmented 

list of ACO participants. One option 

considered would be to permit an ACO 

to add or delete ACO participants from 

the segmented lists pursuant to the 

proposed regulation at § 425.118(b), but 

ACO participants would not be 

permitted to change risk tracks during 

the agreement period. Another option 

we considered and seek specific 

comments on is the option to require 

such organizations to articulate and 

carry out the transition of their Track 1 

ACO participants to the list of ACO 

participants that are under a risk-based 

arrangement during the course of the 

agreement period. For example, in each 

year of the agreement period, the ACO 

would be required to remove ACO 

participants from the Track 1 list and 

add them to the list of ACO participants 

under the two-sided risk model. In this 

way, the ACO and its ACO participants 

would be better prepared to reapply to 

the Shared Savings Program under a 

two-sided risk model in its third 

agreement period. 

Although we are not specifically 

proposing to allow for different risk 

tracks within the same ACO, we seek 

comments on these options and other 

considerations for permitting 

organizations to move forward to 

performance-based risk in a step-wise 

manner. We specifically seek comment 

on ways to mitigate selection bias when 

considering these options, in other 

words, we seek comment on whether 

additional considerations should be 

made with regards to organizations that 

may choose to create two different ACO 

participant lists in an effort to advantage 

the part of the organization that is 

participating in the two-sided model at 

the expense of the part of the 

organization participating in the onesided model. We believe the concern is 

minimized by the option we considered 

that we would only make this option 

available under an ACO’s second 

agreement period. Moreover, we note 

that our proposed criteria for renewal 

include a review of the ACO’s history of 

program integrity. We intend to 

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carefully review any comments that are 

received on these issues during the 

development of the final rule and will 

make an assessment at that time as to 

whether any change to our current 

policy is necessary and appropriate. 

5. Modifications to Repayment 

Mechanism Requirements 

a. Overview 

In the November 2011 final rule (76 

FR 67937), we discussed the importance 

of a program requirement that ensures 

ACOs entering the two-sided model will 

be capable of repaying Medicare for 

shared losses. The final rule established 

a requirement that ACOs applying to 

participate in the two-sided model must 

establish a repayment mechanism to 

assure CMS that they can repay losses 

for which they may be liable 

(§ 425.204(f)). For an ACO’s first 

performance year, the repayment 

mechanism must be equal to at least 1 

percent of its total per capita Medicare 

Parts A and B FFS expenditures for its 

assigned beneficiaries, as determined 

based on expenditures used to establish 

the ACO’s benchmark (§ 425.204(f)). 

Further, to continue participation in 

the program, each Track 2 ACO must 

annually demonstrate the adequacy of 

its repayment mechanism before the 

start of each performance year in which 

it takes risk (§ 425.204(f)(3)). The 

repayment mechanism for each 

performance year must be equal to at 

least 1 percent of the ACO’s total per 

capita Medicare Parts A and B FFS 

expenditures for its assigned 

beneficiaries, as determined based on 

expenditures for the ACO’s most recent 

performance year. 

An ACO may demonstrate its ability 

to repay losses, or other monies 

determined to be owed upon first year 

reconciliation, by obtaining reinsurance, 

placing funds in escrow, obtaining 

surety bonds, establishing a line of 

credit (as evidenced by a letter of credit 

that the Medicare program can draw 

upon), or establishing another 

appropriate repayment mechanism that 

will ensure its ability to repay the 

Medicare program (§ 425.204(f)(2)). 

Given our experience in implementing 

the program, we are proposing to revisit 

our requirements to simplify them and 

to address stakeholder concerns 

regarding the transition to risk, as 

discussed in the previous sections. 

b. Proposals for Amount and Duration of 

the Repayment Mechanism 

As noted previously, under the 

current regulations, ACOs entering a 

two-sided risk track must submit an 

adequate repayment mechanism at the 

time of application and again at the 

beginning of each performance year. 

The amount must be equal to at least 1 

percent of the ACO’s total per capita 

Medicare Parts A and B FFS 

expenditures for its assigned 

beneficiaries, as determined based 

either on expenditures used to establish 

the ACO’s benchmark or expenditures 

for the ACO’s most recent performance 

year. This amount is estimated by CMS 

and reported to the ACO so that it can 

set up its required mechanism. We have 

heard from stakeholders that 

establishing multiple repayment 

mechanisms during the agreement 

period can be very burdensome and ties 

up capital that could otherwise be used 

to support ACO operations. Therefore, 

we have considered whether it would be 

possible to streamline the repayment 

mechanism requirements. Specifically, 

we considered whether it would be 

feasible for an organization to establish 

a single repayment mechanism to cover 

the entire 3-year agreement period. 

Initially we were concerned that 

requiring an organization to establish a 

single repayment mechanism to cover 3 

performance years would involve 

repayment amounts that were excessive 

and overly burdensome for 

organizations. However, our actuaries 

have determined that this may not be 

the case. We believe that rather than 

requiring ACOs to create and maintain 

two separate repayment mechanisms for 

two consecutive performance years, 

which would effectively double the 

amount of the repayment mechanism 

during the overlapping time period 

between the start of a new performance 

year and settlement of the previous 

performance year, the repayment 

mechanism that is established for the 

first performance year of an agreement 

period under a two-sided risk model can 

be rolled over for subsequent 

performance years. 

Thus, we propose to require an ACO 

to demonstrate at the time of its 

application to the Shared Savings 

Program or participation agreement 

renewal for a two-sided risk model and 

upon request thereafter that it would be 

able to repay shared losses incurred at 

any time within the agreement period, 

that is, upon each performance year 

reconciliation during the agreement 

period. Thus, an ACO would be 

required to establish a repayment 

mechanism for the required amount as 

discussed in this section to cover the 

entire agreement period under a twosided risk model (that is, under Track 2 

or under proposed Track 3) and a 

reasonable period of time after the end 

of the agreement period (the ‘‘tail 

period’’). The tail period shall be 

sufficient to permit CMS to calculate the 

amount of any shared losses that may be 

owed by the ACO and to collect this 

amount from the ACO. The length of the 

tail period shall be established by CMS 

in guidance. 

Under this approach, an ACO would 

be required to establish a repayment 

mechanism once at the beginning of a 3- 

year agreement period. We propose that 

an ACO must demonstrate the adequacy 

of its repayment mechanism and 

maintain the ability to repay 1 percent 

of the ACO’s total per capita Medicare 

Parts A and B FFS expenditures for its 

assigned beneficiaries based on the 

expenditures used to establish the 

benchmark for the applicable agreement 

period, as estimated by CMS at the time 

of application or participation 

agreement renewal. If the repayment 

mechanism is used to repay any portion 

of shared losses owed to CMS, the ACO 

must promptly replenish the amount of 

funds available through the repayment 

mechanism within 60 days. This would 

ensure continued availability of funds to 

cover any shared losses generated in 

subsequent performance years. Given 

that we propose in section II.B. of this 

proposed rule to adjust an ACO’s 

benchmark annually to account for 

changes in the ACO participant list, it 

is possible that an ACO’s benchmark 

could change such that the repayment 

mechanism amount established at the 

beginning of the 3-year agreement 

period no longer represents one percent 

of the ACO’s benchmark expenditures. 

Therefore, we are considering whether 

we should require the ACO to adjust the 

repayment mechanism to account for 

this change, or whether a threshold 

should be established that triggers a 

requirement for the ACO to add to its 

repayment mechanism. We seek 

comment on this issue, including the 

appropriate threshold that should 

trigger a requirement that the ACO 

increase the amount guaranteed by the 

repayment mechanism. 

These proposals are reflected in the 

proposed modifications to § 425.204(f). 

We note that the reference to ‘‘other 

monies determined to be owed’’ in the 

current provision directly relates to the 

interim payments that were available in 

the first performance year only for ACOs 

that started participating in the program 

in 2012. Because interim payments are 

no longer offered to ACOs, we also 

propose to remove the reference to 

‘‘other monies determined to be owed’’ 

from § 425.204(f). 

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c. Proposals Regarding Permissible 

Repayment Mechanisms 

Under our current rules, ACOs may 

demonstrate their ability to repay shared 

losses by obtaining reinsurance, placing 

funds in escrow, obtaining surety bonds, 

establishing a line of credit (as 

evidenced by a letter of credit that the 

Medicare program can draw upon), or 

establishing another appropriate 

repayment mechanism that will ensure 

their ability to repay the Medicare 

program. Based on our experience with 

the program, we are proposing to 

remove the option that permits ACOs to 

demonstrate their ability to pay using 

reinsurance or an alternative 

mechanism. First, no Shared Savings 

Program ACOs have obtained 

reinsurance for the purpose of 

establishing their repayment 

mechanism. ACOs that have explored 

this option have told us that it is 

difficult to obtain reinsurance, in part, 

because of insurers’ lack of experience 

with the Shared Savings Program and 

the ACO model, and because Shared 

Savings Program ACOs take on 

performance-based risk not insurance 

risk. Additionally, the terms of 

reinsurance policies obtained by ACOs 

could vary greatly and prove difficult 

for CMS to effectively evaluate. Second, 

based on our experience to date, a 

request to use an alternative repayment 

mechanism increases administrative 

complexity for both ACOs and CMS 

during the application process and is 

more likely to be rejected by CMS than 

one of the specified repayment 

mechanisms. 

Therefore, we propose to revise 

§ 425.204(f)(2) to limit the types of 

repayment mechanisms ACOs may use 

to demonstrate their ability to repay 

shared losses to the following: Placing 

funds in escrow; establishing a line of 

credit; or obtaining a surety bond. 

Under this proposed revision, ACOs 

would retain the flexibility to choose a 

repayment mechanism that best suits 

their organization. We also believe that 

CMS would be more readily able to 

evaluate the adequacy of these three 

types of arrangements, as compared to 

reinsurance policies and other 

alternative repayment mechanisms. For 

instance, escrow account agreements, 

letters of credit, and surety bonds 

typically have standard terms, that CMS 

can more readily assess as compared to 

the documentation for alternative 

repayment mechanisms, which tends to 

be highly variable. 

In addition, we propose to clarify that 

ACOs may use a combination of the 

designated repayment mechanisms, if 

needed, such as placing certain funds in 

escrow, obtaining a surety bond for a 

portion of remaining funds, and 

establishing a line of credit for the 

remainder. Thus, we are proposing to 

revise our rule at § 425.204(f)(2) to 

indicate that an ACO may demonstrate 

its ability to repay shared losses owed 

by placing funds in escrow, obtaining 

surety bonds, establishing a line of 

credit, or by using a combination of 

these mechanisms. We seek comment 

on our proposed modifications to the 

repayment mechanism requirements 

and also welcome comments on the 

availability and adequacy of reinsurance 

as a repayment mechanism. 

6. Seeking Comment on Methodology 

for Establishing, Updating, and 

Resetting the Benchmark 

a. Background on Establishing, 

Updating, and Resetting the Benchmark 

Section 1899(d)(1)(B)(ii) of the Act 

addresses how ACO benchmarks are to 

be established and updated. This 

provision specifies that the Secretary 

shall estimate a benchmark for each 

agreement period for each ACO using 

the most recent available 3 years of per 

beneficiary expenditures for parts A and 

B services for Medicare FFS 

beneficiaries assigned to the ACO. Such 

benchmark shall be adjusted for 

beneficiary characteristics and such 

other factors as the Secretary determines 

appropriate and updated by the 

projected absolute amount of growth in 

national per capita expenditures for 

parts A and B services under the 

original Medicare fee-for-service 

program, as estimated by the Secretary. 

Such benchmark shall be reset at the 

start of each agreement period. 

Accordingly, through the initial 

rulemaking establishing the Shared 

Savings Program, we adopted policies 

for establishing, updating and resetting 

ACO benchmarks at § 425.602. As 

described later in this section, under 

this methodology, we establish ACOspecific benchmarks that account for 

national FFS trends. 

As the statute requires the use of 

historical expenditures to establish an 

ACO’s benchmark, the per capita costs 

for each benchmark year must be 

trended forward to current year dollars 

and then a weighted average is used to 

obtain the ACO’s historical benchmark 

for the first agreement period. The 

statute further requires that we update 

the benchmark for each year of the 

agreement period based on the projected 

absolute amount of growth in national 

per capita expenditures for parts A and 

B services under the FFS program, as 

estimated by the Secretary. In the April 

2011 proposed rule (76 FR 19609 

through 19611), we considered a variety 

of options for establishing the trend 

factors used in establishing the 

historical benchmark and for accounting 

for FFS trends in updating the 

benchmark during the agreement 

period. 

In addition to the statutory 

benchmarking methodology established 

in section 1899(d), section 1899(i)(3) of 

the Act grants the Secretary the 

authority to use other payment models, 

including payment models that would 

use alternative benchmarking 

methodologies, if the Secretary 

determines that doing so would improve 

the quality and efficiency of items and 

services furnished under this title and 

the alternative methodology would 

result in program expenditures equal to 

or lower than those that would result 

under the statutory payment model. As 

described later in this section, in the 

November 2011 final rule, we 

considered whether to invoke this 

authority to modify certain aspects of 

the statutory benchmarking 

methodology, but elected not to do so. 

We note that we did invoke this 

authority to help create two-sided risk 

under Track 2. 

(1) Background on Use of National 

Growth Rate as a Benchmark Trending 

Factor 

The statute does not specify the 

trending factor to be used in 

establishing the benchmark. In the April 

2011 proposed rule (76 FR 19610), we 

considered use of either national, or 

state or local growth factors for trending 

the benchmark. We explained that using 

the national growth rate in Medicare A 

and B FFS expenditures appeared to be 

more consistent with the statutory 

methodology for updating an ACO’s 

benchmark. Further, a national growth 

rate would allow a single growth factor 

to be applied to all ACOs regardless of 

their size or geographic area. However, 

a national rate could also 

disproportionately encourage the 

development of ACOs in areas with 

historical growth rates below the 

national average that would benefit from 

having a relatively higher base, which 

increases the chances for shared 

savings, while discouraging the 

development of ACOs in areas with 

historically higher growth rates above 

the national average that would have a 

relatively lower base. 

In contrast, we explained in April 

2011 proposed rule that trending 

expenditures based on State or local 

area growth rates in Medicare A and B 

expenditures may more accurately 

reflect the experience in an ACO’s area 

and mitigate differential incentives for 

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participation based on location. 

Therefore, we considered an option to 

trend the benchmark by the lower of the 

national projected growth rate or the 

State or the local growth rate. This 

option balanced providing a more 

accurate reflection of local experience 

with not rewarding historical growth 

higher than the national average. We 

believed this method would instill 

strong saving incentives for ACOs in 

both high-cost growth and low-cost 

growth areas. 

We proposed to employ the national 

growth rate in Medicare Parts A and B 

expenditures for FFS beneficiaries for 

trending forward the most recent 3 years 

of per beneficiary expenditures for Parts 

A and B services in order to establish 

the historical benchmark for each ACO. 

We believed this approach would help 

to ensure that ACOs in both high 

spending, high growth and low 

spending, low growth areas would have 

appropriate incentives to participate in 

the Shared Savings Program. We further 

indicated that this approach would 

allow us to move toward establishing a 

national standard to calculate and 

measure ACO financial performance. 

We sought comment on this proposal 

and on the alternatives to using a 

national growth rate to establish the 

benchmark. 

Some commenters supported our 

proposal to employ a national growth 

rate for setting the benchmark and 

recognized the importance of using 

national growth rates for rationalizing 

overall spending across regions 

nationwide. Many more favored the use 

of either local, regional, or State growth 

rates, and some favored our proposal to 

use the lower of either the national or 

State or local growth rates. Commenters 

also offered a number of alternative 

approaches for trending benchmark 

expenditures, including the following: 

• Use a blend of national average 

growth and absolute dollar growth. 

• Use the ACO’s own percentage 

growth rate to trend forward the 

historical benchmark data. 

• Account for local variation after 

analyzing national and local growth 

rates. (76 FR 67925). 

In the end, we finalized our policy 

under § 425.602 of using the national 

growth rate in Medicare Parts A and B 

expenditures for FFS beneficiaries for 

trending forward the most recent 3 years 

of per beneficiary expenditures for Parts 

A and B services in order to establish 

the benchmark for each ACO. In doing 

so, we make calculations for separate 

cost categories for each of the following 

populations of beneficiaries: ESRD, 

disabled, aged/dual eligible and aged/

non-dual eligible. We stated our belief 

that implementing a historical 

benchmark trending factor using the 

national growth rate for Parts A and B 

FFS expenditures appropriately 

balanced commenters’ concerns that 

benchmark trending should encourage 

participation among providers that are 

already efficient or operating in low cost 

regions without unduly rewarding 

ACOs in high-cost areas. We further 

stated that we anticipated the net effect 

of using the same trending factor for all 

ACOs would be to provide a relatively 

higher expenditure benchmark for lowgrowth/low spending ACOs and a 

relatively lower benchmark for high 

growth/high spending ACOs. ACOs in 

high cost, high growth areas would 

therefore have an incentive to reduce 

their rate of growth more to bring their 

costs more in line with the national 

average; while ACOs in low cost low, 

growth areas would have an incentive to 

continue to maintain or improve their 

overall lower spending levels. 

Over 330 ACOs entered the Shared 

Savings Program between 2012 and 

2014 and are located throughout the 

country—across diverse geographies—in 

a mix of high-cost/high-growth and lowcost/low-growth areas. Further, within 

local markets where multiple ACOs 

have formed, we have observed that 

ACOs can be a mix of both high- and 

low-cost and high- and low-growth 

organizations. We are encouraged by the 

continued interest in the program: Of 

the ACOs that entered the program, only 

two voluntarily terminated at the end of 

the performance year concluding 

December 31, 2013. (One was eligible 

for a performance payment of shared 

savings and the other merged with 

another participating ACO.) In addition, 

we continue to see strong interest in 

new entrants for the January 2015 start 

date. 

Under the Pioneer ACO model, we 

adopted a different methodology for 

establishing an ACO’s historical 

expenditure baseline for its first three 

performance years. See http://

innovation.cms.gov/Files/x/

PioneerACOBmarkMethodology.pdf. 

The Pioneer model benchmarking 

methodology trends forward baseline 

years 2009 and 2010 to 2011 by 

applying the growth in expenditures for 

the reference population. The reference 

population is defined as alignmenteligible beneficiaries with the same state 

of residence, eligibility status, age and 

sex as the ACO’s aligned beneficiaries. 

The 3 historical baseline years under the 

Pioneer ACO Model also correspond to 

the 3 years prior to when ACOs entered 

the model, specifically 2009, 2010, and 

2011. Further, baseline expenditures in 

2011 dollars are updated to the 

appropriate performance year using a 

50/50 blend of the national growth rate 

and the absolute dollar equivalent of 

that national growth rate. However, the 

benchmarking methodology used in the 

Pioneer ACO Model was revised for 

performance years four and five of the 

model to be more consistent with the 

benchmarking approach used in the 

Shared Savings Program, in part due to 

stakeholder feedback. 

(2) Background on Use of National FFS 

Growth Factors in Updating the 

Benchmark During the Agreement 

Period 

Section 1899(d)(1)(B)(ii) of the Act 

states that the benchmark shall be 

updated by the projected absolute 

amount of growth in national per capita 

expenditures for parts A and B services 

under the original Medicare fee-forservice program, as estimated by the 

Secretary. 

In the April 2011 proposed rule 

(76 FR 19610 through 19611), we 

proposed to use a flat dollar amount 

equivalent of the absolute amount of 

growth in the national FFS expenditures 

to update the benchmark during an 

agreement period. We explained our 

view that in enacting section 

1899(d)(1)(B)(ii) of the Act, Congress 

demonstrated interest in mitigating 

some of the regional differences in 

Medicare spending among ACOs and 

that this approach would help to ensure 

that ACOs in both high spending/high 

growth and low spending/low growth 

areas would have appropriate incentives 

to participate in the Shared Savings 

Program. We described the effect this 

update methodology might have in the 

2nd and 3rd years of an agreement 

period: Using a flat dollar increase, 

which would be the same for all ACOs, 

provides a relatively higher expenditure 

benchmark for low growth, low 

spending ACOs and a relatively lower 

benchmark for high growth, high 

spending ACOs. All else being equal, an 

ACO can more likely share in savings 

when its actual expenditures are judged 

against a higher, rather than a lower 

benchmark. Thus, with a flat dollar 

increase to the benchmark, ACOs in 

high cost/high growth areas must reduce 

their rate of growth more to bring their 

costs more in line with the national 

average. We acknowledged that this 

approach to updating the benchmark 

could contribute to selective program 

participation by participants in low 

growth areas, as well as result in 

Medicare costs due to an increase in the 

amount of performance payments for 

unearned savings. 

We also considered and sought 

comment on a second option, which 

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would be to use our authority under 

section 1899(i)(3) of the Act to update 

the benchmark by the lower of the 

national projected absolute amount of 

growth in national per capita 

expenditures or the local/State projected 

absolute amount of growth in per capita 

expenditures. We explained our belief 

that this option could instill strong 

saving incentives for ACOs in low-cost 

areas, as well as for those in high-cost 

areas. Incorporating more localized 

growth factors reflects the expenditure 

and growth patterns within the 

geographic area served by ACO 

participants, potentially providing a 

more accurate estimate of the updated 

benchmark based on the area from 

which the ACO derives its patient 

population. Capping the update at the 

projected absolute amount of growth in 

national per capita expenditures, 

however, can advantage ACOs in low 

cost/low growth areas that have already 

achieved greater efficiencies, while still 

offering a strong incentive for those in 

high cost/high growth areas to reduce 

their spending. 

Commenters were mixed in their 

preference for either the proposed 

policy of updating the benchmark by 

absolute growth in national FFS 

expenditures, or use of the lower of the 

national projected absolute amount or 

the local/State projected absolute 

amount. For example, one commenter 

disagreed with the option to use the 

lower of the national projected absolute 

amount or the local/State projected 

absolute amount, suggesting it 

negatively prejudges all high growth 

sectors without regard to the underlying 

clinical or quality issues. However, 

another commenter favored this 

approach because this adjustment 

would afford ACOs the greatest 

potential for achieving shared savings 

and minimize the threat of an ACO 

being disadvantaged by virtue of pricing 

within its geographic location. Along 

these lines, one commenter stated the 

proposed approach offered insufficient 

incentives for efficient providers to form 

an ACO. More generally, many 

commenters urged CMS to adopt 

policies to encourage participation by 

organizations that are already efficient 

or in low cost areas. Several 

commenters urged use of regional or 

market-specific expense data for 

calculating the benchmark update. 

In the November 2011 final rule (76 

FR 67926 through 67927), we finalized 

a policy of using the flat dollar amount 

equivalent of the projected absolute 

amount of growth in national per capita 

FFS expenditures to update the 

benchmark. We stated our belief that 

this method for updating the benchmark 

could best address the program’s goals 

and commenters’ overall concerns about 

the participation of efficient/low cost 

ACOs. The net effect of using the same 

update for all ACOs is to provide a 

relatively higher expenditure 

benchmark for low growth/low 

spending ACOs and a relatively lower 

benchmark for high growth/high 

spending ACOs. Further, with a flat 

dollar increase to the benchmark 

equivalent to the absolute amount of 

growth in the national FFS 

expenditures, ACOs in high cost, high 

growth areas must reduce their rate of 

growth more (compared to ACOs in low 

cost, low growth areas) to bring their 

costs in line with the national average. 

We stated that in light of the alternatives 

we considered, we believed that the 

policy of updating benchmarks by the 

absolute amount of growth in national 

FFS expenditures offers sufficient 

incentives for efficient providers to form 

ACOs. Thus, under the final update 

methodology, ACOs in low cost areas 

would achieve a greater amount of 

savings, based on the same performance, 

than a comparable ACO in a higher cost 

area. Moreover, we stated we believed 

that a benchmark methodology that 

encourages providers in higher cost 

areas to bring their spending more in 

line with the national average is a 

desirable outcome in furtherance of the 

program’s goal of lowering Medicare 

expenditures. Finally, we noted that 

updating the benchmark during the 

agreement period using a national 

growth factor aligns with our approach 

of using a national growth rate to trend 

forward base year expenditures when 

establishing the historical benchmark. 

We stated that we believed this 

alignment could facilitate analysis of 

trends in ACO financial performance 

relative to national trends in Medicare 

expenditures. For these reasons, we 

finalized a policy of using the flat dollar 

amount equivalent of the projected 

absolute amount of growth in national 

FFS expenditures to update the 

benchmark. 

In applying these policies for ACOs 

that joined the program in 2012 and 

2013, we observed that the national 

growth factors used to trend the 

historical benchmark were declining, 

highlighted by negative annual per 

capita expenditure growth in three of 

four Medicare eligibility categories in 

2012. We also found during the first 

performance year reconciliation that the 

national update amounts applied to the 

historical benchmark continued to 

reflect historically low growth in cost 

even after an adjustment to restore the 

effect of sequestration on 2013 claim 

payments. These updates reflected the 

slow or negative FFS growth 

environment due to a number of factors, 

including demographic changes in 

program enrollment, low price updates 

for physician, skilled nursing, and other 

services, and a broad decrease in 

inpatient utilization. This resulted in 

ACOs having very low or even negative 

updates to their historical benchmarks. 

Recent projections estimate total 

Medicare per capita expenditure trends 

are likely to remain historically low 

through 2015 followed by a gradual 

return to historically-familiar positive 

trend rates starting in 2016. 

(3) Background on Managing Changes to 

ACOs During the Agreement Period 

Section 425.214 of the Shared Savings 

Program regulations addresses the 

circumstance under which an ACO adds 

or removes ACO participants or ACO 

providers/suppliers (identified by TINs 

and NPIs, respectively) during the term 

of the participation agreement. The 

regulation specifies that the ACO’s 

benchmark, risk scores, and preliminary 

prospective assignment may be adjusted 

for this change at CMS’ discretion 

(§ 425.214(a)(3)). Subregulatory 

guidance further describes our use of 

this discretion. See ‘‘Changes in ACO 

participants and ACO providers/

suppliers during the Agreement Period’’ 

available online at http://www.cms.gov/ 

Medicare/Medicare-Fee-for-ServicePayment/sharedsavingsprogram/

Updating-ACO-Participant-List.html. 

This guidance explains: 

After acceptance into the program and 

upon execution of the participation 

agreement with CMS, the ACO must certify 

the completeness and accuracy of its list of 

ACO participants. We set the ACO’s 

historical benchmark at the start of the 

agreement period based on the assigned 

population in each of the three benchmark 

years by using the ACO Participant List 

certified by the ACO. The ACO must submit 

a new certified ACO Participant List at the 

start of each new performance year. 

CMS will adjust the ACO’s historical 

benchmark at the start of a performance year 

if the ACO Participant List that the ACO 

certified at the start of that performance year 

differs from the one it certified at the start of 

the prior performance year. CMS will use the 

updated certified ACO Participant List to 

assign beneficiaries to the ACO in the 

benchmark period (the 3 years prior to the 

start of the ACO’s agreement period) in order 

to determine the ACO’s adjusted historical 

benchmark. As a result of changes to the 

ACO’s certified ACO Participant List, we may 

adjust the historical benchmark upward or 

downward. We’ll use the new certified list of 

ACO participants and the adjusted 

benchmark for the new performance year’s 

assignment, quality measurement and 

sampling, reports for the new performance 

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year, and financial reconciliation. We will 

provide ACOs with the adjusted Historical 

Benchmark Report. 

During the program’s first 

performance years, we experienced a 

high volume of change requests from 

ACOs, both adding and removing ACO 

participants. For example, cumulatively 

ACOs with 2012 and 2013 start dates 

requested the addition of over 2,800 

ACO participants and removal of over 

1,200 ACO participants. The ACO’s 

composition of ACO participant TINs is 

used to determine the ACO’s assigned 

beneficiary population. Changes to an 

ACO’s participant list will result in 

changes to the ACO’s assigned 

beneficiary population. As a result, it is 

necessary to make adjustments to the 

ACO’s historical benchmark to account 

for these changes. In accordance with 

our guidance, we adjusted the historical 

benchmarks for 162 of 220 ACOs with 

2012 and 2013 start dates for their 

second performance year to reflect 

changes in ACO participants. When an 

ACO adds new ACO participants or 

deletes existing ACO participants, the 

adjustments that are made to its 

historical benchmark will impact the 

ACO’s performance in subsequent years, 

and can make forecasting performance 

more challenging. 

As noted in the guidance, when we 

adjust historical benchmarks during the 

agreement period to account for changes 

in beneficiary assignment arising from 

ACO participant list changes, the 

benchmark period (the 3 years prior to 

the start of the ACO’s agreement period) 

remains the same. For instance, if an 

ACO with an agreement start date of 

January 1, 2013, added ACO 

participants for its second performance 

year, then the adjustments made to the 

historical benchmark to reflect the 

ACO’s certified ACO participant list for 

performance year 2 would have been 

based on the same three benchmark 

years (2010, 2011, and 2012) originally 

used to calculate the historical 

benchmark for the ACO based on its 

ACO participant list certified when it 

entered the program (for its first 

performance year). 

Further, changes in the ACO 

participant TINs that compose ACOs are 

relevant to determining beneficiary 

assignment across the program. A 

beneficiary is assigned to an ACO if the 

beneficiary received the plurality of his 

or her primary care services (measured 

in allowed charges) from ACO 

professionals billing under the TINs of 

ACO participants in the ACO rather 

than outside the ACO (such as from 

ACO professionals billing under the 

TINs of ACO participants in other 

ACOs, individual providers, or provider 

organizations). We perform the 

assignment process for ACOs 

simultaneously, including all eligible 

organizations. To determine where a 

beneficiary got the plurality of his or her 

primary care services, we compare the 

total allowed charges for each 

beneficiary for primary care services 

provided by the ACO (in total for all 

ACO participants) to the allowed 

charges for primary care services 

provided by ACO participants in other 

ACOs and by non-ACO providers and 

suppliers. See ‘‘Medicare Shared 

Savings Program: Shared Savings and 

Losses and Assignment Methodology 

Specifications’’ available online at 

http://www.cms.gov/Medicare/

Medicare-Fee-for-Service-Payment/

sharedsavingsprogram/Financial-andAssignment-Specifications.html. 

Therefore, in the case where a 

beneficiary is receiving primary care 

services from ACO participants in 

multiple ACOs or from both ACO 

participants and non-ACO providers 

and suppliers, an ACO’s participant 

composition is important in 

determining whether the beneficiary is 

assigned to the ACO at all, and in 

determining to which (among several) 

ACO the beneficiary may be assigned. 

In summary, in making adjustments to 

the historical benchmarks for ACOs 

within an agreement period to account 

for ACO participant list changes: The 

historical benchmark period remains 

constant, but beneficiary assignment 

reflects the influence of ACO participant 

list changes. Under this methodology, 

the historical benchmarks for ACOs 

with participant list changes from one 

performance year to the next continue to 

reflect the ACOs’ historical costs in 

relation to their current composition. 

(4) Background on Resetting the 

Benchmark 

In the November 2011 final rule (see 

76 FR 67915) establishing the Shared 

Savings Program, some commenters 

expressed concerns that rebasing the 

benchmark at the start of each 

agreement period would make savings 

more difficult to attain and eventually 

make savings unattainable by ACOs. 

Stakeholders have continued to express 

concerns about this methodology for 

rebasing the benchmark. They assert 

that the current methodology may also 

reduce the incentive for ACOs to 

achieve savings since any savings 

achieved during a given agreement 

period would result in lower future 

benchmarks, generating an offsetting 

reduction in the shared savings 

payments the ACO would receive in 

those future agreement periods. 

During the initial rulemaking, 

commenters suggested a variety of 

alternatives to rebasing the benchmark 

for each agreement period, as well as 

technical suggestions on how to reset 

the benchmark (76 FR 67915 through 76 

FR 67916). In the November 2011 final 

rule, we adopted a policy under which 

an ACO’s benchmark would be reset at 

the start of each agreement period, as 

required under section 1899(d)(1)(B)(ii) 

of the Act. In finalizing this policy, we 

explained our belief that resetting the 

benchmark at the beginning of each 

agreement period would most 

accurately account for changes in an 

ACO’s beneficiary population over time. 

We explained that because of turnover 

in an ACO’s assigned beneficiary 

population, by the end of the agreement 

period, an ACO’s assigned population 

may be significantly different from the 

historically assigned beneficiary 

population used to calculate the ACO’s 

initial benchmark. Further, resetting the 

benchmark at the beginning of 

subsequent agreement periods would 

allow the benchmark to more accurately 

reflect the composition of an ACO’s 

population, and therefore protect both 

the Trust Funds and ACOs. We 

acknowledged commenters’ concerns 

that resetting the benchmark after 3 

years could ultimately make it more 

challenging for ACOs to achieve 

savings, particularly for low-cost ACOs. 

However, we explained our belief that 

one of the fundamental purposes of the 

Shared Savings Program is to provide 

incentives for ACOs to strive 

continually to make further advances in 

the quality and efficiency of the care 

they provide (76 FR 67916). 

Under § 425.602(c) of the rule, an 

ACO’s benchmark would be reset at the 

start of its second or subsequent 

agreement period using the same 

methodology for establishing the 

historical benchmark under 

§ 425.602(a). The existing regulations do 

not specify any alternative methodology 

for rebasing the benchmarks for ACOs 

that have completed one or more 

agreement periods in the Shared 

Savings Program. For example, for an 

ACO with a January 2013 agreement 

start date that continues in the program 

for a second agreement period beginning 

January 1, 2016, we would establish the 

ACO’s historical benchmark for its 

second agreement period according to 

the methodology set forth in 

§ 425.602(a). In particular, we would 

compute the ACO’s benchmark for its 

second agreement period based on per 

capita Parts A and B fee-for-service 

expenditures for beneficiaries that 

would have been assigned to the ACO 

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in any of the 3 most recent years prior 

to the agreement period using the ACO 

participants’ TINs identified at the start 

of the agreement period (§ 425.602(a)). 

In the example of an ACO with an 

initial agreement period beginning 

January 1, 2013 and a second agreement 

beginning January 1, 2016: The ACO’s 

historical benchmark for its first 

agreement period would have been 

based on the historical years of 2010, 

2011 and 2012 and the ACO’s historical 

benchmark for its second agreement 

period would be based on the historical 

years of 2013, 2014 and 2015. In 

resetting the benchmark, the time period 

for the benchmark shifts forward to 

capture the ACOs participants’ more 

recent historical spending. As noted 

previously, we adjust an ACO’s 

benchmark based on the ACO 

participant list that it certifies at the 

start of each performance year, which 

may reflect changes during the course of 

the prior performance year. Similarly, in 

resetting the ACO’s benchmark at the 

start of a second agreement period, we 

would effectively account for any ACO 

participant list changes between the 

ACO’s third performance year under its 

first agreement period and its first 

performance year under its second 

agreement period. 

Early experience for ACOs 

participating in the Shared Savings 

Program is limited to financial 

performance results for the first 

performance year of ACOs with 2012 

and 2013 start dates. However, we 

anticipate that the trend for ACOs 

participating in the Shared Savings 

Program will be similar to the trend for 

sites in the Physician Group Practice 

(PGP) demonstration, with more 

organizations generating savings as they 

gain experience in a shared savings 

model. In the initial performance year of 

the PGP Demonstration, two sites were 

eligible for shared savings payments. As 

the demonstration progressed, more 

PGP sites demonstrated savings. Over 

the course of the 5-year demonstration, 

7 of the 10 PGP sites were eligible for 

shared savings payments in one or more 

performance years. 

The experience of PGP demonstration 

sites is also an indication that resetting 

ACO benchmarks at the start of the 

second and each subsequent agreement 

period would not deter ongoing 

participation in the program by ACOs. 

We note, however, that unlike the 

update methodology currently used in 

the Shared Savings Program, the 

benchmarks used in the PGP 

demonstration were updated using 

regional factors, as opposed to national 

factors. This approach is similar to some 

of the alternatives discussed later in this 

section, on which we are seeking 

comment. The benchmarks for the PGP 

sites were reset as they moved from the 

PGP demonstration to the PGP 

Transition Demonstration, and again 

when they transitioned into the Pioneer 

ACO Model or the Shared Savings 

Program. We note that most of the 

organizations participating in the PGP 

demonstration elected to continue their 

voluntary participation under these 

shared savings models, even though 

their benchmarks would be reset under 

the applicable benchmarking 

methodology. Based on this experience, 

we conclude that these organizations 

must have believed there was a 

sufficient opportunity to share in 

savings as well as other strategic and 

competitive advantages to warrant their 

continued participation in a shared 

savings initiative, even under a rebased 

benchmark that reflected the cost 

savings achieved by the site under the 

PGP demonstration. 

However, while the PGP experience 

establishes that the current approach to 

rebasing is consistent with continued 

participation, at least in some cases, it 

is possible that additional organizations 

would have continued into the Pioneer 

ACO Model or the Shared Savings 

Program under an alternative rebasing 

methodology. The PGP experience 

cannot rule out the possibility that an 

alternative rebasing methodology could 

induce ACOs to achieve greater savings, 

particularly as providers gain more 

familiarity with the payment model, or 

could prove more sustainable over time. 

(5) Background on Stakeholders’ 

Concerns about Benchmarking 

Methodology 

Since the initial rulemaking, 

stakeholders have continued to express 

their concern that resetting ACO 

benchmarks at the start of each 

agreement period, as required under the 

existing methodology, may disadvantage 

ACOs, particularly those that have 

generated shared savings. A closely 

related concern is that because savings 

achieved during one agreement period 

would lead to a lower benchmark in 

future agreement periods, achieving 

savings could hypothetically be 

financially unattractive for ACOs in 

some circumstances. Under the existing 

benchmarking methodology, an ACO 

that performs well in its first agreement 

period as a result of its effective 

strategies for lowering Medicare 

expenditures may have a significantly 

lower historical benchmark in its 

subsequent agreement period. 

Consequently, some stakeholders 

believe that achieving savings may 

sometimes be financially unattractive 

for ACOs because these savings would 

reduce their benchmarks for future 

periods. They are concerned that the 

value proposition of the program may 

diminish over time as ACOs become 

lower-cost entities, and, as a result, face 

increased difficulty in achieving 

additional efficiencies (hence savings) 

when judged against decreasing 

benchmarks. 

Further, some stakeholders have 

expressed concern that the existing 

benchmarking methodology does not 

sufficiently account for the influence of 

cost trends in the surrounding region or 

local market on the ACO’s financial 

performance. In particular, some 

stakeholders voiced concerns about the 

low or negative update amounts used 

during first performance year 

reconciliation under the existing 

benchmarking methodology, and favor 

alternative approaches, which they 

believe are more certain to yield 

positive updates to ACOs’ historical 

benchmarks. Others have suggested that 

we move away from an approach for 

setting ACO-specific benchmarks and 

toward an approach for setting 

regionally-specific benchmarks for 

ACOs. These concerns, as with those 

raised regarding the methodology for 

resetting benchmarks in subsequent 

agreement periods, center on whether 

the benchmarks are set at a level ACOs 

perceive to be sufficient to make 

program participation financially viable. 

We believe it is timely to consider 

these issues in the context of 

encouraging continued participation by 

ACOs in the program and continued 

improvement in ACO performance, 

particularly as ACOs with 2012 and 

2013 start dates begin to contemplate 

whether to continue in the program for 

a second agreement period. Further, we 

believe there may be important 

interactions between the way in which 

the benchmarks for ACOs are set in their 

initial agreement period and reset in 

their subsequent agreement periods and 

encouraging participation by ACOs in 

the program’s two-sided models 

(particularly ACOs that entered the 

program under Track 1 and are 

contemplating moving to a risk based 

track); namely in terms of the value 

proposition of moving to a performancebased risk track. 

b. Factors To Use in Resetting ACO 

Benchmarks and Alternative 

Benchmarking Methodologies 

We considered whether modifying the 

methodology used for establishing, 

updating, and resetting ACO 

benchmarks to account for factors 

relevant to ACOs that have participated 

in the program for 3 or more years 

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would help ensure that the Shared 

Savings Program remains attractive to 

ACOs and continues to encourage ACOs 

to improve their performance, 

particularly those that have achieved 

shared savings. As discussed later in 

this section, we considered a range of 

modifications to the benchmarking 

methodology in order to expand the 

methodology for resetting benchmarks 

to account for factors relevant to 

continued participation by ACOs in 

subsequent agreement periods and to 

increase incentives to achieve savings in 

a current agreement period, specifically: 

(1) Equally weighting the 3-benchmark 

years; (2) accounting for shared savings 

payments in benchmarks; (3) using 

regional FFS expenditures (as opposed 

to national FFS expenditures) to trend 

and update the benchmarks; (4) 

implementing an alternative 

methodology for resetting ACO 

benchmarks that would hold an ACO’s 

historical costs, as determined for 

purposes of establishing the ACO’s 

initial historical benchmark for its first 

agreement period, constant relative to 

costs in its region for all of the ACO’s 

subsequent agreement periods; and (5) 

implementing an alternative 

methodology for resetting ACO 

benchmarks that would transition ACOs 

to benchmarks based only on regional 

FFS costs, as opposed to the ACO’s own 

historical costs, over the course of 

multiple agreement periods. Further, we 

considered whether to apply these 

changes broadly to all ACOs or to apply 

these changes only when resetting 

benchmarks for ACOs entering their 

second or subsequent agreement 

periods. We also considered whether to 

apply these changes to a subset of 

ACOs, such as ACOs participating 

under a two-sided model (Tracks 2 and 

3) or Track 3 ACOs only. In considering 

these potential options for modifying 

the benchmarking methodology, it is 

necessary to balance the desire to make 

the program more financially attractive 

to ACOs, against the need to protect the 

Medicare Trust Funds. 

Although we are not proposing any 

changes to our benchmarking 

methodology at this time, we are 

seeking comment on these alternatives 

for how we approach establishing, 

updating and resetting benchmarks, as 

well as suggestions regarding alternative 

approaches not described here. We will 

carefully consider the comments that 

are received regarding these options 

during the development of the final 

rule, and may consider adopting one or 

more of these options in the final rule. 

We note, however, that any option that 

relies upon the use of the authority 

under section 1899(i)(3) of the Act to 

adopt alternate payment models must be 

determined to improve quality and 

efficiency and not to increase program 

spending. 

(1) Equally Weighting the 3 Benchmark 

Years 

Pursuant to section 1899(d)(1)(B)(ii) of 

the Act, in the November 2011 final 

rule, we adopted a methodology for 

establishing ACO benchmarks under 

which we weight benchmark 

expenditures at 60 percent for 

Benchmark Year (BY) 3, 30 percent for 

BY2, and 10 percent for BY1 

(§ 425.602(a)(7)). As we explained in the 

November 2011 final rule (76 FR 67915), 

this weighting helps ensure that the 

benchmark reflects more accurately the 

latest expenditures and health status of 

the ACO’s assigned beneficiary 

population. We indicated that giving 

BY3 the greatest weight would most 

accurately reflect recent cost trends for 

the Medicare beneficiaries who receive 

the plurality of their primary care from 

ACO providers/suppliers, and thus 

result in a more accurate benchmark. 

To establish an ACO’s benchmark for 

an agreement period, we determine the 

per capita Parts A and B fee-for-service 

expenditures for beneficiaries that 

would have been assigned to the ACO 

in any of the 3 most recent years prior 

to the agreement period using the ACO 

participants’ TINs identified at the start 

of the agreement period (§ 425.602(a)). 

Therefore, an ACO’s benchmark under a 

second or subsequent agreement period 

will reflect, to some degree, its previous 

performance under the program. For 

example, for ACOs with 2013 start dates 

that continue in the program for a 

second agreement period beginning 

January 1, 2016, BY1 will be based on 

expenditures for beneficiaries who were 

assigned to the ACO based on CY 2013 

(the timeframe corresponding to 

performance year 1 under the first 

agreement period). Likewise, BY2 will 

be based on assignment for CY 2014 

(performance year 2) and BY3 will be 

based on assignment for CY 2015 

(performance year 3). We note, however, 

that a number of factors will affect 

beneficiary assignment for purposes of 

establishing ACO benchmarks in 

subsequent agreement periods, which 

may cause an ACO’s benchmark year 

assigned population to deviate from its 

assigned population for the 

corresponding performance year. For 

example, an ACO may add or remove 

ACO participant TINs in its second or 

subsequent agreement period. Further, 

participation in the program by other 

organizations in an ACO’s market may 

also change in the time between when 

we performed assignment for the 

performance year under the prior 

agreement and when we assign 

beneficiaries for the purpose of resetting 

the ACO’s benchmark for the next 

agreement period, leading to changes in 

the ACO’s assigned beneficiary 

population for purposes of establishing 

its benchmark for the new agreement 

period. The impact of these kinds of 

changes in the assigned beneficiary 

population between the performance 

year and the time the benchmark is 

established for a subsequent agreement 

is uncertain, and could result in either 

upward or downward adjustments to 

expenditures for purposes of 

establishing the benchmark. 

Among ACOs whose assigned 

beneficiary populations for purposes of 

resetting the benchmark closely match 

their assigned beneficiary population for 

the corresponding performance years, 

those ACOs that generated savings 

during a prior agreement period will 

have comparatively lower benchmarks 

for their next agreement period. This is 

because the ACOs were effective in 

lowering expenditures for these 

assigned beneficiaries. We assume, for 

example, that if an ACO generates 

savings in its first agreement period it is 

likely that the impact on claims would 

be most significant in the second or 

third performance year as opposed to 

being uniformly distributed across all 

three performance years. This 

hypothesis is supported by following 

factors: 

• There may be a lag between when 

an ACO starts care management 

activities and when these activities have 

a measurable impact upon expenditures 

for the ACO’s assigned beneficiary 

population. 

• ACOs may improve their 

effectiveness over time as they gain 

experience with population 

management and improve processes. 

• There may be higher care costs 

during the early period of performance 

to treat or stabilize certain patients, as 

the ACO’s care management activities 

involving these patients commence. 

Once stabilized, these patients may 

show relatively lower care costs over the 

course of time due to more effective, 

coordinated and quality care. 

Under these circumstances, resetting 

the benchmark for ACOs starting a 

second or subsequent agreement period 

under the Shared Savings Program 

becomes a trade-off between the 

accuracy gained by weighting the 

benchmark years at 60 percent for BY3, 

30 percent for BY2 and 10 percent for 

BY1 and the potential for further 

reducing the benchmarks for these 

ACOs by giving greater weight to the 

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later performance years of the preceding 

agreement period. Unchanged, the 

application of this methodology for 

weighting the benchmark years when 

resetting benchmarks could reduce the 

incentive for ACOs that generate savings 

or that are trending positive in their first 

agreement period to participate in the 

program over the longer run, or to 

reduce incentives for ACOs to achieve 

savings in their first agreement period. 

For instance, ACOs that have previously 

performed well under the program may 

be discouraged from continuing to 

participate in the program if their 

rebased benchmark is so low that they 

would have difficulty continuing to 

lower expenditures sufficiently to 

exceed their MSR in order to be eligible 

for shared savings during their next 

agreement period. 

We considered an alternative 

methodology for resetting benchmarks 

where we would weigh the benchmark 

years equally (ascribing a weight of onethird to each benchmark year). We 

believe that equally weighting the 

benchmark years could more gradually 

lower the benchmarks of ACOs that 

perform well in their first agreement 

period, in contrast to giving the greatest 

weight to the most recent prior 

benchmark year, which, for the reasons 

discussed previously, is likely to be the 

year in which an ACO would have been 

most effective in lowering expenditures 

for its assigned population. This 

alternative approach would have the 

most significant impact upon ACOs 

whose assigned population during the 

three performance years of the 

preceding agreement period most 

closely approximates the assigned 

population used to determine their 

benchmark for the subsequent 

agreement period. This approach may 

be less accurate, and therefore less 

protective of the Trust Funds, since it 

may not sufficiently account for an 

ACO’s most recent historical cost 

experience, particularly in the case of an 

ACO whose ACO participant 

composition (and therefore its assigned 

beneficiary population) changed over 

the course of the agreement period, such 

that its assigned beneficiary population 

in the subsequent agreement period is 

significantly different from the 

beneficiary population in the early years 

of its prior agreement period; this effect 

could be counteracted to the extent that 

this approach encourages greater 

participation in the Shared Savings 

Program or encourages ACOs to achieve 

greater shared savings. 

(2) Accounting for Shared Savings 

Payments in Benchmarks 

We also considered revising the 

methodology for resetting ACO 

benchmarks to account for shared 

savings earned by an ACO in its prior 

agreement period, as a way to encourage 

ongoing participation by successful 

ACOs and improve the incentive to 

achieve savings. Similar to the option of 

equally weighting the benchmark years 

discussed above, accounting for an 

ACO’s shared savings during its prior 

agreement period would more gradually 

lower the benchmarks of ACOs that 

perform well in their prior agreement 

period. 

The statute outlines the scope of 

Medicare expenditures to be used in 

calculating ACO benchmarks. Section 

1899(d)(1)(B)(ii) of the Act specifies that 

the benchmark is established ‘‘. . . 

using the most recent available 3 years 

of per-beneficiary expenditures for parts 

A and B services for Medicare fee-forservice beneficiaries assigned to the 

ACO.’’ This provision of the Act further 

specifies: ‘‘Such benchmark shall be 

adjusted for beneficiary characteristics 

and such other factors as the Secretary 

determines appropriate.’’ In the 

November 2011 final rule establishing 

the Shared Savings Program, we 

explained that in implementing section 

1899(d)(1)(B)(ii) of the Act, we would 

take into account payments made from 

the Medicare Trust Funds for Parts A 

and B services, for assigned Medicare 

fee-for-service beneficiaries, including 

payments made under a demonstration, 

pilot or time limited program when 

computing average per capita Medicare 

expenditures under the ACO. Our 

policies for determining per capita 

expenditures for purposes of 

establishing the benchmark are 

specified at § 425.602(a)(1). Shared 

savings payments are paid from the 

Medicare Trust Funds for the 

beneficiary population assigned to an 

ACO and are intended to recognize the 

costs incurred by the ACO and its ACO 

participants and ACO providers/

suppliers in coordinating care and 

improving the quality of care for the 

assigned beneficiaries. Accordingly, we 

are considering whether it would be 

appropriate to revise our methodology 

under § 425.602(a)(1) for establishing an 

ACO’s benchmark to incorporate the 

ACO’s share of savings for those ACOs 

that receive shared savings payments 

under the prior agreement period. We 

considered how to account for these 

payments in ACOs’ 3-year weighted 

average per capita benchmarks since 

ACO shared savings payments are 

determined at the population-level, 

reflecting aggregated per capita 

expenditures that have been truncated 

and annualized and weighted by the 

proportion of assigned beneficiaries in 

each of the four Medicare enrollment 

types: ESRD, disabled, aged/dual and 

aged/non-dual. For instance, we could 

develop a per-beneficiary average based 

on the shared savings payment for the 

particular performance year under the 

prior agreement period and apply this 

adjustment on a per beneficiary basis to 

the assigned population for the 

corresponding benchmark year. We also 

considered whether to make a 

symmetric adjustment in benchmarks 

for ACOs that owed losses in a previous 

agreement period. 

We believe there are merits to 

upwardly adjusting benchmarks for 

ACOs in a second or subsequent 

agreement period to reflect any shared 

savings payments in the most recent 

prior agreement period. An adjustment 

that reflects the ACO’s share of 

savings—based on its final sharing rate, 

which is a function of its quality 

performance—in the computation of the 

benchmark would increase the ACO’s 

benchmark for the subsequent 

agreement period. This increase in the 

benchmark, relative to the ACO’s prior 

success in the program, may address 

concerns expressed by some 

stakeholders (described previously) that 

under the existing benchmarking 

methodology achieving savings may 

sometimes be financially unattractive 

for ACOs because of the potential 

impact on their benchmarks in future 

agreement periods. 

There are clear advantages of this 

adjustment for ACOs and the Medicare 

program. In particular, ACOs would 

have an increased incentive to continue 

to generate shared savings and improve 

quality because of the prospect of 

having a higher benchmark in future 

agreement periods. Consequently, ACOs 

may demonstrate improved performance 

over longer term participation in the 

program. Further, ACOs may be 

encouraged to enter the program’s twosided models (such as the proposed 

Track 3), which offer higher final 

sharing rates because making an 

adjustment to the benchmark for these 

ACOs to reflect successful participation 

during one agreement period may 

improve their potential to receive 

shared savings in the next agreement 

period. Other implications of this 

adjustment for consideration include 

the following: 

• Not all ACOs would benefit. By 

making the adjustment only for ACOs 

that receive shared savings payments in 

their prior agreement period, some 

ACOs that reduce expenditures would 

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not receive the benefit of this 

adjustment. Specifically, ACOs whose 

performance year expenditures are 

lower than their benchmark 

expenditures by an amount that did not 

meet or exceed their MSR, and ACOs 

that generated savings outside their 

MSRs, but that failed to satisfy the 

quality reporting standard, would not 

receive the adjustment. 

• Availability of performance data 

relative to timely creation of 

benchmarks. We anticipate completing 

financial reconciliation for an ACO’s 

most recent prior performance year (for 

example, PY3 under the first agreement 

period which corresponds to BY3 for 

the second agreement period) mid-way 

through its current performance year 

(for example, PY1 under the second 

agreement period). As a result, one 

downside of relying on the availability 

of performance data from the most 

recent prior performance year is that it 

would delay the finalization of an 

ACO’s historical benchmark for its first 

performance year during its subsequent 

agreement period. 

(3) Use of Regional Factors (as Opposed 

to National Factors) in Establishing and 

Updating Benchmarks 

Some stakeholders have expressed 

concern that the existing benchmarking 

methodology does not sufficiently 

account for the influence of cost trends 

in the surrounding region or local 

market on the ACO’s financial 

performance. We considered addressing 

these concerns by using regional FFS 

expenditures, instead of national FFS 

expenditures, to trend forward the most 

recent 3 years of per beneficiary 

expenditures for Parts A and B services 

in order to establish the historical 

benchmark for each ACO under section 

1899(d)(1)(B)(ii) of the Act. In addition, 

we considered making this modification 

in combination with an alternative 

payment model under section 1899(i)(3) 

of the Act under which we would use 

regional FFS expenditures, instead of 

national FFS expenditures, to update 

the benchmark for each performance 

year during an agreement period. We 

also considered other approaches to 

address this concern, as discussed later 

in this section describing alternative 

benchmarking methodologies. 

In considering how to establish and 

update benchmarks based on regional 

factors, we favor use of an approach 

similar to the method for updating 

benchmarks used under the PGP 

demonstration, which has been tested 

and validated with physician groups 

across the country, including groups in 

rural, urban and suburban areas. Under 

this approach, much of the Shared 

Savings Program’s existing 

benchmarking methodology would 

remain the same. Instead of using 

national Medicare FFS expenditure data 

to trend expenditures in establishing the 

historical benchmark (§ 425.602(a)(5)) 

and to update the benchmark for each 

performance year (§ 425.602(b)(1)), we 

would use regional FFS expenditure 

data to make these adjustments. We 

would calculate the ACO’s regional 

expenditure trend and update factors 

according to the cost experience of a 

reference population. Specifically, in 

establishing benchmarks under the PGP 

demonstration, a comparison group was 

created using the PGP’s service area. 

The growth rate of the comparison 

group expenditures was calculated and 

used as the growth rate for updating the 

PGP’s benchmark. Specifically, we used 

each PGP’s annual assigned beneficiary 

population to determine the PGP’s 

service area. A PGP’s service area was 

defined as all counties where one 

percent or more of assigned PGP 

beneficiaries reside. We identified 

which beneficiaries residing in each 

service area met the comparison group 

assignment criteria and assigned them 

to the PGP comparison group. The 

service area and comparison group for 

the PGP were re-determined each year 

to account for changes in the PGP’s 

assigned beneficiaries. The expenditure 

growth rate for the PGP’s comparison 

group was calculated and used to 

update the PGP’s historical benchmark 

for purposes of determining each PGP’s 

performance under the shared savings 

calculation methodology used in the 

demonstration. This benchmarking 

methodology was used over the course 

of the 5-year PGP demonstration. Given 

that we have already tested and refined 

this methodology, we believe that a 

similar approach could be implemented 

within the Shared Savings Program. As 

noted previously, over the course of the 

PGP demonstration, 7 of 10 sites were 

eligible for shared savings payments in 

one or more performance years. Taking 

these factors into consideration, we 

believe stakeholders may welcome this 

approach to revising the program’s 

benchmarking methodology. 

However, we have also identified a 

number of additional factors that must 

be considered in using this approach in 

the Shared Savings Program: 

• Whether the comparison group 

counties should be weighted by the 

percent of assigned beneficiaries in the 

county out of all assigned beneficiaries 

in all comparison group counties. For 

example, for an ACO in a rural or 

suburban county near a large 

metropolitan area: On a weighted basis, 

the large metropolitan area would 

contribute less to the comparison group 

than on an unweighted basis. 

Alternatively, an ACO with high 

penetration in a specific county would 

have its regional factors significantly 

influenced by that county. 

• Whether to establish a minimum 

sample size for the comparison group, 

such as equal to or greater than 25,000. 

Smaller comparison groups are more 

likely to demonstrate idiosyncratic 

expenditure trends, for instance, if an 

ACO has a high penetration in its 

service area, the remaining population 

may be non-representative compared to 

the ACO’s patient population. These 

factors would seem to support the use 

of a minimum sample size threshold. 

Based on statistical modeling for an 

effective sample size, we anticipate that 

the minimum sample size threshold 

would be set not lower than 25,000 

beneficiaries. In turn, a minimum 

sample size raises a question of what 

criteria should be used to ensure the 

ACO’s comparison group is large 

enough. For instance, in markets where 

the ACO’s assigned beneficiaries 

represent a substantial share (for 

example, more than 40 percent) of 

Medicare FFS beneficiaries, should the 

region be expanded—perhaps to include 

the entire corresponding metropolitan 

statistical area (MSA), hospital referral 

region (HRR), or another regional 

grouping approach? Similarly, in 

markets where multiple ACOs represent 

a substantial share (for example, more 

than 50 percent) of Medicare FFS 

beneficiaries, should the region be 

similarly expanded as described 

previously? We also considered whether 

to lock-in the counties composing the 

comparison group at the start of the 

agreement period, since over the course 

of the agreement the counties where one 

percent or more of assigned ACO 

beneficiaries reside may fluctuate (for 

example, just above or just below 1 

percent). 

(4) Alternative Benchmark Resetting 

Methodology: Holding the ACO’s 

Historical Costs Constant Relative to its 

Region 

Some stakeholders have also 

expressed a preference for further 

changes in the methodology used to 

reset ACO benchmarks to address the 

concerns described previously. For 

example, some stakeholders have 

suggested that ACOs would have 

stronger incentives to achieve shared 

savings during a given agreement period 

and to continue to participate in the 

program in subsequent agreement 

periods if we used a methodology for 

resetting benchmarks that held the 

ACO’s historical per assigned 

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beneficiary spending constant relative to 

its local market so that improvements in 

efficiency that the ACO achieved during 

an agreement period would not lower its 

benchmark for a subsequent agreement 

period. 

Accordingly, we considered using the 

authority under section 1899(i)(3) of the 

Act to establish an approach to resetting 

an ACO’s benchmark at the start of a 

new agreement period under which the 

ACO’s benchmark from the prior 

agreement period would be updated 

according to trends in FFS costs in the 

ACO’s region, effectively holding a 

portion of the ACO’s benchmark 

constant relative to its region. Under 

this approach, an ACO’s benchmark for 

its initial agreement period would be set 

according to an approach similar to the 

existing methodology. For subsequent 

agreement periods, the trend in regional 

costs would be calculated using an 

approach based on the PGP 

demonstration, described previously, 

and the historical benchmark would be 

updated by increasing it by a percentage 

equal to the percentage increase in 

regional costs. This approach would 

prevent an ACO’s improved efficiency 

during an agreement period from 

lowering its benchmark in a future 

agreement period. 

We also considered a similar 

approach that would use information 

regarding the ACO’s historical costs 

under its first agreement period to 

adjust regional FFS benchmarks 

developed for future agreement periods 

by developing a scaling factor. The 

scaling factor could be calculated as the 

ratio of—(1) an ACO’s historical 

benchmark under its first agreement 

period (computed using an approach 

similar to the existing methodology) 

divided by; (2) the regional FFS 

benchmark that would have been 

calculated for the ACO for the third 

benchmark year of its first agreement 

period. We would compute an ACO’s 

benchmark for each subsequent 

performance year by multiplying this 

scaling factor by the ACO’s regional FFS 

benchmark for that performance year to 

account for the difference originally 

exhibited between the ACO 

expenditures and the regional FFS 

benchmark expenditures in the year 

prior to the beginning of the ACO’s first 

agreement period. The regional FFS 

benchmark for an ACO in a given 

performance year would be computed 

using an approach based on the PGP 

demonstration described above. For 

example, if the ACO’s assigned 

beneficiaries expenditures were 10 

percent higher than what its regional 

FFS benchmark would have been in its 

most recent base year of its initial 

agreement period, the ACO’s future 

benchmark based on regional FFS 

expenditures would be adjusted by 10 

percent to account for this baseline 

difference. This approach would likely 

generate benchmarks very similar to 

those described in the previous 

paragraph and thus have a similar effect 

on an ACO’s incentives to improve 

efficiency. 

Under both of these approaches, we 

considered whether to adjust the 

benchmark or scaling factor to reflect 

changes in the list of ACO participant 

TINs over time, as we do now based on 

our authority under § 425.602((a)(8). We 

considered two approaches to making 

such adjustments, each of which could 

be used with either of the basic 

approaches to holding benchmarks 

constant relative to an ACO’s region that 

were previously described. Under the 

first approach, we considered basing 

such adjustments off our current 

method of adjusting the benchmark on 

an annual basis to reflect ACO 

participant changes. Under the second 

approach, we considered an adjustment 

method to reflect the historical cost 

experience of any ACO participant TINs 

that are added to the ACO and to 

remove the influence of the cost 

experience of those ACO participant 

TINs that leave the ACO, but not 

incorporate updated cost information 

for ACO participants that have 

continued in the ACO. 

First, we considered using an 

approach similar to our existing method 

for adjusting the ACO’s benchmark 

during the course of its agreement 

period to account for changes in its ACO 

participant list as described previously. 

Under this approach, each 

performance year that the ACO’s 

participant list changed, we would 

recompute its initial historical 

benchmark or scaling factor using cost 

information from the benchmark period 

corresponding to the ACO’s initial 

agreement period. This approach has 

the advantage that it is similar to the 

approach we have used successfully to 

adjust ACO benchmarks within an 

agreement period in response to changes 

in ACO participant lists. However, we 

recognize that not all ACO participants 

joining the ACO in subsequent 

agreement periods may have historical 

claims data during the 3 years prior to 

the start of the ACO’s first agreement 

period. Therefore, we considered the 

need to expand this approach to include 

adjustments to the benchmark or scaling 

factor to account for ACO participant 

list changes. 

Second, we considered an approach 

that would adjust an ACO’s benchmark 

(or scaling factor) after each annual 

change in the ACO participant list based 

on the relative cost experience of patient 

populations associated with the new 

performance year’s set of TINs relative 

to the prior performance year’s set of 

TINs, as measured during a period 

immediately preceding the change in 

the ACO participant list. We note that 

under our current benchmarking 

methodology, assigned beneficiaries and 

benchmark expenditures are determined 

in aggregate at the ACO level rather than 

at the individual ACO participant TIN 

level. Therefore, under this alternative 

approach, we would develop a 

methodology for associating assigned 

beneficiary costs to individual ACO 

participant TINs that continue in the 

program so as not to incorporate 

updated cost information for the patient 

populations associated with the 

continuing ACO participants, as well as 

to incorporate updated cost information 

for the patient populations associated 

with new ACO participants or remove 

the influence of cost information for 

patient populations associated with 

departing ACO participants. 

The advantage of this type of 

approach is that it could generate more 

accurate benchmarks in cases where an 

ACO adds many participant TINs that 

were not active during the ACO’s initial 

agreement period. However, this 

approach could be more complicated to 

implement and could reintroduce a 

limited ability for ACOs to influence 

future benchmarks through current 

decisions. 

A potential disadvantage of 

approaches that determine benchmarks 

by holding an ACO’s costs constant 

relative to its region is that future 

benchmarks are influenced to a large 

degree by holding the cost experience 

for the ACO participants that continue 

in the ACO static. This static cost 

experience would become dated and 

would not necessarily reflect the 

evolving complex factors that influence 

the cost profile of the beneficiary 

populations assigned to the ACO in 

future agreement periods. By holding 

costs static for existing ACO 

participants, there would be incentives 

for successful ACOs to continue to 

participate in the program (with the 

same ACO participant composition) 

against more favorable benchmarks. 

Moreover, some ACOs may ‘‘shop’’ for 

a particularly advantageous benchmark, 

for instance by delaying program entry, 

and only improving their expenditure 

and utilization trends in later years. As 

a result, these approaches might 

continue to yield shared savings for 

some ACOs despite marginal effort to 

improve efficiency, and push out ACOs 

for whom cumulative variation creates a 

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predictable and unrealistically low 

expenditure target. 

To the extent that this approach for 

resetting ACO benchmarks also 

incorporates elements of the other 

approaches described in this section, we 

would be faced with related concerns. 

For instance, when trending the 

benchmark according to regional FFS 

costs based on the PGP demonstration 

approach described above, we would 

need to determine what criteria to use 

in establishing the comparison group. 

Further, as discussed under the 

alternative benchmarking methodology 

later in this section, we may need to 

consider whether the risk adjustment 

methodology would need to be 

modified, in this case to account for 

changes in each ACO’s risk profile 

relative to the risk profile of its regional 

comparison population. The types of 

approaches described in this section 

would require use of our authority 

under section 1899(i)(3) of the Act 

because we would be deviating from the 

requirement at section 1899(d)(1)(B)(ii) 

of the Act that the benchmark be reset 

at the start of each agreement period. 

Specifically, the benchmark would not 

be reset using the most recent available 

3 years of per beneficiary expenditures 

for parts A and B services for those 

Medicare FFS beneficiaries that were 

assigned to the ACO during the 

preceding agreement period. 

(5) Alternative Benchmark 

Methodology: Transitioning ACOs to 

Benchmarks Based Only on Regional 

FFS Costs Over the Course of Multiple 

Agreement Periods 

We also considered using our 

authority under section 1899(i)(3) of the 

Act to transition ACOs from 

benchmarks based on their historical 

costs toward benchmarks based only on 

regional FFS costs, an approach 

suggested by stakeholders, including 

MedPAC. We recognize that under the 

existing benchmarking methodology, 

ACOs in the same market would have 

unique benchmarks, which may vary 

widely depending on the historical 

expenditures for the beneficiaries that 

receive care from the ACO participants 

in each ACO. As a result, ACOs within 

the same market may have substantially 

different benchmarks, such as the case 

of a historically low-cost ACO within a 

traditionally high cost market. Under 

the existing benchmarking 

methodology, the program may be more 

attractive (initially) to historically highcost ACOs able to enter the program and 

achieve substantial shared savings by 

bringing costs down compared to their 

historical cost performance. ACOs with 

historically low costs may be less likely 

to enter and continue in the program 

because of their perceived difficulty in 

further reducing their assigned 

beneficiaries’ costs relative to a 

benchmark based on their assigned 

beneficiaries populations’ past 

experiences. However, as noted 

previously, the current benchmarking 

methodology may provide additional 

opportunity for increased shared 

savings for ACOs with low costs relative 

to the national average through the use 

of a flat dollar update for growth in 

national FFS expenditures, assuming 

program expenditure trends return to 

historically-familiar positive rates as 

compared to the unusually low growth 

experienced in the first several years of 

the program. 

Under this alternative approach, over 

the course of several agreement periods, 

we would transition to using regional 

FFS cost data to make ACO benchmarks 

gradually more independent of the 

ACO’s past performance and gradually 

more dependent on the ACO’s success 

in being more cost efficient relative to 

its local market. For example, for the 

ACO’s first agreement period, we may 

use the existing benchmarking 

methodology or one of the options 

described previously, which accounts 

for regional FFS expenditures. Starting 

in an ACO’s second agreement period, 

we would calculate each ACO’s 

benchmark as a weighted average of the 

ACO benchmark using the existing 

approach or one of the alternative 

approaches described above and risk 

adjusted regional FFS costs. The weight 

placed on risk adjusted regional FFS 

costs would increase over time. ACOs’ 

assigned beneficiaries would be counted 

in the calculation of regional FFS costs 

and the definition of an ACO’s region 

would require careful consideration so 

that the ACO’s assigned beneficiary 

population would not be allowed to 

make up an unreasonable proportion of 

the region itself. This benchmarking 

methodology would help ensure the 

program remains attractive to ACOs, 

particularly those who have achieved 

shared savings in previous agreement 

periods, and strengthen the connection 

between the determination of the 

amount of shared savings earned by the 

ACO and an ACO’s actual success in 

achieving savings relative to its region 

and local market. 

An approach where we transition 

from ACO-specific benchmarks based 

on each ACO’s historical costs to 

benchmarks based on regional FFS 

spending may be attractive to low-cost 

ACOs in high-cost regions because they 

would likely transition to a relatively 

higher (regional) benchmark over time 

against which they could likely show 

more savings because they have lower 

relative costs. However, high-cost ACOs 

in low-cost regions may find a regional 

benchmark unattractive because they 

would be required to create new 

efficiencies to fully offset their higher 

costs relative to their region in order to 

show savings under the benchmark. To 

mitigate the cost of any resulting 

selective participation by favored lowcost ACOs in high cost regions we 

considered whether a benchmark 

transition process could be employed 

over a number of agreement periods 

involving a gradual shift from the 

current methodology to one where 

benchmarks are set based on regional 

FFS spending (for example, using a 

weighted average of the two approaches 

whereby the weight for the regional FFS 

benchmark is gradually increased over 

several agreement periods). Using 

regional FFS spending to establish 

benchmarks could reward low-cost, 

high-quality ACOs, and further 

encourage them to attract more ACO 

participants and Medicare FFS 

beneficiaries over the course of time. We 

would also expect that a gradual 

transition may at least initially maintain 

an incentive for existing ACOs with 

high costs relative to their region to 

remain in the program because the 

initial ACO-specific benchmark would 

allow the ACOs to achieve shared 

savings for lowering their costs 

compared to their own historical 

performance. As they transition to a 

benchmark based on regional FFS 

spending, these ACOs’ benchmarks 

would likely decline (given the overall 

experience of the market), encouraging 

these ACOs to continue to reduce their 

costs, while maintaining high quality 

care under the program. However, we 

also note that some ACOs may not 

perceive an ability to reduce their 

beneficiary expenditures below the 

regional average and therefore there 

remains a risk that the eventual 

transition to a regional benchmark 

would result in selective participation 

regardless of how the transition is 

performed. For instance, an ACO that 

perceives its patient population as 

having high relative costs may perceive 

itself as disadvantaged under this 

approach. 

Therefore, to further mitigate selective 

participation and improve the accuracy 

of the benchmarks, we considered 

whether the regional FFS benchmark 

should be adjusted to reflect a regional 

or local reference population, similar to 

the method used in the PGP 

demonstration. However, as described 

previously, additional adjustment may 

be necessary to ensure the comparison 

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population is sufficiently large and 

representative of the ACO’s assigned 

patient population, particularly in the 

cases where ACOs make up a significant 

portion of their regional market. 

We also considered whether the risk 

adjustment methodology would need to 

be modified to account for changes in 

the risk profile of the regional 

population rather than the national 

population. For instance, it may be 

necessary to account for coding 

intensity differences relative to the 

ACO’s region rather than just the change 

in coding intensity by the ACO. As we 

explained in the November 2011 final 

rule (see 76 FR 67916), it may be 

necessary to guard against changes that 

result from more specific or 

comprehensive coding as opposed to 

improvements in the coordination and 

quality of health care. Thus, we 

considered the need for normalization 

of risk scores for ACO assigned 

beneficiaries and the comparison group 

beneficiaries relative to the regionally 

based comparison group. For instance, 

the benchmark could be normalized to 

the mix of beneficiaries assigned across 

the four Medicare enrollment types 

(ESRD, disabled, aged/dual, aged/nondual) to the same strata within the 

regional comparison population. We 

also considered risk adjusting the 

growth rates, for example based upon 

risk scores for the comparison group, in 

combination with using a regional 

coding intensity adjustment or 

independently. 

We also considered how to account 

for ACO participant TIN changes, over 

time, under a methodology where we 

transition ACOs from ACO-specific to 

regionally based benchmarks. For 

instance, we considered whether to 

continue to adjust the benchmark at the 

start of each performance year to reflect 

changes in the set of ACO participant 

TINs that constitutes the ACO, perhaps 

similar to our current approach to 

managing changes to ACO participants 

during the agreement period. 

We also considered the pace for 

transitioning ACOs from ACO-specific 

to regional benchmarks, including the 

following factors: 

• The period of time for transitioning 

to regional FFS benchmarks: For 

instance, should the transition occur 

over two agreement periods, or five 

agreement periods, or longer. 

• Whether to consider the ACO’s 

performance during a prior agreement 

period in determining the pace of its 

transition to regional FFS benchmarks. 

For example, should we delay 

downward adjustments to an ACO’s 

benchmark if the ACO fails to achieve 

shared savings. 

• Whether to consider the ACO’s 

historical costs, relative to regional 

Medicare FFS average per capita costs, 

in determining the pace of its transition 

to regional FFS benchmarks. For 

example, should low-cost ACOs (those 

below the risk adjusted regional 

Medicare FFS average per capita costs) 

transition more quickly to regional FFS 

benchmarks than high-cost ACOs. 

Another consideration was whether 

this kind of benchmarking methodology 

would allow the Shared Savings 

Program to maintain a fiscal balance. 

For instance, would the shared savings 

paid to low-cost ACOs (treating 

beneficiaries at below average costs) be 

more than offset with savings from 

lower than expected spending in highcost ACOs and further control of 

spending growth in low-cost ACOs. We 

also recognize that more customized 

benchmarking approaches make it more 

difficult to provide ACOs with 

information they can use to predict their 

performance. 

(6) Seeking Comment on the 

Benchmarking Alternatives Considered 

and the Applicability of These 

Approaches 

In general we seek comment on the 

approaches to adjusting the 

methodology for establishing, updating 

and resetting ACO benchmarks 

discussed in detail above. In particular, 

we seek comment on the following: 

• Using combinations of these 

approaches, as opposed to any one 

approach. Specifically, we considered 

revising the methodology for resetting 

ACO benchmarks by equally weighting 

the three benchmark years, and/or 

accounting for shared savings payments 

received by an ACO in its prior 

agreement period, and/or using regional 

FFS expenditures instead of national 

FFS expenditures in establishing and 

updating the benchmark. We also 

considered and seek comment on 

revising the benchmarking methodology 

more broadly, shifting either to a 

methodology that resets ACOs’ 

benchmarks between agreement periods 

by holding an ACO’s historical costs 

constant relative to costs in its region or 

to a methodology that transitions ACOs 

from benchmarks based on their 

historical costs toward benchmarks 

based only on regional FFS costs, 

potentially in combination with some or 

all of the other revisions we are 

considering to the benchmarking 

methodology. 

• How broadly or narrowly to apply 

these alternative benchmarking 

approaches to the program’s Tracks. 

Specifically, we envisioned that the 

revisions in the benchmarking 

methodology under section 

1899(d)(1)(B)(ii) of the Act. (for 

example, equally weighing the three 

benchmark years, and accounting for 

shared savings payments received by an 

ACO in its prior agreement period) 

would be applied when resetting the 

benchmarks for all ACOs, regardless of 

the model they participate under 

(Tracks 1, 2, and 3). We envisioned 

applying the approaches requiring use 

of our authority under section 1899(i)(3) 

of the Act to ACOs participating under 

performance-based risk models (Tracks 

2 and Track 3) because stakeholders’ 

concerns about resetting the 

benchmarks were closely related to 

ensuring the program remains 

sustainable over time, and we envision 

ACOs would be transitioning to the 

performance-based risk models over 

time, specifically given our proposal to 

limit the number of agreement periods 

an ACO can remain under Track 1. We 

also considered and seek comment on 

applying these alternative 

benchmarking methodologies more 

broadly, specifically to all ACOs 

participating in a risk-based model 

(Tracks 2 and 3), or to all ACO financial 

models (Tracks 1, 2, and 3). 

• Whether to use regional FFS 

expenditures instead of national FFS 

expenditures in establishing and 

updating the benchmark and/or a 

methodology for transitioning ACOs 

from benchmarks based on their 

historical costs toward benchmarks 

based only on regional FFS costs only 

when resetting ACO benchmarks under 

their second or subsequent agreement 

period, or when establishing the 

benchmark for all participating ACOs 

(regardless of agreement start date) the 

next full performance year after the 

effective date of the final rule. In other 

words, if a final rule adopting a revised 

benchmarking methodology is issued in 

early 2015, should the revised 

methodology be used to determine the 

benchmark that will apply during the 

2016 performance year for all ACOs. 

• The criteria for defining the 

comparison group for using regional 

FFS expenditure data to establish, 

update or reset the historical 

benchmark. In particular we welcome 

comments on the criteria we described 

previously and welcome commenters’ 

suggestions for different criteria. 

• We believe the concerns about risk 

adjustment raised in this section in the 

context of the alternative benchmarking 

methodology for establishing, updating 

and/or transitioning from ACO-specific 

benchmarks to regionally based 

benchmarks are also relevant to the 

approach where we would use regional 

FFS expenditures (as opposed to 

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national FFS expenditures) in 

establishing or in updating the 

benchmark. We welcome comments on 

these concerns and commenters’ 

suggestions about the use of regional 

normalization or coding intensity 

adjustments to guard against regional or 

other coding differences that may affect 

the characteristics of the ACOs’ assigned 

beneficiary population in relation to the 

comparison group. 

• We welcome commenters’ detailed 

suggestions on our considerations of 

factors to use in resetting ACO 

benchmarks and for the alternative 

benchmark methodology; as well as 

considerations or concerns not 

described; and suggestions for 

alternative approaches for a 

benchmarking methodology that 

transition to use of regional benchmarks 

over the course of time. In particular, we 

seek commenters’ input on whether an 

approach that transitions ACOs to 

regional benchmarks would encourage 

continued participation by existing lowcost and high-cost ACOs. 

We also request commenters’ input on 

alternatives not described here for 

resetting benchmarks to encourage 

ongoing participation by ACOs who 

perform well in the program and are 

successful in reducing expenditures for 

their assigned beneficiaries. We seek 

comment on whether these alterative 

benchmarking approaches would have 

unintended consequences for ACO 

participation in the program, for the 

Medicare Trust Funds, or for Medicare 

FFS beneficiaries. We intend to 

carefully review any comments that are 

received on these issues during the 

development of the final rule and will 

make an assessment at that time as to 

whether any change to our current 

methodology for establishing 

benchmarks is necessary and 

appropriate. 

7. Seeking Comment on Technical 

Adjustments to the Benchmark and 

Performance Year Expenditures 

When computing average per capita 

Medicare expenditures for an ACO 

during both the benchmark period and 

performance years under § 425.602, 

§ 425.604, and § 425.606, we take into 

account all Parts A and B expenditures, 

including payments made under a 

demonstration, pilot or time limited 

program, with the exception of IME and 

DSH adjustments, which are excluded 

from these calculations. In the 

November 2011 final rule (76 FR 67919 

through 67923), we considered whether 

to make adjustments to benchmark and 

performance year expenditures to 

exclude certain adjustments to Part A 

and B expenditures, including IME and 

DSH payments, geographic payment 

adjustments and some bonus payments 

and penalties. In the final rule, we 

acknowledged that taking into 

consideration payment changes could 

affect ACOs’ financial performance and 

their ability to realize savings. However, 

with the exception of the adjustment to 

account for IME and DSH payments, we 

ultimately declined to make any 

adjustments to account for various 

differences in payment rates among 

providers and suppliers. We explained 

that while section 1899(d)(1)(B)(ii) of 

the Act provides a way of adjusting an 

ACO’s benchmark for such payments, 

the statute does not include similar 

authority to adjust performance year 

expenditures. Therefore, we noted that 

while we could make adjustments to the 

ACO’s benchmark to exclude certain 

payments under our authority in section 

1899(d)(1)(B)(ii) of the Act, we did not 

have a similar authority to make 

adjustments in our calculation of an 

ACO’s performance year expenditures, 

which would create a mismatch in 

expenditure calculations. 

However, we were persuaded by 

commenters that not excluding IME and 

DSH payments in determining ACO 

financial performance could adversely 

affect the care of beneficiaries by 

creating an incentive for ACOs to avoid 

making appropriate referrals to teaching 

hospitals in an effort to demonstrate 

savings. Therefore, we considered using 

our authority under section 1899(i)(3) of 

the Act, which authorizes us to use 

other payment models for making 

payments under the Shared Savings 

Program that the agency ‘‘determines 

will improve the quality and efficiency 

of items and services’’ furnished under 

Medicare. Specifically we considered 

whether it would be appropriate to use 

this authority to include an adjustment 

to performance year expenditures to 

exclude IME and DSH payments. To 

exercise our authority under section 

1899(i)(3) of the Act, we must also 

determine that the alternative payment 

model ‘‘. . . does not result in spending 

more for such ACO for such 

beneficiaries than would otherwise be 

expended . . . if the model were not 

implemented . . .’’ 

In the November 2011 final rule (76 

FR 67921 through 67922), we stated that 

we believed excluding IME and DSH 

payments would be consistent with the 

requirements under section 1899(i)(3) of 

the Act. That is, excluding these 

payments would both improve the care 

for beneficiaries while also not resulting 

in greater payments to ACOs than 

would otherwise have been made if 

these payments were included. 

Specifically, we stated that removing 

IME and DSH payments from 

benchmark and performance year 

expenditures would allow us to more 

accurately reward actual decreases in 

unnecessary utilization of healthcare 

services, rather than decreases arising 

from changes in referral patterns. In 

addition, we believed that excluding 

these payments from our financial 

calculations would help to ensure 

participation in ACOs by hospitals that 

receive these payments. Taken in 

combination, we believed these factors 

could result in Medicare beneficiaries 

receiving higher quality, better 

coordinated, and more cost-efficient 

care. As a result, we did not expect that 

excluding IME and DSH payments from 

the determination of ACOs’ financial 

performance would result in greater 

payments to ACOs than would 

otherwise have been made. We also 

found that excluding these amounts was 

operationally feasible since they are 

included in separate fields on claims 

allowing them to be more easily 

excluded from financial calculations 

than certain other payments that are 

included on Part A and B claims. 

Therefore, we finalized a policy of 

excluding IME and DSH payments from 

both the benchmark and performance 

year expenditure calculations. We stated 

that we intended to monitor this issue 

and would revisit it if we determine that 

excluding these payments has resulted 

in additional program expenditures (76 

FR 67922). 

In addition to IME and DSH 

payments, we also considered whether 

standardizing payments to account for 

other types of payment adjustments 

would alleviate concerns resulting from 

changes in the Medicare payment 

systems. However, in light of the 

numerous payment adjustments 

included throughout the Medicare 

payment systems, we were concerned 

about the complexity resulting from 

standardizing payments and whether 

standardized payment information 

would provide meaningful and 

consistent feedback regarding ACO 

performance. We stated that we 

intended to evaluate this issue and 

would potentially address it in future 

rulemaking. 

We also considered requests from 

commenters that we make adjustments 

to ACO benchmark and performance 

year expenditures to account for a 

number of other payments (76 FR 

67922). We specifically considered how 

geographic payment adjustments, 

applied under Medicare payment 

systems (for example, the IPPS wage 

index adjustments and the physician fee 

schedule geographic practice cost index 

(GPCI) adjustments) could affect an 

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ACO’s ability to realize savings. These 

adjustments increase and decrease 

payments under the applicable payment 

systems to account for the different 

costs of providing care in different areas 

of the country. We further noted that 

there have been a number of temporary 

legislative adjustments to the wage 

indexes for various parts of the country 

during recent years. In some cases these 

have been extended on virtually an 

annual basis while others have been 

updated more intermittently. We 

recognized that the timing of these 

adjustments could result in changes 

being made during an ACO’s agreement 

period and between the benchmark and 

the performance years, thus influencing 

an ACO’s ability to realize savings 

under the program. Additionally, there 

have been cases where hospitals have 

moved in and out of reclassification 

status which can either increase or 

decrease the wage index in the state. 

Of the comments received, most 

favored excluding geographic payments 

from benchmark and performance year 

expenditures (76 FR 67923). 

Commenters suggested specific 

adjustments, such as exclusion of 

payments based on the area wage index, 

low cost county payment adjustments, 

GPCI, and the frontier States policy 

adjustment. Some commenters, 

however, expressed concerns that 

variations in cost growth across 

geographic areas as well as the current 

CMS methods for accounting for 

differences in local input and practice 

costs may create incentives that reward 

ACO formation in some markets but not 

in others. Others suggested that 

inclusion of these geographic payment 

adjustments could have unintended 

consequences for referral patterns by 

ACOs, such as driving referrals based on 

geographic wage adjustments rather 

than performance. Yet others were 

generally concerned that making 

geographic payment adjustments would 

disproportionately disadvantage some 

ACOs. 

Ultimately, we disagreed with 

commenters’ suggestions that we adjust 

expenditures to account for various 

differences in cost and payment. We 

stated that we believed that making 

such extensive adjustments, or allowing 

for benchmark adjustments on a caseby-case basis, would create an 

inaccurate and inconsistent picture of 

ACO spending and may limit 

innovations in ACOs’ redesign of care 

processes or cost reduction strategies 

(76 FR 67920). Unlike the IME/DSH 

adjustments, we stated we did not 

believe these other payment 

adjustments that are made to Part A and 

B payments (such as geographic 

payment adjustments) would result in a 

significant incentive to steer patients 

away from particular hospitals or 

providers since an ACO’s financial 

performance would be compared to its 

own historical expenditure benchmark, 

as updated. 

Since the publication of the 

November 2011 final rule, some 

questions have persisted regarding the 

most appropriate way to handle 

payment differences and changes under 

Medicare FFS; including whether to 

take into consideration certain payment 

changes that could affect ACO financial 

performance. We are not proposing to 

make any further adjustments at this 

time. However, now that both CMS and 

external stakeholders have some 

experience with our policies, we are 

interested in seeking further comment 

from stakeholders on this issue that we 

could potentially consider in future 

rulemaking. We are particularly 

interested in comments regarding 

standardization of payments, including 

which elements to adjust for, the impact 

of value-based payment adjustments on 

payments to physicians and hospitals, 

and the value of providing feedback on 

nonstandardized results while using 

standardized results to perform 

financial reconciliation. 

Table 7 summarizes certain 

provisions of the current regulations 

and our proposals to change them as 

discussed in this section. 

TABLE 7—SHARED SAVINGS FINANCIAL MODEL OVERVIEW

Track 1: One-sided risk model Tracks 2 and 3: Two-sided risk models 

Issue Current Proposed Current Track 2 Proposed Track 2 Proposed Track 3 

Transition to 

Two-Sided 

Model.

First agreement period 

under one-sided model. 

Subsequent agreement 

periods under two-sided 

model.

Remove requirement to 

transition to two-sided 

model for a second 

agreement period.

ACOs may elect Track 2 

without completing a 

prior agreement period 

under a one-sided 

model. Once elected, 

ACOs cannot go into 

Track 1 for subsequent 

agreement periods.

No change ......................... Same as Track 2. 

Assignment ........ Preliminary prospective assignment for reports; retrospective assignment 

for financial reconciliation.

No change ......................... Preliminary prospective assignment for reports; retrospective assignment 

for financial reconciliation.

No change ......................... Prospective assignment for 

reports and financial reconciliation. 

Benchmark ........ Reset at the start of each 

agreement period.

Seeking comment on alternative methodology.Same as Track 1 ............... Seeking comment on alternative methodology.Same as Tracks 1 and 2 

and seeking comment 

on alternative methodology. 

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TABLE 7—SHARED SAVINGS FINANCIAL MODEL OVERVIEW—Continued 

Track 1: One-sided risk model Tracks 2 and 3: Two-sided risk models 

Issue Current Proposed Current Track 2 Proposed Track 2 Proposed Track 3 

Adjustments for 

health status 

and demographic 

changes.

Historical benchmark expenditures adjusted 

based on CMS–HCC 

model. Updated historical benchmark adjusted 

relative to the risk profile 

of the performance year. 

Performance year: 

Newly assigned beneficiaries adjusted using 

CMS–HCC model; continuously assigned beneficiaries adjusted using 

demographic factors 

alone unless CMS–HCC 

risk scores result in a 

lower risk score.

No change ......................... Same as Track 1 ............... No change ......................... Same as Tracks 1 and 2. 

Adjustments for 

IME and DSH.

IME and DSH excluded 

from benchmark and 

performance year expenditures..

No change ......................... Same as Track 1 ............... No change ......................... Same as Tracks 1 and 2. 

Other payment 

adjustments.

Include other payment adjustments included in 

Part A and B claims 

such as, geographic 

payment adjustments 

and HVBP payments, in 

benchmark and performance year expenditures.

Seeking comment on other 

technical adjustments.

Same as Track 1 ............... Seeking comment on other 

technical adjustments.

Same as Tracks 1 and 2. 

Quality Sharing 

Rate.

Up to 50 percent based on 

quality performance.

Up to 50 percent based on 

quality performance for 

first agreement period, 

reduced by 10 percentage points for each subsequent agreement period under the one-sided 

model.

Up to 60 percent based on 

quality performance.

No change ......................... Up to 75 percent based on 

quality performance. 

Minimum Savings Rate.2.0 percent to 3.9 percent 

depending on number of 

assigned beneficiaries.

No change ......................... Fixed 2.0 percent .............. 2.0 percent to 3.9 percent 

depending on number of 

assigned beneficiaries.

Fixed 2.0 percent. 

Minimum Loss 

Rate.

Not applicable .................... No change ......................... Fixed 2.0 percent .............. 2.0 percent to 3.9 percent 

depending on number of 

assigned beneficiaries.

Fixed 2.0 percent. 

Performance 

Payment Limit.

10 percent ......................... No change ......................... 15 percent ......................... No change ......................... 20 percent. 

Shared Savings First dollar sharing once 

MSR is met or exceeded.

No change ......................... Same as Track 1 ............... No change ......................... Same as Tracks 1 and 2. 

Shared Loss 

Rate.

Not applicable .................... No change ......................... One minus final sharing 

rate applied to first dollar 

losses once minimum 

loss rate is met or exceeded; shared loss rate 

not to exceed 60 percent.

No change ......................... One minus final sharing 

rate applied to first dollar 

losses once minimum 

loss rate is met or exceeded; shared loss rate 

may not be less than 40 

percent or exceed 75 

percent. 

Loss Sharing 

Limit.

Not applicable .................... No change ......................... Limit on the amount of 

losses to be shared in 

phases in over 3-years 

starting at 5 percent in 

year 1; 7.5 percent in 

year 2; and 10 percent 

in year 3 and any subsequent year. Losses in 

excess of the annual 

limit would not be shared.

No change ......................... 15 percent. Losses in excess of the annual limit 

would not be shared. 

G. Additional Program Requirements 

and Beneficiary Protections 

1. Background 

Section 1899(a)(1)(A) of the Act 

authorizes the Secretary to specify 

criteria that ACOs must satisfy in order 

to be eligible to participate in the 

Shared Savings Program. In the 

November 2011 final rule, we finalized 

policies regarding how ACOs will be 

monitored with respect to program 

requirements and what actions will be 

taken against ACOs that are not in 

compliance with the requirements of the 

Shared Savings Program. Based on our 

initial experience with the Shared 

Savings Program, we propose several 

refinements and clarifications to our 

policies on— 

• Public reporting (§ 425.308); 

• Termination of the participation 

agreement (§§ 425.218 and 425.220); 

• Enforcement of ACO compliance 

with quality performance standards 

(§ 425.316(c)); and 

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• Reconsideration review procedures 

(§§ 425.802 and 425.804)). 

2. Public Reporting and Transparency 

a. Overview 

Section 1899 of the Act sets forth a 

number of requirements for ACOs. 

Section 1899(b)(2)(H) of the Act requires 

ACOs to demonstrate that they meet 

patient-centeredness criteria specified 

by the Secretary. We believe that one 

important aspect of patient-centeredness 

is patient engagement and transparency. 

Increasingly, transparency of 

information in the health care sector is 

seen as a means to help patients become 

more active in their health care choices 

and to generate feedback that may 

improve the quality of care and lower 

the cost of care. In addition, 

transparency may improve oversight 

and program integrity. Public reporting 

also supports the mandate for ACOs to 

be willing to ‘‘become accountable for 

the quality, cost, and overall care’’ of the 

Medicare beneficiaries assigned to them. 

Reports on ACO quality and costperformance hold ACOs accountable 

and contribute to the dialogue on how 

to drive improvement and innovation in 

health care. Public reporting of ACO 

cost and quality data may improve a 

beneficiary’s ability to make informed 

health care choices and facilitate an 

ACO’s ability to improve the quality and 

efficiency of its care. 

Therefore, for these reasons, which 

are described in more detail in the 

November 2011 final rule, we finalized 

requirements specified at § 425.308 that 

ACOs must make certain information 

publicly available. Since publication of 

the Shared Savings Program final rule, 

minor updates were made to 

§ 425.308(e) in the 2013 PFS final rule 

with comment period (77 FR 69164 

through 69170) and in the 2015 PFS 

final rule with comment period (79 FR 

67769). For purposes of the Shared 

Savings Program, each ACO is currently 

required at § 425.308 to publicly report 

certain organizational information (such 

as the identification of ACO participants 

and governing body members), the 

amount of any shared savings or shared 

losses incurred, the proportion of shared 

savings invested in resources that 

support the three-part aim and certain 

quality performance information. 

(Specifically, ACOs are required to 

report the results of the claims-based 

quality measures while CMS will report 

the CAHPS and GPRO measure results 

on Physician Compare.) We recommend 

that ACOs publicly report the specified 

information in a standardized format 

that we have made available to ACOs 

through guidance at: http://

www.cms.gov/Medicare/Medicare-Feefor-Service-Payment/

sharedsavingsprogram/Statutes_

Regulations_Guidance.html. Our 

guidance recommended that ACOs 

report the required information on a 

Web site that complies with the 

marketing requirements set forth at 

§ 425.310. Because Web pages used to 

publicly report the information 

specified in § 425.308 constitute 

‘‘marketing materials and activities,’’ as 

defined at § 425.20, any changes to such 

Web pages must be submitted for CMS 

review in accordance with § 425.310. 

Thus, if an ACO changes any of the 

information on its public reporting Web 

page, such as adding an ACO 

participant or replacing a member of the 

governing body, the ACO must submit 

its Web page to us for marketing review. 

We believe this policy creates undue 

burden on the ACO as well as on CMS. 

b. Proposed Revisions 

We continue to believe that publicly 

reporting the information identified in 

§ 425.308 supports our goals of program 

transparency and patient centeredness. 

We also continue to believe that it is 

important for the ACO to be responsible 

for making this information available to 

the public. We believe that the best way 

to do this is via an ACO-maintained 

Web site, the mechanism through which 

most ACOs have chosen to publicly 

report. However, based on our initial 

experience with the Shared Savings 

Program and requests from some ACOs, 

we propose some refinements to the 

requirements related to public reporting 

and transparency. 

We propose to modify § 425.308 to 

reflect these new requirements. In 

§ 425.308(a), we propose to require that 

each ACO maintain a dedicated Web 

page on which the ACO must publicly 

report the information listed in 

paragraph (b). In addition, we propose 

that an ACO must report to us the 

address of the Web page on which it 

discloses the information set forth in 

§ 425.308 and apprise us of changes to 

that Web site address in the form and 

manner specified by CMS. We solicit 

comment on when an ACO should be 

required to inform us of such changes 

(for example, within 30 days after the 

change has occurred). 

In § 425.308(b), we require ACOs to 

report certain information in a 

standardized format to be specified by 

CMS. Although we currently set forth a 

recommended standardized format in 

guidance, we intend to make a specific 

template available that ACOs must use 

so that ACOs report information 

uniformly. This would minimize the 

compliance burden on ACOs, enhance 

transparency for the public, and 

improve our oversight of ACO 

compliance with the public reporting 

requirement. We envision that the 

template would have fields in which the 

ACO must insert the applicable public 

reporting information. Additionally, 

because the ACOs would report 

information using a standard template, 

we do not believe the information 

would require marketing review each 

time the information is updated. 

Therefore, we propose in § 425.308(c) 

that information reported on an ACO’s 

public reporting Web page which is in 

compliance with the requirements of the 

standardized format specified by CMS, 

(that is, through use of the template) is 

not subject to marketing review and 

approval under § 425.310. ACOs should 

keep in mind that although information 

reported using the template would not 

be subject to marketing review, we 

intend to monitor both the use of the 

template and the information inserted 

by ACOs into the template as part of our 

ongoing program monitoring and 

compliance oversight efforts. 

Using a standardized format, such as 

a template, for this purpose has several 

advantages over the way ACOs currently 

make this information publicly 

available. First, using a template would 

improve the usefulness of this 

information for the public by 

standardizing the way the information is 

made available across ACOs. Second, 

using a template would minimize the 

compliance burden on ACOs by 

ensuring the information is reported in 

the way we intend. Finally, the use of 

a standardized format also affords CMS 

a more streamlined approach for our 

monitoring and compliance oversight 

activities. We seek comment on the 

proposal to use a standardized format 

for public reporting purposes. 

We also propose to make a few 

changes to the information that must be 

publicly reported. In § 425.308(b), we 

propose to add two categories of 

organizational information that must be 

publicly reported. First, we propose to 

add a requirement at § 425.308(b)(3)(iv) 

that ACOs publicly identify key clinical 

and administrative leaders within their 

organization as part of the public 

reporting requirements. ACOs are 

already required to identify the 

members of their governing body, 

associated committees and committee 

leadership. However, key members of 

the ACO’s clinical and administrative 

leadership might not be members of the 

governing body or committee 

leadership. For example, the ACO’s 

medical director may be a stand-alone 

leadership position but not hold a 

committee leadership position or be a 

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member on the ACO’s governing body. 

Because clinical and administrative 

leadership is an eligibility requirement 

for program participation, we believe 

that requiring the ACO to publicly 

report its clinical and administrative 

leadership would lend additional 

transparency and insight into the ACO’s 

organization. 

Second, we believe it would be 

helpful for the public to have a better 

understanding of the types of ACO 

participants or combinations of ACO 

participants that have joined to form the 

ACO. At § 425.102(a), we articulate the 

following types of ACO participants or 

combinations of ACO participants that 

are eligible to form an ACO: 

• ACO professionals in group practice 

arrangement. 

• Networks of individual practices of 

ACO professionals. 

• Partnerships or joint venture 

arrangements between hospitals and 

ACO professionals. 

• Hospitals employing ACO 

professionals. 

• CAHs that bill under Method II. 

• RHCs and FQHCs. 

We note that if revised by our 

proposals in section II.E. of this 

proposed rule, this list would also 

include teaching hospitals. On the 

application to the Shared Savings 

Program, each ACO must indicate the 

types of entities that formed the ACO. 

We propose to add a provision at 

§ 425.308(b)(3)(vi) requiring ACOs to 

publicly report the types of ACO 

participants or combinations of ACO 

participants, as listed in § 425.102(a), 

that form the ACO. Stakeholders have 

requested information about the 

composition of ACOs. Providing the 

types and combinations of ACO 

participants would assist stakeholders 

in understanding the composition of 

ACOs. 

In addition, we propose at 

§ 425.308(b)(5) to require each ACO to 

publicly report its performance on all 

quality measures used to assess the 

quality of care furnished by the ACO. 

We currently require ACOs to post only 

the results of their performance on 

claims-based measures. The results of 

quality measures are reported by CMS 

on Physician Compare. We agree with 

the comments made by stakeholders 

that requiring an ACO to publicly report 

its performance on all quality measures 

(as defined at § 425.20) would assist 

stakeholders in getting a more accurate 

picture of the ACO’s performance. 

Therefore, we propose to broaden the 

public reporting requirement to require 

ACOs to publicly report performance on 

all quality measures. 

We also note a technical modification 

to our rules. Currently, we require ACOs 

to report the amount of any ‘‘shared 

savings performance payment’’ 

(§ 425.308(d)(1)). However, to conform 

this provision to the definition of 

‘‘shared savings’’ at § 425.20, we 

propose to remove the term 

‘‘performance payment’’ from the 

phrase. The new language is found at 

revised § 425.308(b)(4)(i). 

Finally, for purposes of program 

transparency, we find it useful to post 

on Physician Compare and our Web site 

(www.cms.gov/sharedsavingsprogram/) 

certain information about ACOs, such as 

ACO public contact information, ACO 

public reporting Web page addresses, 

the amount of any shared savings or 

losses incurred, and quality 

performance results. Therefore, in 

addition to information we already post 

on our Web site and Physician Compare, 

we propose at § 425.308(d) to post ACOspecific information, including 

information the ACO is required to 

publicly report under § 425.308, as is 

necessary to support program goals and 

transparency. We solicit comment on 

what other information should be 

published on our Web site. Because 

proposed § 425.308(d) encompasses our 

ability to publicly report ACO 

performance on all quality measures, we 

propose to remove § 425.308(e) or 

reserve it for future use. We intend to 

continue reporting ACO quality measure 

performance on Physician Compare in 

the same way as for group practices that 

report under PQRS. 

3. Terminating Program Participation 

a. Overview 

Section 425.218 of our regulations 

sets forth the grounds for terminating an 

ACO for failure to comply with the 

requirements of the Shared Savings 

Program (§ 425.218(a)). For example, an 

ACO’s or ACO participant’s failure to 

notify beneficiaries of their provider’s 

participation in the program as required 

under § 425.312 would constitute 

grounds for terminating the ACO. In 

addition, we may terminate an ACO for 

a number of other violations, such as 

those related to certain fraud and abuse 

laws, the antitrust laws, or other 

applicable Medicare laws and 

regulations relevant to ACO operations, 

or if certain sanctions have been 

imposed on the ACO by an accrediting 

organization or a federal, state or local 

government agency (§ 425.218(b)). 

Prior to termination, we may take 

interim steps such as issuing the ACO 

a warning notice or placing the ACO on 

a corrective action plan (CAP) 

(§ 425.216). However, we reserve the 

right to immediately terminate a 

participation agreement if necessary 

(§ 425.218(c)). We notify the ACO in 

writing if the decision is made to 

terminate the participation agreement. 

Under § 425.220, an ACO may 

voluntarily terminate its participation 

agreement. Such an ACO is required to 

provide CMS and all of its ACO 

participants with a 60-day advance 

written notice of its decision to 

terminate its participation in the Shared 

Savings Program. An ACO is not 

required to notify beneficiaries of the 

ACO’s decision to terminate from the 

Shared Savings Program. Under current 

regulations, an ACO that terminates its 

participation agreement before 

completion of the participation 

agreement does not share in any savings 

for the performance year during which 

it notifies CMS of its decision to 

terminate the participation agreement 

(§ 425.220(b)). This is because an ACO 

that terminates its participation 

agreement during a performance year 

will have failed to complete the entire 

performance year and will therefore 

have failed to meet the requirements for 

shared savings. 

b. Proposed Revisions 

We propose several modifications to 

the regulations related to termination of 

a participation agreement. First, we 

propose to permit termination for failure 

to timely comply with requests for 

documents and other information and 

for submitting false or fraudulent data. 

In addition, we propose to add a new 

regulation at § 425.221 requiring ACOs 

to implement certain close-out 

procedures upon termination and 

nonrenewal. Finally, we propose to 

address in new § 425.221 the payment 

consequences upon termination of a 

participation agreement. 

(1) Grounds for Termination 

First, at § 425.218(b) we propose to 

modify the grounds for termination to 

specifically include the failure to 

comply with CMS requests for 

submission of documents and other 

information by the CMS specified 

deadline. At times, we may request 

certain information from the ACO in 

accordance with program rules. The 

submission of those documents by the 

specified due date is important for 

program operations. For example, we 

require each ACO to submit to us, on an 

annual basis, its list of ACO participants 

and their TINs (existing § 425.304 and 

proposed § 425.118). When ACOs do not 

submit these lists by the due date 

specified, it prevents us from applying 

the assignment methodology (which is 

dependent on having accurate lists of 

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ACO participants for all ACOs) and 

impacts the timelines for the program, 

such as the calculation of the 

benchmarks for all ACOs. Missing such 

deadlines is very disruptive to the 

program and other ACOs. Therefore, we 

propose to modify § 425.218(b) to 

permit termination of an ACO 

agreement for failure to comply with 

requests for information and 

documentation by the due date 

specified by CMS. 

Additionally, under § 425.302, an 

individual with the authority to legally 

bind the individual or entity submitting 

data or information to CMS must certify 

the accuracy, completeness, and 

truthfulness of the data and information 

to the best of his or her knowledge and 

belief. However, circumstances could 

arise in which the data and information 

submitted was falsified or erroneous. 

Submission of false or fraudulent data, 

(for example, data submitted through 

the CMS web interface used to 

determine an ACO’s quality 

performance) could impact the amount 

of shared savings calculated for the ACO 

and cause CMS to overpay the ACO. 

Because of the severity of the 

consequences of submitting false or 

fraudulent data, we propose to modify 

§ 425.218(b) to permit termination of an 

ACO agreement for submission of false 

or fraudulent data. We note that ACOs 

are obligated to repay shared savings 

payments to which they are not entitled, 

including, by way of example only, any 

overpayment to the ACO based on the 

submission of false or fraudulent data. 

(2) Close-Out Procedures and Payment 

Consequences of Early Termination 

We propose to add new § 425.221 to 

address close-out procedures and 

payment consequences of early 

termination. First, we believe it is 

important to establish an orderly closeout process when an ACO’s 

participation agreement is terminated. 

Therefore, we are proposing in 

§ 425.221(a) that an ACO whose 

participation agreement is terminated 

prior to its expiration either voluntarily 

or by CMS must implement close-out 

procedures in a form, manner, and 

deadline specified by CMS. These closeout procedures shall address data 

sharing issues such as data destruction, 

beneficiary notification issues (for 

example removal of marketing materials 

and ensuring beneficiary care is not 

interrupted), compliance with quality 

reporting, record retention issues, and 

other issues established through 

guidance. We note that the close-out 

procedures would also apply to those 

ACOs that have elected not to renew 

their agreements upon expiration of the 

participation agreement. We further 

propose in § 425.221(a)(2) that any ACO 

that fails to complete the close-out 

procedures in the form and manner and 

by the deadline specified by CMS would 

not be eligible for shared savings. We 

solicit comments on other strategies that 

would ensure compliance with closeout procedures. 

Second, we propose in § 425.221(b) to 

address certain payment consequences 

of early termination. Currently under 

§ 425.220(b), an ACO that voluntarily 

terminates its agreement at any time 

during a performance year will not 

share in any savings for the performance 

year during which it notifies CMS of its 

decision to terminate the participation 

agreement. However, stakeholders have 

suggested that completion of the 

performance year, as part of an orderly 

close-out process, could be mutually 

beneficial to the ACO, its ACO 

participants and ACO providers/

suppliers, and to CMS. Specifically, 

stakeholders have suggested that an 

ACO should be entitled to receive 

shared savings if the ACO completes a 

performance year through December 31 

and satisfies all requirements for sharing 

in savings for that performance year (for 

example, the quality reporting for the 

performance year). Additionally, by 

completing quality reporting as part of 

the close-out process, the ACO 

participants would not be penalized by 

the ACO’s decision to terminate its 

participation agreement. For example, 

eligible professionals that bill through 

the TIN of an ACO participant could 

satisfy the reporting requirement to 

avoid the downward payment 

adjustment under the PQRS in a 

subsequent year. 

Therefore, we propose in § 425.221(b) 

to permit an ACO whose participation 

agreement is voluntarily terminated by 

the ACO under § 425.220 to qualify for 

shared savings, if— 

• The effective date of termination is 

December 31; and 

• By a date specified by CMS, it 

completes its close-out process for the 

performance year in which the 

termination becomes effective. 

In order to effectively manage this 

option in the case of voluntary 

termination, the ACO must specify in its 

termination notice, and CMS must 

approve, a termination effective date of 

December 31 for the current 

performance year. Because the proposed 

new provision at § 425.221 will address 

the consequences of termination, 

including the payment consequences, 

we also propose to make a conforming 

change to § 425.220 to remove 

paragraph (b) addressing the payment 

consequences of early termination. 

We note that the opportunity to share 

in savings for a performance year would 

not extend to ACOs that terminate their 

participation agreement with effective 

dates prior to December 31 or to ACOs 

that CMS terminates under § 425.218. 

Those ACOs that terminate prior to 

December 31 will not have completed 

the performance year and thus would 

not qualify for shared savings. ACOs 

terminated by CMS under § 425.218 

would not qualify for shared savings 

irrespective of the termination date 

because maintaining eligibility to 

participate in the Shared Saving 

Program is a pre-requisite for sharing in 

savings (see §§ 425.604(c) and 

425.606(c)). In such cases, we strongly 

encourage ACOs to fulfill their 

obligations to their ACO participants 

and ACO providers/suppliers by 

reporting quality for the performance 

year in which it terminates so that their 

ACO participants and ACO providers/

suppliers are not unduly penalized by 

the ACO’s decision. However, even if 

the ACO completes quality reporting on 

behalf of its ACO participants and ACO 

provider/suppliers, if the ACO 

terminates its participation midyear or 

is terminated by CMS under § 425.218 

(prior to December 31), it would not be 

eligible to share in savings for the 

performance year. The ACO would not 

be eligible to share in savings because 

the ACO would not have satisfied all 

requirements for sharing in savings for 

that performance year. 

(3) Reconsideration Review Process 

(A) Overview 

Under § 425.802(a), an ACO may 

appeal an initial determination that is 

not subject to the statutory preclusion 

on administrative or judicial review (see 

section 1899(g) of the Act). Specifically, 

the following determinations are not 

subject to administrative or judicial 

review: 

• The specification of quality and 

performance standards under §§ 425.500 

and 425.502. 

• The assessment of the quality of 

care furnished by an ACO under the 

performance standards. 

• The assignment of beneficiaries. 

• The determination of whether the 

ACO is eligible for shared savings and 

the amount of such shared savings 

(including the determination of the 

estimated average per capita Medicare 

expenditures under the ACO for 

beneficiaries assigned to the ACO and 

the average benchmark for the ACO). 

• The percent of shared savings 

specified by the Secretary and the limit 

on the total amount of shared savings 

established under §§ 425.604 and 

425.606. 

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• The termination of an ACO for 

failure to meet the quality performance 

standards. 

Initial determinations that are not 

precluded from administrative or 

judicial review would include the 

denial of an ACO application or the 

involuntary termination of an ACO’s 

participation agreement by CMS. 

Under § 425.802(a), an ACO may 

appeal an initial determination that is 

not prohibited from administrative or 

judicial review by requesting 

reconsideration review by a CMS 

official. The request for review must be 

submitted for receipt by CMS within 15 

days of the notice of the initial 

determination. Section 425.802(a)(2) 

provides that reconsiderations may be 

heard orally (that is, in person, by 

telephone or other electronic means) or 

on the record (review of submitted 

documentation) at the discretion of the 

reconsideration official. 

(B) Proposed Changes 

To date, CMS reconsideration 

official(s) have reviewed all 

reconsideration requests received as onthe-record reviews. We believe that onthe-record reviews are fair to both 

parties. Experience to date has 

demonstrated that a robust oral review 

is not necessary in light of the narrow 

scope of review. The issues eligible for 

review can be easily communicated in 

a detailed writing by both parties and do 

not require in-person witness testimony. 

Finally, we believe that on-the-record 

reviews do not require as many agency 

resources and can therefore ensure that 

decisions are made in a timely manner. 

Accordingly, we propose to modify 

§ 425.802 to permit only on-the-record 

reviews of reconsideration requests. 

Additionally, we propose to similarly 

modify § 425.804 and also clarify that 

the reconsideration process allows both 

ACOs and CMS to submit one brief each 

in support of its position by the 

deadline established by the CMS 

reconsideration official. 

4. Monitoring ACO Compliance With 

Quality Performance Standards 

We propose a technical revision to 

§ 425.316(c) to clarify our administrative 

enforcement authority when ACOs fail 

to meet the quality reporting 

requirements. Specifically, we propose 

to remove § 425.316(c)(3), which sets 

forth various required actions the ACO 

must perform if it fails to report one or 

more quality measures or fails to report 

completely and accurately on all 

measures in a domain. We also propose 

to remove § 425.316(c)(4), which sets 

forth the administrative action we may 

take against an ACO if it exhibits a 

pattern of inaccurate or incomplete 

reporting of quality measures or fails to 

make timely corrections following 

notice to resubmit. The actions 

identified in § 425.316(c)(3) and (4) 

include request for missing or corrected 

information, request for a written 

explanation for the noncompliance, and 

termination. All of these actions are 

already authorized under § 425.216 and 

§ 425.218. Therefore, to reduce 

redundancy, prevent confusion, and to 

streamline our regulations, we propose 

to modify § 425.316(c) to remove 

§ 425.316(c)(3) and (c)(4). 

In addition, we propose a technical 

change to § 425.316(c)(5), which 

currently provides that an ACO ‘‘will 

not qualify to share in savings in any 

year it fails to report fully and 

completely on the quality performance 

measures.’’ We propose to redesignate 

this paragraph as § 425.316(c)(3) and 

replace ‘‘fully and completely’’ with 

‘‘accurately, completely, and timely’’ to 

align with § 425.500(f) and to emphasize 

the importance of timely submission of 

measures. 

III. Collection of Information 

Requirements 

As stated in section 3022 of the 

Affordable Care Act, Chapter 35 of title 

44, United States Code, shall not apply 

to the Shared Savings Program. 

Consequently, the information 

collection requirements contained in 

this proposed rule need not be reviewed 

by the Office of Management and 

Budget. 

IV. Response to Comments 

Because of the large number of public 

comments we normally receive on 

Federal Register documents, we are not 

able to acknowledge or respond to them 

individually. We will consider all 

comments we receive by the date and 

time specified in the DATES section of 

this proposed rule, and, when we 

proceed with a subsequent document, 

we will respond to the comments in the 

preamble to that document. 

V. Regulatory Impact Analysis 

A. Statement of Need 

This proposed rule is necessary to 

propose payment and policy changes to 

the Medicare Shared Savings Program 

established under section 1899 of the 

Act. The Shared Savings Program 

promotes accountability for a patient 

population, coordinates items and 

services under parts A and B, and 

encourages investment in infrastructure 

and redesigned care processes for high 

quality and efficient service delivery. 

B. Overall Impact 

We have examined the impacts of this 

rule as required by Executive Order 

12866 on Regulatory Planning and 

Review (September 30, 1993), Executive 

Order 13563 on Improving Regulation 

and Regulatory Review (January 18, 

2011), the Regulatory Flexibility Act 

(RFA) (September 19, 1980, Pub. L. 96– 

354), section 1102(b) of the Social 

Security Act, section 202 of the 

Unfunded Mandates Reform Act of 1995 

(March 22, 1995; Pub. L. 104–4), 

Executive Order 13132 on Federalism 

(August 4, 1999) and the Congressional 

Review Act (5 U.S.C. 804(2)). 

Executive Orders 12866 and 13563 

direct agencies to assess all costs and 

benefits of available regulatory 

alternatives and, if regulation is 

necessary, to select regulatory 

approaches that maximize net benefits 

(including potential economic, 

environmental, public health and safety 

effects, distributive impacts, and 

equity). Section 3(f) of Executive Order 

12866 defines a ‘‘significant regulatory 

action’’ as an action that is likely to 

result in a rule: (1) Having an annual 

effect on the economy of $100 million 

or more in any 1 year, or adversely and 

materially affecting a sector of the 

economy, productivity, competition, 

jobs, the environment, public health or 

safety, or state, local or tribal 

governments or communities (also 

referred to as ‘‘economically 

significant’’); (2) creating a serious 

inconsistency or otherwise interfering 

with an action taken or planned by 

another agency; (3) materially altering 

the budgetary impacts of entitlement 

grants, user fees, or loan programs or the 

rights and obligations of recipients 

thereof; or (4) raising novel legal or 

policy issues arising out of legal 

mandates, the President’s priorities, or 

the principles set forth in the Executive 

Order. 

A regulatory impact analysis (RIA) 

must be prepared for major rules with 

economically significant effects ($100 

million or more in any 1 year). We 

estimate that this rulemaking is 

‘‘economically significant’’ as measured 

by the $100 million threshold, and 

hence also a major rule under the 

Congressional Review Act. Accordingly, 

we have prepared a Regulatory Impact 

Analysis, which to the best of our ability 

presents the costs and benefits of the 

rulemaking. 

C. Anticipated Effects 

1. Effects on the Medicare Program 

The Shared Savings Program is a 

voluntary program involving an 

innovative mix of financial incentives 

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for quality of care and efficiency gains 

within FFS Medicare. As a result, the 

changes being proposed to the Shared 

Savings Program could result in a range 

of possible outcomes. In previous 

rulemaking (76 FR 67904), we indicated 

that participation in Track 1 might 

enable ACOs to gain the experience 

necessary to take on risk in a subsequent 

agreement period under a two-sided 

arrangement, possibly enhancing the 

opportunity for greater program savings 

in years beyond the first agreement 

period. Conversely, if in that first 

agreement period, ACOs come to 

reliably predict a bias that ensures an 

outcome—whether favorable or 

unfavorable—the program would be at 

risk for increasingly selective 

participation from favored ACOs and 

any real program savings could be 

overwhelmed by outsized sharedsavings payments (76 FR 67964). 

Further, even ACOs that opt for a twosided arrangement could eventually 

terminate their agreements if they 

anticipate that efforts to improve 

efficiency are overshadowed by their 

particular market circumstances. This 

scenario could also contribute to 

selective program participation by ACOs 

favored by the national flat-dollar 

growth target, or favored by other 

unforeseen biases affecting performance. 

However, as we indicated in the 

previous rulemaking, even with the 

optional liability for a portion of excess 

expenditures, which offers less 

incentive to reduce costs than a model 

involving full capitation, the 

opportunity to share in FFS Medicare 

savings still represents an incentive for 

efficiency. The actual effects of shared 

savings (and potential liabilities in the 

form of shared losses) will have varying 

degrees of influence on hospitals, 

primary care physicians, specialty 

physicians, and other providers and 

suppliers. Moreover, while certain care 

improvements might be achieved 

relatively quickly (for example, 

prevention of hospital readmissions and 

emergency-room visits for certain 

populations with chronic conditions), 

some ACOs might need more than 3 

years to achieve comprehensive 

efficiency gains. 

As of the spring of 2014, over 330 

organizations have chosen to participate 

in the Shared Savings Program. These 

organizations care for nearly 5 million 

assigned FFS beneficiaries living in 47 

states, plus Puerto Rico and the District 

of Columbia. Half of all ACOs 

characterize themselves as networks of 

individual practices and the other half 

include hospitals. In the fall of 2014, 

CMS announced the final financial 

reconciliation and quality performance 

results for performance year 1 for ACOs 

with 2012 and 2013 agreement start 

dates. Of the 220 ACOs with 2012 and 

2013 start dates, 58 ACOs generated 

shared savings during their first 

performance year. They held spending 

$705 million below their targets and 

earned shared savings payments of more 

than $315 million as their share of 

program savings. One ACO in Track 2 

overspent its target by $10 million and 

owed shared losses of $4 million. Total 

net savings to Medicare is close to $383 

million, including repayment of shared 

losses by one Track 2 ACO. An 

additional 60 ACOs reduced health 

costs compared to their benchmark, but 

did not qualify for shared savings, as 

they did not meet the minimum savings 

threshold. While evaluation of the 

program’s overall impact is ongoing, the 

performance year 1 final financial 

reconciliation and quality results are 

within the range originally projected for 

the program’s first year. Also, at this 

point, we have seen no evidence of 

systematic bias in ACO participation or 

performance that would raise questions 

about the savings that have been 

achieved. 

Earlier in this proposed rule, we 

proposed additions to or changes in 

policy that are intended to better 

encourage ACO participation in riskbased models by— 

• Easing the transition from Track 1 

to Track 2; 

• Reducing risk under Track 2; and 

• Adopting an alternative risk-based 

model—Track 3. 

First, as is currently the case, an ACO 

would be able to apply to participate in 

Track 1 for its initial agreement period 

during which the ACO could be eligible 

for shared savings payments in all 3 

performance years of the agreement 

period without the risk of being 

responsible for repayment of any losses 

if actual expenditures exceed the 

benchmark. However, rather than 

requiring all Track 1 ACOs to transition 

to a risk-based model in their second 

agreement period, as is currently 

required, we are proposing to improve 

the transition from the shared-savings 

only model to a risk-based model for 

Track 1 ACOs that might require 

additional experience with the program 

before taking on performance-based risk. 

Specifically, in this proposed rule, we 

are proposing that Track 1 ACOs may 

elect to continue participation under 

Track 1 for a subsequent agreement 

period, albeit with a lower sharing rate, 

provided that they meet the eligibility 

requirements to continue in the program 

under Track 1. 

Second, we are proposing to reduce 

the current level of risk for ACOs that 

participate in Track 2, which provides 

an opportunity for an ACO to receive a 

higher percentage of shared savings for 

all years of the agreement period, but 

with potential liability for shared losses 

in each of the agreement years if annual 

expenditures exceed the benchmark. 

Specifically, in this proposed rule, we 

are proposing to replace the current flat 

2 percent MSR and MLR under Track 2 

with a variable MSR and MLR using the 

same methodology as is currently used 

to establish the MSRs for ACOs under 

Track 1. Under this methodology an 

ACO’s MSR varies based on the number 

of assigned beneficiaries using a sliding 

scale. Similarly, we are proposing to 

vary a Track 2 ACO’s MSR and MLR 

based on the number of assigned 

beneficiaries. This proposal would 

reduce risk for many Track 2 ACOs by 

increasing the threshold before they 

would have to share in additional costs 

that they had incurred for the program. 

Third, in this proposed rule, we are 

proposing to establish an additional 

risk-based option (Track 3) that offers a 

higher maximum shared savings 

percentage (75 percent) and 

performance payment limit (20 percent) 

than is available under Track 2 (60 

percent and 15 percent respectively), a 

fixed MSR and MLR of 2 percent, and 

a cap on the amount of losses for which 

an ACO is liable that is fixed at 15 

percent of its updated benchmark in 

each year. Also, under this model, 

beneficiaries would be assigned 

prospectively so an ACO would know in 

advance those beneficiaries for which it 

would be responsible. 

As detailed in Table 8, we estimate at 

baseline (that is, without the proposed 

changes detailed in this proposed rule) 

a total aggregate median impact of $730 

million in net federal savings for 

calendar years (CY) 2016 through 2018 

from the continued operation of the 

Shared Savings Program for ACOs 

electing a second agreement period 

starting in January 2016. The 10th and 

90th percentiles of the estimate 

distribution, for this same time period, 

yield a net savings of $380 million and 

$1,160 million, respectively. These 

estimated impacts represent the effect 

on federal transfers of payments to 

Medicare providers and suppliers. The 

median estimated federal savings are 

higher than the estimate for the program 

effects over the preceding calendar years 

(CY) 2012 through 2015 published in 

the previous final rule (estimated 

median net savings of $470 million for 

such 4 year period). This increase in 

savings is due to multiple factors related 

to maturation of the program, including 

continued phase-in of assumed savings 

potentials, lowered effective sharing 

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rates due in part to rebased benchmarks, 

and increased collection of shared 

losses due to mandatory enrollment in 

Track 2 in a second agreement period. 

However, absent changes to improve the 

viability of participation for ACOs 

considering a second agreement period, 

we estimate fewer than one in four 

ACOs will opt for continued 

participation under downside risk in 

Track 2 as required under the current 

regulations. Further, we estimate 

approximately one in three of such reenrolling ACOs would ultimately drop 

out of the program by 2018 to avoid 

future shared loss liability. 

Alternatively, as detailed in Table 9, 

by including the proposed changes 

detailed in this rule, the total aggregate 

median impact would increase to $1,010 

million in net federal savings for 

calendar years (CY) 2016 through 2018. 

The 10th and 90th percentiles of the 

estimate distribution, for the same time 

period, would also be higher, yielding 

net savings of $430 million and $1,650 

million, respectively. Such median 

estimated federal savings are $280 

million greater than the $730 million 

median net savings estimated at 

baseline absent proposed changes. A 

key driver of an anticipated increase in 

net savings is through improved ACO 

participation levels in a second 

agreement period. We estimate that at 

least 90 percent of eligible ACOs will 

renew their participation in the Shared 

Savings Program if presented with the 

new options, primarily under Track 1 

and, to a lesser extent, under Track 3. 

This expansion in the number of ACOs 

willing to continue their participation in 

the program is estimated to result in 

additional improvements in care 

efficiency of a magnitude significantly 

greater than the reduced shared loss 

receipts estimated from baseline 

(median shared loss dollars reduced by 

$140 million relative to baseline) and 

the added shared savings payments 

flowing from a higher sharing rate in 

Track 3 and continued one-sided 

sharing available in Track 1 (median 

shared savings payments increased by 

$320 million relative to baseline). 

With respect to costs incurred by 

ACOs, as discussed later in this section, 

for purposes of this analysis, we are 

retaining our assumption included in 

our November 2011 final rule (76 FR 

67969) of an average of $0.58 million for 

start-up investment costs but are 

revising our assumption for average 

ongoing annual operating costs for an 

ACO participating in the Shared Savings 

Program to $0.86 million, down from 

the $1.27 million assumed in our 

November 2011 final rule (76 FR 67969). 

This revision is related to the lower 

average number of beneficiaries 

currently observed to be assigned to 

existing Shared Savings Program ACOs 

compared to the larger organizations 

participating in the Physician Group 

Practice Demonstration upon which the 

original assumption was based. We also 

believe that our proposals to streamline 

the administrative requirements for the 

program could further assist in lowering 

administrative costs. 

For our analysis, we are comparing 

the effects of the proposed changes in 

this proposed rule for a cohort of ACOs 

that either continued their participation, 

beginning in 2016 or newly began 

participation in that same year. For 

purposes of our analysis, we assume 

that roughly one quarter of ACOs will 

incur aggregate start-up investment 

costs in 2016, ranging from $7 million 

under the baseline scenario to $30 

million under the alternative (all 

proposed changes) scenario in aggregate. 

Aggregate-ongoing operating costs are 

estimated to range from $43 million 

under the baseline scenario to $181 

million under the alternative scenario. 

Both start-up investment and ongoing 

operating cost ranges assume an 

anticipated average participation level 

of 50 (baseline scenario) to 210 

(alternative scenario) new or currently 

participating ACOs that establish or 

renew participation agreements in 2016. 

For purposes of this analysis, we 

assume that some portion of ACOs 

currently participating in the program 

will not renew their participation 

agreement for a subsequent agreement 

period. As a result, under our baseline 

scenario, we assume 50 ACOs will 

either renew or begin an agreement 

period in 2016—far fewer than the 100 

new ACOs that have entered the 

program in each of the last 2 years. The 

3-year aggregate ongoing operating cost 

estimate also reflects our assumption 

that, under the baseline scenario, there 

would be a greater propensity for ACOs 

that have completed the full term of 

their initial agreement period, and that 

would be required to participate under 

Track 2 in their second agreement 

period, to drop out of the program after 

receiving poor results from their final 

settlement for the first performance year 

under Track 2 in the new agreement 

period. Therefore, as illustrated in Table 

8 for the baseline scenario, for CYs 2016 

through 2018, total median ACO shared 

savings payments of $310 million offset 

by $170 million in shared losses 

coupled with the aggregate average startup investment and ongoing operating 

cost of $121 million result in an 

estimated net private benefit of $19 

million. Alternatively, as illustrated in 

Table 9 for the all changes scenario, for 

CYs 2016 through 2018 the total median 

ACO shared savings payments of $630 

million, offset by $30 million in shared 

losses, coupled with the aggregate 

average start-up investment and ongoing 

operating costs of $562 million, result in 

an estimated net private benefit of $38 

million. By proposing to no longer 

require ACOs to accept risk in their 

second agreement period, our proposed 

changes also provide the benefit of 

reducing the per-ACO average shared 

loss liability by over 95 percent 

compared to the baseline. Therefore, the 

proposed changes would likely prevent 

a significant number of ACOs that 

would renew their participation 

agreements in 2016 from leaving the 

program prior to 2018. 

By encouraging greater Shared 

Savings Program participation, the 

changes proposed in this rule will also 

benefit beneficiaries through broader 

improvements in accountability and 

care coordination than would occur 

under current regulations. Accordingly, 

we have prepared a regulatory impact 

analysis (RIA) that to the best of our 

ability presents the costs and benefits of 

this proposed rule. 

TABLE 8—BASELINE (ABSENT ALL PROPOSED CHANGES) ESTIMATED NET FEDERAL SAVINGS, COSTS AND BENEFITS, CYS

2016 THROUGH 2018 

CY 2016 CY 2017 CY 2018 CYs (2016–2018) 

Net Federal Savings: 

10th Percentile ........... $200 million ....................... $150 million ....................... $20 million ......................... $380 million. 

Median ........................ $340 million ....................... $270 million ....................... $110 million ....................... $730 million. 

90th Percentile ........... $510 million ....................... $430 million ....................... $240 million ....................... $1160 million. 

ACO Shared Savings: 

10th Percentile ........... $40 million ......................... $60 million ......................... $70 million ......................... $180 million. 

Median ........................ $80 million ......................... $110 million ....................... $120 million ....................... $310 million. 

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TABLE 8—BASELINE (ABSENT ALL PROPOSED CHANGES) ESTIMATED NET FEDERAL SAVINGS, COSTS AND BENEFITS, CYS

2016 THROUGH 2018—Continued 

CY 2016 CY 2017 CY 2018 CYs (2016–2018) 

90th Percentile ........... $130 million ....................... $170 million ....................... $190 million ....................... $480 million. 

ACO Shared Losses: 

10th Percentile ........... $20 million ......................... $40 million ......................... $10 million ......................... $80 million. 

Median ........................ $60 million ......................... $80 million ......................... $30 million ......................... $170 million. 

90th Percentile ........... $100 million ....................... $150 million ....................... $60 million ......................... $290 million. 

Costs ................................. The estimated aggregate average start-up investment and 3-year operating costs is $121 million. The total estimated start-up investment costs average $7 million, with ongoing costs averaging $43 million, for the anticipated mean baseline participation of 50 ACOs. 

Benefits .............................. Improved healthcare delivery and quality of care and better communication to beneficiaries through patient-centered care. 

* Note that the percentiles for each individual year do not necessarily sum to equal the corresponding percentiles estimated for the total 3-year 

impact, in the column labeled CYs 2016 through 2018, due to the annual and overall distributions being constructed independently. 

TABLE 9—ALTERNATIVE SCENARIO ASSUMING ALL PROPOSED CHANGES ESTIMATED NET FEDERAL SAVINGS, COSTS AND

BENEFITS, CYS 2016 THROUGH 2018 

CY 2016 CY 2017 CY 2018 CYs (2016–2018) 

Net Federal Savings: 

10th Percentile ........... $190 million ....................... $150 million ....................... $80 million ......................... $430 million. 

Median ........................ $380 million ....................... $350 million ....................... $280 million ....................... $1,010 million. 

90th Percentile ........... $590 million ....................... $570 million ....................... $510 million ....................... $1650 million. 

ACO Shared Savings: 

10th Percentile ........... $90 million ......................... $150 million ....................... $220 million ....................... $470 million. 

Median ........................ $140 million ....................... $210 million ....................... $280 million ....................... $630 million. 

90th Percentile ........... $200 million ....................... $280 million ....................... $350 million ....................... $820 million. 

ACO Shared Losses: 

10th Percentile ........... $0 million ........................... $0 million ........................... $0 million ........................... $10 million. 

Median ........................ $10 million ......................... $20 million ......................... $0 million ........................... $30 million. 

90th Percentile ........... $30 million ......................... $40 million ......................... $20 million ......................... $70 million. 

Costs ................................. The estimated aggregate average start-up investment and 3-year operating costs is $562 million. The total estimated start-up investment costs average $30 million, with ongoing costs averaging $181 million, for the anticipated mean baseline participation of 210 ACOs. 

Benefits .............................. Improved healthcare delivery and quality of care and better communication to beneficiaries through patient-centered care. 

Note that the percentiles for each individual year do not necessarily sum to equal the corresponding percentiles estimated for the total 3-year 

impact in the column labeled CYs 2016 through 2018, due to the annual and overall distributions being constructed independently. Also, the cost 

estimates for this table reflect our assumptions for increased ACO participation as well as changes in the mix of new and continuing ACOs. 

There remains uncertainty as to the 

number of ACOs that will continue to 

participate in the program, provider and 

supplier response to the financial 

incentives offered by the program in the 

medium and long run, and the ultimate 

effectiveness of the changes in care 

delivery that may result as ACOs work 

to improve the quality and efficiency of 

patient care. These uncertainties 

continue to complicate efforts to assess 

the financial impacts of the Shared 

Savings Program and result in a wide 

range of potential outcomes regarding 

the net impact of the proposed changes 

in this proposed rule on Medicare 

expenditures. 

To best reflect these uncertainties, we 

continue to utilize a stochastic model 

that incorporates assumed probability 

distributions for each of the key 

variables that will affect the overall 

financial impact of the Shared Savings 

Program. Using a Monte Carlo 

simulation approach, the model 

randomly draws a set of specific values 

for each variable, reflecting the expected 

covariance among variables, and 

calculates the program’s financial 

impact based on the specific set of 

assumptions. We repeated the process 

for a total of 2,500 random trials, 

tabulating the resulting individual cost 

or savings estimates to produce a 

distribution of potential outcomes that 

reflects the assumed probability 

distributions of the incorporated 

variables, as shown in Table 9. In this 

way, we can evaluate the full range of 

potential outcomes based on all 

combinations of the many factors that 

will affect the financial impact, and 

with an indication of the likelihood of 

these outcomes. It is important to note 

that these indications do not represent 

formal statistical probabilities in the 

usual sense, since the underlying 

assumptions for each of the factors in 

the model are based on reasonable 

judgments, using independent expert 

opinion when available. 

The median result from the 

distribution of simulated outcomes 

represents the ‘‘best estimate’’ of the 

financial effect of the proposed changes 

to the Shared Savings Program. The full 

distribution illustrates the uncertainty 

surrounding the mean or median 

financial impact from the simulation. 

The median estimate involves a 

combination of— 

• Reduced actual Medicare 

expenditures due to more efficient care; 

• Shared savings payments to ACOs; 

and 

• Payments to CMS for shared losses 

when actual expenditures exceed the 

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benchmark, resulting in a projected total 

of $1,010 million in net savings over 

CYs 2016 through 2018, or $280 million 

greater than the median projected total 

at baseline without the changes 

proposed in this rule. 

This net Federal savings estimate, 

detailed at the top of Table 9, can be 

summed with the projected ACO shared 

savings less projected ACO shared 

losses—both also detailed in Table 9— 

to show the median expected effect on 

Medicare claim expenditures before 

accounting for shared savings payments 

(that is, the reduction in actual 

Medicare expenditures due to more 

efficient care). 

A net savings (cost) occurs when 

payments of earned and unearned 

shared savings (less shared losses 

collected) resulting from: (1) Reductions 

in spending; (2) care redesign; and (3) 

random group claim fluctuation, in total 

are less than (greater than) assumed 

savings from reductions in 

expenditures. 

As continued emerging data become 

available on the differences between 

actual expenditures and the target 

expenditures reflected in ACO 

benchmarks, it may be possible to 

evaluate the financial effects with 

greater certainty. The estimate 

distribution shown in Table 10 provides 

an objective and reasonable indication 

of the likely range of financial 

outcomes, given the chosen variables 

and their assumed distributions at this 

time in the program’s operation. 

a. Assumptions and Uncertainties 

We continue to rely on input gathered 

as part of the analysis for the existing 

regulation from a wide range of external 

experts, including credentialed 

actuaries, consultants, and academic 

researchers, to identify the pertinent 

variables that could determine the 

efficacy of the program, and to identify 

the reasonable ranges for each variable. 

We also continue to monitor emerging 

evidence from current participation in 

this program, the Pioneer ACO Model, 

and related published evidence where 

available. The factors that we are 

continuing to consider for modeling 

include all of the following: 

• Number of participating ACOs, 

including the sensitivity to burdens of 

participation and the generosity of the 

sharing arrangement. 

• Size mix of participating ACOs. 

• Type of ACO that would consider 

accepting risk. 

• Participating ACOs’ current level of 

integration and preparedness for 

improving the quality and efficiency of 

care delivery. 

• Baseline per-capita costs for ACOs, 

relative to the national average. 

• Number and profile of providers 

and suppliers available to participate in 

the Shared Savings Program as a result 

of Innovation Center model initiatives. 

• Range of gross savings achieved by 

ACOs, and the time required for full 

phase-in. 

• Local variation in expected claims 

cost growth relative to the national 

average. 

• Quality reporting scores and 

resulting attained sharing (or loss) 

percentages. 

• Potential ’spillover’ effects between 

the Shared Savings Program and other 

value-based incentive programs 

implemented by CMS and/or other 

payers. 

We assumed that overall between 0.8 

million Medicare beneficiaries (under 

baseline) and 3.3 million Medicare 

beneficiaries (with all proposed 

changes) would annually be assigned to 

between 50 and 210 ACOs beginning a 

new agreement period in 2016. Given 

data on current participation, we 

anticipate the program will continue to 

garner comparable levels of 

participation from markets exhibiting 

baseline per-capita FFS expenditures 

above, at, or below the national average. 

In addition, we assumed the level of 

savings generated by an ACO to 

positively correlate to the achieved 

quality performance score and resulting 

sharing percentage. 

For estimating the impact of the 

proposed changes, we assume that most 

ACOs (approximately 9 out of 10, on 

average) will choose Track 1 despite a 

proposed decrease in the savings 

sharing percentage. This is because the 

ACOs will seek to simultaneously: (1) 

Avoid the potential for financial loss if 

expenditures experience a significant 

upward fluctuation or efficiency 

improvements are less effective than 

planned; and (2) continue to build 

organizational experience to achieve a 

per-capita cost target as determined 

under the program’s benchmark 

methodology. 

In contrast, we assume that a minority 

of ACOs—disproportionately 

represented from a more capable subset 

of the total program participation—will 

opt for Track 3 in the second agreement 

period. These ACOs will be enabled by 

experience accepting risk and/or 

achieving success in their first 

agreement period in this program, and 

motivated by the provision for 

prospective assignment of beneficiaries 

and the greater sharing percentage as 

proposed for this new option. A 

particularly important cause for 

uncertainty in our estimate is the high 

degree of variability observed for local 

per-capita cost growth rates relative to 

the national average ‘‘flat dollar’’ growth 

(used to update ACO benchmarks). The 

benchmark or expenditure target 

effectively serves as the chief measure of 

efficiency for participating ACOs. 

Factors such as lower-than-average 

baseline per-capita expenditure and 

variation in local growth rates relative to 

the national average can trigger shared 

savings payments even in the absence of 

any efficiency gains. Similarly, some 

ACOs could find that factors, such as 

prevailing per-capita expenditure 

growth in their service area that is 

higher than the national average, limit 

efficiency gains and reduce or prevent 

shared savings. 

b. Detailed Stochastic Modeling Results 

Table 10 shows the distribution of the 

estimated net financial impact for the 

2,500 stochastically generated trials 

under the scenario where all proposed 

changes are implemented. (The amounts 

shown are in millions, with negative net 

impacts representing Medicare savings). 

The net impact is defined as the total 

cost of shared savings less—(1) any 

amount of savings generated by 

reductions in actual expenditures; and 

(2) any shared losses collected from 

ACOs that accepted risk and have actual 

expenditures exceeding their 

benchmark. 

The median estimate of the Shared 

Savings Program financial impact for 

ACOs potentially entering a second 

agreement period as proposed in this 

rule and covering calendar years 2016 

through 2018 is a net federal savings of 

$1,010 million, which is $280 million 

higher than our estimate for the same 

period assuming a baseline scenario, 

which excludes the changes proposed in 

this rule. This amount represents the 

‘‘best estimate’’ of the financial impact 

of the Shared Savings Program during 

the applicable period. However, it is 

important to note the relatively wide 

range of possible outcomes. While over 

99 percent of the stochastic trials 

resulted in net program savings, the 

10th and 90th percentiles of the 

estimated distribution show net savings 

of $430 million to net savings of $1,650 

million, respectively. In the extreme 

scenarios, the results were as large as 

$2.9 billion in savings or $200 million 

in costs. 

The stochastic model and resulting 

financial estimates were prepared by the 

CMS Office of the Actuary (OACT). The 

median result of $1,010 million in 

savings is a reasonable ‘‘point estimate’’ 

of the impact of the Shared Savings 

Program during the period between 

2016 and 2018 if the changes proposed 

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in this proposed rule are finalized and 

implemented. However, we emphasize 

the possibility of outcomes differing 

substantially from the median estimate, 

as illustrated by the estimate 

distribution. As we analyze additional 

data on ACO performance in the first 

agreement period, we may likely 

improve the precision of future financial 

impact estimates. 

To the extent that the Shared Savings 

Program will result in net savings or 

costs to Part B of Medicare, revenues 

from Part B beneficiary premiums 

would also be correspondingly lower or 

higher. In addition, because MA 

payment rates depend on the level of 

spending within traditional FFS 

Medicare, savings or costs arising from 

the Shared Savings Program would 

result in corresponding adjustments to 

MA payment rates. Neither of these 

secondary impacts has been included in 

the analysis shown. 

Table 11 shows the median estimated 

financial effects for the Shared Savings 

Program of ACOs entering in a new 

agreement period starting in 2016 and 

the associated 10th and 90th percentile 

ranges, assuming all changes in this 

proposed rule are implemented. Net 

savings (characterized by a negative net 

impact on federal outlays) are expected 

to moderately contract over the 3-year 

period, from a median of $380 million 

in 2016 to $270 million in 2018. This 

progression is related to the maturation 

of efficiencies achieved by renewing 

ACOs contrasted by progressive 

increases in shared savings payments 

due to increasing variability in 

expenditures in later performance years 

relative to a static benchmark 

expenditure baseline. To similar effect, 

the potential that Track 3 ACOs 

experiencing losses may elect to 

voluntarily terminate their participation 

in the program could work to decrease 

net savings in the last year of the period 

relative to prior years. We note that the 

percentiles are tabulated for each year 

separately. Therefore, the overall net 

impact distribution (Table 9) will not 

necessarily exactly match the sum of 

distributions for each distinct year. 


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c. Further Consideration 

The impact analysis shown is only for 

the 3 years 2016 through 2018 

corresponding to the second agreement 

period potentially available for the up to 

nearly 220 ACOs that will complete 

their first agreement period in 2015. As 

of January 1, 2014, 123 additional ACOs 

have joined the program and would 

potentially be eligible for a second 

agreement period beginning in 2017. For 

both groups of ACOs, uncertainties exist 

regarding providers’ continued 

engagement with program goals and 

incentives, especially for providers who 

fail to generate shared savings revenue 

comparable to the cost of effective 

participation in the program. It is 

possible that, notwithstanding the 

enhancements proposed in this rule, a 

significant drop-off in participation 

could materialize from ACOs failing to 

achieve significant revenue from shared 

savings in the short run. On the other 

hand, value-based payment models are 

showing significant growth in 

arrangements from state Medicaid 

programs, private insurers, and 

employer-sponsored plans. Moreover, 

we would also note that the number of 

providers and suppliers participating in 

these models and in the existing ACOs 

continues to grow. Therefore, providers 

may view continued participation in 

this program as part of a wider strategy 

for care redesign rather than be driven 

only by the potential for receiving 

incentives in the form of shared savings 

payments from the Medicare Shared 

Savings Program. Therefore, there 

remains a potential for broad gains in 

efficiency and quality of care delivery 

across all populations served by ACOs 

participating in the Shared Savings 

Program with possible additional 

‘‘spillover’’ effects on federal savings 

potentially traceable to momentum 

originally created by this program. The 

stochastic model for estimating future 

program impacts starting in 2016 does 

not incorporate either of these divergent 

longer-run scenarios, but both remain 

possibilities. An impact estimate 

expanded to include performance 

beyond the 2016 through 2018 

agreement period would likely entail a 

significantly wider range of possible 

outcomes. However, emerging results of 

the first performance cycle will help 

inform estimates of the ongoing 

financial effects of the Shared Savings 

Program. 

2. Effects on Beneficiaries 

This program is still in the early 

stages of implementation. However, we 

continue to believe that the Shared 

Savings Program will benefit 

beneficiaries because the intent of the 

program is to— 

• Encourage providers and suppliers 

to join together to form ACOs that will 

be accountable for the care provided to 

an assigned population of Medicare 

beneficiaries; 

• Improve the coordination of FFS 

items and services; and 


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• Encourage investment in 

infrastructure and redesigned care 

processes for high quality and efficient 

service delivery that demonstrates a 

dedication to, and focus on, patientcentered care that results in higher 

quality care. 

The benefits of a payment model that 

encourages providers and suppliers to 

become accountable for the overall care 

furnished to Medicare beneficiaries 

were evidenced by the PGP 

demonstration, upon which many 

features of the Shared Savings Program 

are based. Under the PGP 

demonstration, all of the PGP 

participants achieved improvements in 

their scores for most of the quality 

measures over time. While only 2 PGP 

participants met all 10 quality measure 

targets active in their first performance 

year, by the fifth performance year, 

seven sites met all 32, or 100 percent of 

their targets, and the remaining 3 PGP 

participants met over 90 percent of the 

targets. More specifically, as we 

previously discussed in our November 

2011 final rule (76 FR 67968), over the 

first 4 years of the PGP Demonstration, 

physician groups increased their quality 

scores an average of 10 percentage 

points on the ten diabetes measures, 13 

percentage points on the ten congestive 

heart failure measures, 6 percentage 

points on the seven coronary artery 

disease measures, 9 percentage points 

on the 2 cancer screening measures, and 

3 percentage points on the 3 

hypertension measures. Further analysis 

is provided in the Physician Group 

Practice Demonstration Evaluation 

Report (Report to Congress, 2009; 

http://www.cms.gov/

DemoProjectsEvalRpts/downloads/PGP_

RTC_Sept.pdf). 

As we have also previously discussed 

(76 FR 67968), in addition to the overall 

increases in quality scores, we can 

examine the impact of the PGP 

Demonstration on quality by comparing 

the values of the seven claims-based 

quality measures for each PGP site and 

its comparison group. Our analysis 

found that, on the claims-based 

measures, PGP performance exceeded 

that of the comparison groups (CGs) on 

all measures between the base year (BY) 

and performance year 2 (PY2). It also 

found that the PGP sites exhibited more 

improvement than their CGs on all but 

one measure between the BY and PY2. 

Even after adjusting for predemonstration trends in the claimsbased quality indicators, the PGP sites 

improved their claims-based quality 

process indicators more than their 

comparison groups. 

Further, for the first year of the 

Pioneer ACO Model, all 32 Pioneer 

ACOs successfully reported quality 

measures and achieved the maximum 

quality score for complete and accurate 

reporting, earning incentive payments 

for their reporting accomplishments. 

Overall, Pioneer ACOs performed better 

than published rates in FFS Medicare 

for all 15 clinical quality measures for 

which comparable data are available. 

For example, 

• Twenty-five of 32 Pioneer ACOs 

generated lower risk-adjusted 

readmission rates for their aligned 

beneficiaries than the benchmark rate 

for all Medicare FFS beneficiaries. 

• Pioneer ACOs performed better on 

clinical quality measures that assess 

hypertension control for patients. The 

median rate among Pioneer ACOs on 

blood pressure control among 

beneficiaries with diabetes was 68 

percent compared to 55 percent as 

measured in adult diabetic population 

in 10 managed care plans across 7 states 

from 2000 to 2001. 

• Pioneer ACOs performed better on 

clinical quality measures that assess low 

density lipoprotein (LDL) control for 

patients with diabetes. The median rate 

among Pioneer ACOs for LDL control 

among beneficiaries with diabetes was 

57 percent compared to 48 percent in an 

adult diabetic population in 10 managed 

care plans across 7 states from 2000 to 

2001. 

Additionally, under the Shared 

Savings Program, all but 6 organizations 

fully and completely reported quality 

measures for the 2013 reporting period, 

providing important information on 

current performance that can be used to 

improve patient engagement and make 

meaningful positive impacts on patient 

care. 

Above and beyond the early quality 

data generated by participating 

organizations, we have anecdotal 

evidence that illustrates the importance 

of encouraging participation in the 

Shared Savings Program. For example, 

ACO providers/suppliers report very 

meaningful changes in patient 

engagement through beneficiary 

participation on the governing body of 

the ACO and on patient advisory 

committees. In response to beneficiary 

input, clinical practices are offering 

extended office hours, including 

weekend hours, and ensuring timely 

appointments and access to clinical 

staff. Using the data shared by CMS, 

ACOs are able to identify high risk 

beneficiaries that require additional 

clinical attention, assign case managers, 

and actively work to improve care for 

these beneficiaries. One ACO reported 

that it has implemented a process for 

performing in-home medication 

reconciliation and review of care plans 

as a follow up to hospital discharge and 

for one third of those patients, 

discovered an intervention that avoided 

an unnecessary hospital readmission. 

Active identification and management 

of these patients has uncovered 

previously unaddressed issues that 

factored into patient inability to adhere 

to treatment plans. For example, one 

ACO reported that it has uncovered 

several psycho-social issues that were 

resulting in avoidable readmissions 

such as— 

• The inability to self-medicate (the 

ACO arranged for home health services); 

• Lack of transportation to clinical 

practices (the ACO’s affiliated hospitals 

had a taxi service voucher program that 

the ACO was able to expand to the 

beneficiary population assigned to the 

ACO): 

• Inadequate access to healthy food 

resources (the ACO worked with 

community stakeholders to have meals 

delivered to the patient’s home). 

Additionally, ACOs are using claims 

data to identify diagnoses prevalent in 

the assigned population and develop 

best practice guidelines for those 

conditions, and educating and alerting 

ACO participants and ACO providers/

suppliers to standardize care. 

We expect that the changes proposed 

in this proposed rule, specifically those 

easing administrative requirements, 

smoothing the transition to a risk-based 

model, and expanding opportunities to 

share in a higher level of savings will 

encourage greater program participation 

by ACOs, which will in turn increase 

the number of beneficiaries that can 

potentially benefit from high quality 

and more coordinated care. 

Nonetheless, this program does not 

affect beneficiaries’ freedom of choice 

regarding which providers and 

suppliers they see for care since 

beneficiaries assigned to an ACO 

continue to be in the traditional 

Medicare program. Thus, beneficiaries 

may continue to choose providers and 

suppliers that do not participate in 

ACOs under the Shared Savings 

Program. 

3. Effect on Providers and Suppliers 

Based on discussions with ACOs that 

generated interim shared savings and 

demonstrated high quality care during 

their first performance year in the 

Shared Savings Program, we know that 

ACOs are busy implementing a variety 

of strategies designed to improve care 

coordination for beneficiaries and lower 

the rate of growth in expenditures. Most 

of these ACOs consider themselves to be 

‘‘physician-based’’ organizations, rather 

than ‘‘hospital-based’’, although many 

state that a strong collaboration between 

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inpatient and outpatient facilities is 

critical to better care coordination 

across sites of care. ACOs mentioned 

several strategies they believed were 

important such as careful preparticipation planning, transparency 

between the ACO leadership and its 

ACO participants and ACO providers/

suppliers, education of ACO providers/ 

suppliers regarding the ACO’s care 

processes, strong physician leadership, 

and working to streamline and 

transform practices for highly efficient 

coordinated care across sites of care. 

Several clinicians in ACOs have 

reported to us that the ACO is providing 

them with the support and structure 

needed to practice ‘‘how [they] always 

hoped [they] could’’. All of the ACOs 

recognize that they are early in the 

process of implementing their strategies 

to improve care coordination and 

reduce the rate of growth in 

expenditures and have plans to refine 

and improve based upon their early 

lessons learned. 

We realize that ACOs bear costs in 

building the organizational, financial 

and legal infrastructure that is necessary 

to participate in the Shared Savings 

Program and implementing the 

strategies previously articulated, as well 

as performing the tasks required of an 

ACO, such as: Quality reporting, 

conducting patient surveys, and 

investing in infrastructure for effective 

care coordination. While provider and 

supplier participation in the Shared 

Savings Program is voluntary, we have 

examined the potential costs of 

continued program participation. 

In this proposed rule, we are 

proposing to revise several program 

policies in order to reduce the burden 

associated with the infrastructure, startup and ongoing annual operating costs 

for participating ACOs in the Shared 

Savings Program. These proposals 

include simplifying the application 

process for certain ACOs with 

experience under either Pioneer ACO 

Model or the Shared Savings Program 

streamlining sharing of beneficiary data. 

These significant proposed policy 

modifications are discussed in detail in 

sections II.B., C., and D. of this proposed 

rule. 

The Shared Savings Program is still 

relatively new, and the initial group of 

organizations that applied to participate 

has only recently completed the first 

performance year. Because of this 

limited experience with the program 

and flexibility regarding the 

composition of providers and suppliers 

within an ACO and the strategies that 

the provider community will pursue in 

order to improve quality and reduce 

cost of care, precise estimates of 

expected provider costs or changes to 

their costs due to this proposed rule are 

difficult to create. 

In our November 2011 final rule (76 

FR 67968), we discussed a Government 

Accountability Office analysis of the 

PGP demonstration. The GAO study 

showed that both start-up and annual 

operating costs varied greatly across the 

participating practices. Thus, as we 

indicated in the November 2011 final 

rule (76 FR 67968), we use GAO’s 

analysis not to predict cost investment 

and operating expenditures, but to 

demonstrate that we expect the range of 

investment to vary greatly across ACOs 

and to provide the potential scope for 

aspiring participants. 

For purposes of our current impact 

analysis, we are retaining the 

assumption included in our November 

2011 final rule (76 FR 67969) of $0.58 

million in average start-up investment 

cost but are revising our assumption for 

average ongoing annual operating costs 

for an ACO from $1.27 million to $0.86 

million to reflect the lower average 

number of beneficiaries assigned to 

existing Shared Savings Program ACOs 

(approximately 14,700 beneficiaries) 

compared to the ten PGP sites examined 

by GAO (average size approximately 

22,400 beneficiaries). Therefore, our 

cost estimates for purposes of this 

proposed rule reflect an average 

estimate of $0.58 million for the start-up 

investment costs and $0.86 million in 

ongoing annual operating costs for an 

ACO participating in the Shared Savings 

Program. Assuming an expected range 

of ACOs participating in the Shared 

Savings Program of 50 to 210 ACOs 

(baseline scenario and all changes 

scenario, respectively) yields an 

estimated aggregate start-up investment 

cost ranging from $7 million to $30 

million (assuming 1 in 4 ACOs will 

incur start-up costs), with aggregate 

ongoing operating costs ranging from 

$43 million to $181 million for the 

agreement period coinciding with CYs 

2016 through 2018. We are also 

assuming that ACOs participating in a 

track that includes two-sided 

performance-based risk will in certain 

cases drop out of the program after 

receiving poor results for the first 

performance period beginning in 2016. 

Such drop out activity is assumed to 

affect a greater proportion of ACOs at 

baseline than under the all changes 

scenario because of the requirement that 

all renewing ACOs participate in Track 

2 under the baseline scenario. When 

utilizing the anticipated mean 

participation rate of ACOs in the Shared 

Savings Program for such agreement 

period coupled with the average start-up 

investment and ongoing annual 

operating costs for the up to 3 years that 

ACOs may participate for such 

agreement period, this yields estimated 

aggregate average start-up investment 

and ongoing operating costs of $121 

million for 50 ACOs (assuming no 

regulatory changes) to $562 million for 

210 ACOs (assuming the proposed 

regulatory changes) for the agreement 

period covering CYs 2016 through 2018. 

While there will be a financial cost 

placed on ACOs that participate, there 

will be benefits to the respective 

organizations in the form of increased 

operational and healthcare delivery 

efficiency. Furthermore, as discussed 

previously, and explained in more 

detail in the preamble of this proposed 

rule, there will be an opportunity for 

financial reward for success in the 

program in the form of shared savings. 

As shown in Table 12, the estimate of 

the shared savings that will be paid to 

participating ACOs is a median of $630 

million during CYs 2016 through 2018, 

with $470 million and $820 million 

reflecting the 10th and 90th percentiles, 

respectively. (Similar to the previously 

presented stochastic distributions, the 

distribution represents uncertainty 

given the range of expert opinion, rather 

than a true statistical probability 

distribution.) 

Compared to shared savings 

payments, under our proposed changes 

to the program, we anticipate collection 

from participating ACOs of a relatively 

moderate $30 million in shared losses 

during the same period, with our 10th 

and 90th percentiles projecting $10 

million and $70 million in shared losses 

collected, respectively. Shared losses 

decrease relative to the baseline (median 

of $170 million over the same 3 years) 

because, in contrast to the baseline 

requirement, not all renewing ACOs 

would be required to enter Track 2 and 

take on downside risk. Modeling 

indicates that not all ACOs choosing 

downside risk in a second agreement 

period, whether required, as under the 

current regulation or as an alternative 

option under the proposed changes, will 

achieve shared savings and some may 

incur a financial loss, due to the 

requirement to repay a share of actual 

expenditures in excess of their 

benchmark as shared losses. The 

significantly reduced level of shared 

losses anticipated under the all 

proposed changes scenario is largely 

attributable to the proposed option for 

eligible ACOs to be able to renew under 

a modified Track 1, and illustrates a key 

reason why the program would be 

anticipated to see significantly stronger 

continued participation under the 

proposed changes than at baseline. 

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Assuming the proposed changes in 

this proposed rule, total median ACO 

shared savings payments ($630 million) 

net of median shared losses ($30 

million) to ACOs with agreement 

periods covering CYs 2016 through 2018 

are $600 million in net payments. Such 

median total net payment amount, 

coupled with the aggregate average startup investment and ongoing operating 

cost of $562 million, incurred by the 

mean participation rate of ACOs in the 

Shared Savings Program during the 

same time period, yields a net private 

benefit of $38 million. At baseline, 

absent the proposed changes, the 

median net payments to ACOs over the 

same time period would be only $140 

million ($310 million in shared savings 

payments less $170 million in shared 

losses). Such lower net sharing at 

baseline, combined with baseline 

average start-up investment and ongoing 

operating costs of $121 million, yields a 

net private benefit of $19 million. We 

expect that a significant portion of Track 

1 ACOs that are assumed to be 

unwilling to renew under the program 

without the protection from downside 

risk will welcome the opportunity to 

continue under Track 1 for a second 

agreement period, albeit with a lower 

maximum sharing rate of 40 percent. 

Moreover, the proposed changes reduce 

the estimated per-ACO average shared 

loss liability by over 95 percent 

compared to the baseline, and increase 

the chance an ACO renewing in 2016 

will continue to participate for all 3 

years of the new agreement period. 

We would note that our estimates of 

net private benefits under the baseline 

and all proposed changes scenarios are 

influenced by assumptions that could 

vary in practice and thus result in a very 

different actual result than what was 

estimated. First, we assume that savings 

realized by existing ACOs during their 

first agreement period are built into 

their benchmarks and our baseline for 

their successive agreement period. This 

means that these ACOs may have to 

achieve greater efficiencies and quality 

improvements during their successive 

agreement period compared to their 

prior one in order to share in savings. 

Moreover, the extent to which these 

ACOs actually exceed or fall short of our 

assumed baseline savings will result in 

higher or lower actual net private 

benefits relative to our estimate. Second, 

our estimates assume a large proportion 

of existing Track 1 ACOs will continue 

participating under Track 1 for 2016 to 

2018, albeit at the lower 40 percent 

sharing rate. This assumption has the 

effect of diminishing estimated benefits 

under our model. Thus, all else being 

equal, the extent to which a smaller or 

larger percentage of these ACOs remain 

under Track 1 for their second 

agreement period will also respectively 

increase or decrease the actual net 

private benefits relative to what we 

estimated. Finally, to the extent that 

actual ACO quality performance 

exceeds or falls short of our estimates, 

the net private benefits could be 

respectively higher or lower than what 

we estimated. 

We also note that the net private 

benefits actually experienced by a given 

ACO may increase as a result of other 

benefits associated with participation in 

the Shared Savings Program. For 

example, an ACO that is participating in 

the Shared Savings Program and 

simultaneously receives value-based 

contracts from other payers may receive 

additional benefits. Such potential 

benefits are not considered in our 

analysis because they are not readily 

quantifiable. Therefore, we limit our 

benefit-cost estimate to shared savings 

and shared loss dollars received under 

the Shared Savings Program relative to 

estimated operational costs associated 

with participating in the program as 

previously described. 

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4. Effect on Small Entities 

The RFA requires agencies to analyze 

options for regulatory relief of small 

entities, if a rule has a significant impact 

on a substantial number of small 

entities. For purposes of the RFA, small 

entities include small businesses, 

nonprofit organizations, and small 

governmental jurisdictions. Most 

physician practices, hospitals and other 

providers are small entities, either by 

virtue of their nonprofit status or by 

qualifying as small businesses under the 

Small Business Administration’s size 

standards (revenues of less than $7.5 to 

$38.5 million in any 1 year; NAIC 

Sector-62 series). States and individuals 

are not included in the definition of a 

small entity. For details, see the Small 

Business Administration’s Web site at 

http://www.sba.gov/content/smallbusiness-size-standards. For purposes of 

the RFA, approximately 95 percent of 

physicians are considered to be small 

entities. There are over 1 million 

physicians, other practitioners, and 

medical suppliers that receive Medicare 

payment under the Physician Fee 

Schedule (PFS). 

Although the Shared Savings Program 

is a voluntary program and payments for 

individual items and services will 

continue to be made on a FFS basis, we 

acknowledge that the program can affect 

many small entities and have drafted 

the proposed changes to our rules and 

regulations accordingly in order to 

minimize costs and administrative 

burden on such entities as well as to 

maximize their opportunity to 

participate. Small entities are both 

allowed and encouraged to participate 

in the Shared Savings Program, 

provided they have a minimum of 5,000 

assigned beneficiaries, thereby 

potentially realizing the economic 

benefits of receiving shared savings 

resulting from the utilization of 

enhanced and efficient systems of care 

and care coordination. Therefore, a solo, 

small physician practice or other small 

entity may realize economic benefits as 

a function of participating in this 

program and the utilization of enhanced 

clinical systems integration, which 

otherwise may not have been possible. 

We have determined that this 

proposed rule will have a significant 

impact on a substantial number of small 

entities and we present more detailed 

analysis of these impacts, including 

costs and benefits to small entities and 

alternative policy considerations 

throughout this RIA. However, as 

detailed in this RIA, total median shared 


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savings payments net of shared losses 

will offset about 107 percent of the 

average costs borne by entities 

participating in the Shared Savings 

Program, with an offset significantly 

greater than the cost of participation for 

the subset of ACOs that achieve shared 

savings in a given year, and no 

downside risk of significant shared 

losses for ACOs choosing to remain 

under Track 1 for a second agreement 

period. As a result, this regulatory 

impact section, together with the 

remainder of the preamble, constitutes 

our preliminary Regulatory Flexibility 

Analysis. 

5. Effect on Small Rural Hospitals 

Section 1102(b) of the Act requires us 

to prepare a regulatory impact analysis 

if a rule may have a significant impact 

on the operations of a substantial 

number of small rural hospitals. This 

analysis must conform to the provisions 

of section 603 of the RFA. For purposes 

of section 1102(b) of the Act, we define 

a small rural hospital as a hospital that 

is located outside of a metropolitan 

statistical area and has fewer than 100 

beds. Although the Shared Savings 

Program is a voluntary program, this 

proposed rule will have a significant 

impact on the operations of a substantial 

number of small rural hospitals. We 

have proposed changes to our 

regulations such that rural hospitals will 

have stronger incentives to participate 

in the program through offering a 

smoother transition to risk-based 

models, additional opportunities to 

potentially share in savings under 

proposed new Track 3, and streamlined 

administrative requirements. As 

detailed in this RIA, the estimated 

aggregate median impact of shared 

savings payments to participating ACOs 

is approximately 107 percent of the 

average costs borne by entities that 

voluntarily participate in the Shared 

Savings Program, with an offset 

significantly greater than the cost of 

participation for the subset of ACOs that 

achieve shared savings in a given year, 

and no downside risk of significant 

shared loss penalties for ACOs choosing 

to remain under Track 1 for a second 

agreement period. 

6. Unfunded Mandates 

Section 202 of the Unfunded 

Mandates Reform Act of 1995 (UMRA) 

also requires that agencies assess 

anticipated costs and benefits before 

issuing any rule whose mandates 

require spending in any 1 year of $100 

million in 1995 dollars, updated 

annually for inflation. In 2014, that is 

approximately $141 million. This 

proposed rule does not include any 

mandate that would result in spending 

by state, local or tribal governments, in 

the aggregate, or by the private sector in 

the amount of $141 million in any 1 

year. Further, participation in this 

program is voluntary and is not 

mandated. 

D. Alternatives Considered 

In the November 2011 final rule (76 

FR 67971), we noted in the regulatory 

impact analysis that many tenets of the 

program are statutorily mandated and 

thus allow for little, if any, flexibility in 

the rulemaking process. Where there 

was flexibility, we made our policy 

decisions regarding alternatives based 

on a balance between creating the least 

possible negative impact on the 

stakeholders affected by the program 

and satisfactorily fitting the vision of the 

program within given operational 

constraints. This proposed rule contains 

a range of modifications to program 

policies that take this balance into 

consideration. The preceding preamble 

provides descriptions of the various 

statutory provisions that are addressed 

in this proposed rule, identifies those 

policies where discretion has been 

allowed and exercised, presents the 

rationales for our proposals and, where 

relevant, alternatives that were 

considered. 

In addition to estimating the 

difference between impacts at baseline 

and assuming all proposed changes are 

adopted, the stochastic model was also 

adapted to isolate marginal impacts for 

several alternative scenarios related to 

individual proposals within the overall 

set of proposed changes to the program. 

In one scenario, all proposed changes 

were assumed except the addition of 

Track 3. Relative to the all-changes 

scenario, this modification was not 

anticipated to materially reduce overall 

participation. However, we estimated 

that excluding Track 3 as a proposal 

would reduce median gross savings by 

$70 million over 3 years as fewer ACOs 

would be willing to accept the stronger 

incentive of downside risk without the 

opportunity to earn enhanced shared 

savings up to the 75 percent maximum 

sharing percentage under Track 3. 

Lastly, median shared losses under this 

scenario would decline by $10 million. 

Thus, the overall impact on net federal 

savings of offering Track 3 in the 

context of all other proposed changes to 

the program is minimal. However for 

individual ACOs, the higher sharing rate 

available under Track 3 may boost 

efforts to build capacity for accepting 

downside risk while potentially 

accelerating activities related to 

improving the efficiency of care. Also, 

the opportunity under Track 3 to share 

in a greater percentage of the savings 

that are achieved could assist in 

addressing the concerns of ACOs that 

were successful in achieving savings in 

their first agreement period but are 

concerned that their new expenditure 

baseline for the agreement period 

starting in 2016 will be lower as a result 

of their prior success in reducing the 

cost of care for their assigned 

beneficiaries, thus making it more 

difficult to achieve savings. 

Another alternative scenario we 

considered included all proposed 

changes except for lowering the Track 1 

sharing rate from 50 percent to 40 

percent for Track 1 ACOs that elect to 

renew for a second agreement period 

under this model starting in 2016. 

Similar to the previous scenario, this 

change would not be expected to 

materially change overall assumed 

participation. However, relative to the 

all changes model, the net effect of this 

alternative would be to increase median 

shared savings payments by $110 

million over 3 years. Furthermore, 

because a portion of ACOs that would 

have otherwise chosen Track 3 under 

the all changes scenario would now be 

expected to choose Track 1 given the 

higher sharing rate, overall median gross 

savings would decline by $30 million 

under this alternative, resulting in an 

overall reduction of $140 million in 

median net federal savings compared to 

the all changes scenario. 

Lastly, an alternative scenario was 

considered where no changes were 

proposed other than to allow current 

Track 1 ACOs a 2-year extension to their 

current agreement period, after which 

they would then be limited to 

participating under Track 2 as required 

under the current regulations. This 

alternative was assumed to boost ACO 

participation in 2016 and 2017 

comparable to the participation level 

expected for such years in the allchanges scenario. However, we would 

anticipate a significant contraction in 

participation in 2018 similar to the rate 

of participation assumed at baseline for 

that year. The net impact of this 

alternative would be $220 million in 

reduced net federal savings compared to 

all changes as proposed in this rule, 

driven mainly by reduced program 

participation in the third year and by 

increased shared savings payments in 

2016 and 2017 because ACO 

benchmarks would not be rebased until 

2018. 

E. Accounting Statement and Table 

As required by OMB Circular A–4 

under Executive Order 12866, in Table 

13, we have prepared an accounting 

statement showing the change in (A) net 

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federal monetary transfers, (B) shared 

savings payments to ACOs net of shared 

loss payments from ACOs and (C) the 

aggregate cost of ACO operations for 

ACO participants and ACO providers/

suppliers from 2016 to 2018 that are 

associated with the provisions of this 

proposed rule as compared to baseline. 

TABLE 13—ACCOUNTING STATEMENT ESTIMATED IMPACTS

[CYs 2016–2018] 

Category Primary estimate 

(in millions) 

Minimum estimate 

(in millions) 

Maximum estimate 

(in millions) 

Source citation 

(RIA, preamble, etc.) 

BENEFITS: 

Annualized monetized transfers .........................

Discount rate: 7% 

¥$76.3 ¥$12.0 ¥$129.7 Change from baseline 

(Table 8) to proposed changes 

(Table 9) 

Annualized monetized transfers .........................

Discount rate: 3% 

¥$83.8 ¥$13.7 ¥$142.0 

From whom to whom? ........................................ Negative values reflect reduction in federal net cost resulting from care management by 

ACOs 

BENEFITS: 

Annualized monetized transfers .........................

Discount rate: 7% 

$124.1 $96.5 $152.0 Change from baseline 

(Table 8) to proposed changes 

(Table 9) 

Annualized monetized transfers .........................

Discount rate: 3% 

$134.8 $105.1 $164.7 

From whom to whom? ........................................ Positive values reflect increase in aggregate shared savings net of shared losses 

OPERATIONAL COST: 

Annualized monetized transfers .........................

Discount rate: 7% 

$121.3 Change from baseline 

(Table 8) to proposed changes 

(Table 9) 

Annualized monetized transfers .........................

Discount rate: 3% 

$130.7 

From whom to whom? ........................................ Positive values reflect increase in aggregate ACO operating costs largely attributable to 

assumed increased participation as a result of the proposals included in this proposed 

rule compared to baseline 

F. Conclusion 

The analysis in this section, together 

with the remainder of this preamble, 

provides a Regulatory Impact Analysis. 

As a result of this proposed rule, the 

median estimate of the financial impact 

of the Shared Savings Program for CYs 

2016 through 2018 would be net federal 

savings (after shared savings payments) 

of $1,010 million. Under this proposed 

rule, median savings would be about 

$280 million higher than we estimate 

assuming none of the proposed changes 

for this period. Although this is the 

‘‘best estimate’’ of the financial impact 

of the Shared Savings Program during 

CYs 2016 through 2018, a relatively 

wide range of possible outcomes exists. 

While over 99 percent of the stochastic 

trials resulted in net program savings, 

the 10th and 90th percentiles of the 

estimated distribution show net savings 

of $430 million to net savings of $1,650 

million, respectively. In the extreme 

scenarios, the results were as large as 

$2.9 billion in savings or $200 million 

in costs. 

In addition, at the anticipated mean 

participation rate of ACOs in the Shared 

Savings Program, participating ACOs 

may experience an estimated aggregate 

average start-up investment and ongoing 

operating cost of $815 million for CYs 

2016 through 2018. Lastly, we estimate 

an aggregate median impact of $630 

million in shared savings payments to 

participating ACOs in the Shared 

Savings Program for CYs 2016 through 

2018. The 10th and 90th percentiles of 

the estimate distribution, for the same 

time period, yield shared savings 

payments to ACOs of $470 million and 

$820 million, respectively. Therefore, 

the total median ACO shared savings 

payments of $630 million during CYs 

2016 through 2018, net of a median $30 

million shared losses, coupled with the 

aggregate average start-up investment 

and ongoing operating cost of $562 

million yields a net private benefit of 

$38 million. 

Overall, we assumed greater 

participation by ACOs under the 

policies contained in this proposed rule 

due to our proposals to ease the 

transition from Track 1 to Track 2, 

reduce risk under Track 2, and adopt an 

alternative risk-based model—Track 3. 

This resulted in total shared savings 

increasing significantly, while shared 

losses decreased due to these changes. 

Moreover, as participation in the Shared 

Savings Program continues to expand, 

we anticipate there will be a broader 

focus on care coordination and quality 

improvement among providers and 

suppliers within the Medicare program 

that will lead to both increased 

efficiency in the provision of care and 

improved quality of the care that is 

provided to beneficiaries. 

In accordance with the provisions of 

Executive Order 12866, this rule was 

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reviewed by the Office of Management 

and Budget. 

List of Subjects in 42 CFR Part 425 

Administrative practice and 

procedure, Health facilities, Health 

professions, Medicare, Reporting and 

recordkeeping requirements. 

For the reasons set forth in the 

preamble, the Centers for Medicare & 

Medicaid Services proposes to amend 

42 CFR part 425 as follows: 

PART 425—MEDICARE SHARED 

SAVINGS PROGRAM 

■ 1. The authority citation for part 425 

continues to read as follows: 

Authority: Secs. 1102, 1106, 1871, and 

1899 of the Social Security Act (42 U.S.C. 

1302 and 1395hh). 

§ 425.10 [Amended] 

■ 2. Amend § 425.10 (b)(6) by removing 

the phrase ‘‘two-sided model’’ and 

adding in its place the phrase ‘‘twosided models’’. 

■ 3. Amend § 425.20 as follows: 

■ A. By revising the definition of ‘‘ACO 

participant’’. 

■ B. By adding the definition of ‘‘ACO 

participant agreement’’ in alphabetical 

order. 

■ C. By revising the definitions of ‘‘ACO 

professional’’, ‘‘ACO provider/

supplier’’, ‘‘Agreement period’’, and 

‘‘Assignment’’. 

■ D. By adding the definition of 

‘‘Assignment window’’ in alphabetical 

order. 

■ E. By revising the definitions of 

‘‘Continuously assigned beneficiary’’, 

‘‘Hospital’’, and ‘‘Newly assigned 

beneficiary’’. 

■ F. By adding the definition of 

‘‘Participation agreement’’ in 

alphabetical order. 

■ G. In the definition of ‘‘Performance 

year’’ by removing the phrase ‘‘in the 

ACO’s agreement’’ and adding in its 

place the phrase ‘‘in the participation 

agreement’’. 

■ H. In paragraph (2) of the definition of 

‘‘Primary care services’’, by removing 

the ‘‘;’’ and adding in its place ‘‘.’’. 

■ I. By adding paragraphs (4) and (5) to 

the definition of ‘‘Primary care 

services’’. 

The revisions and additions read as 

follows: 

§ 425.20 Definitions. 

* * * * * 

ACO participant means an entity 

identified by a Medicare-enrolled billing 

TIN through which one or more ACO 

providers/suppliers bill Medicare, that 

alone or together with one or more other 

ACO participants compose an ACO, and 

that is included on the list of ACO 

participants that is required under 

§ 425.118. 

ACO participant agreement means the 

written agreement (as required at 

§ 425.116) between the ACO and ACO 

participant in which the ACO 

participant agrees to participate in, and 

comply with, the requirements of the 

Shared Savings Program. 

ACO professional means an 

individual who is Medicare-enrolled 

and bills for items and services 

furnished to Medicare fee-for-service 

beneficiaries under a Medicare billing 

number assigned to the TIN of an ACO 

participant in accordance with 

applicable Medicare regulations and 

who is either of the following: 

(1) A physician legally authorized to 

practice medicine and surgery by the 

State in which he or she performs such 

function or action. 

(2) A practitioner who is one of the 

following: 

(i) A physician assistant (as defined at 

§ 410.74(a)(2) of this chapter). 

(ii) A nurse practitioner (as defined at 

§ 410.75(b) of this chapter). 

(iii) A clinical nurse specialist (as 

defined at § 410.76(b) of this chapter) 

ACO provider/supplier means an 

individual or entity that meets all of the 

following: 

(1) Is a— 

(i) Provider (as defined at § 400.202 of 

this chapter); or 

(ii) Supplier (as defined at § 400.202 

of this chapter). 

(2) Is enrolled in Medicare. 

(3) Bills for items and services 

furnished to Medicare fee-for-service 

beneficiaries during the agreement 

period under a Medicare billing number 

assigned to the TIN of an ACO 

participant in accordance with 

applicable Medicare regulations. 

(4) Is included on the list of ACO 

providers/suppliers that is required 

under § 425.118. 

Agreement period means the term of 

the participation agreement, which is 3 

performance years unless otherwise 

specified in the participation agreement. 

* * * * * 

Assignment means the operational 

process by which CMS determines 

whether a beneficiary has chosen to 

receive a sufficient level of the requisite 

primary care services from ACO 

professionals so that the ACO may be 

appropriately designated as exercising 

basic responsibility for that beneficiary’s 

care during a given benchmark or 

performance year. 

Assignment window means the 12- 

month period used to assign 

beneficiaries to an ACO. 

* * * * * 

Continuously assigned beneficiary 

means a beneficiary assigned to the 

ACO in the current performance year 

who was either assigned to or received 

a primary care service from any of the 

ACO participants during the assignment 

window for the most recent prior 

benchmark or performance year. 

* * * * * 

Hospital means a hospital as defined 

in section 1886(d)(1)(B) of the Act. 

* * * * * 

Newly assigned beneficiary means a 

beneficiary that is assigned to the ACO 

in the current performance year who 

was neither assigned to nor received a 

primary care service from any of the 

ACO participants during the assignment 

window for the most recent prior 

benchmark or performance year. 

* * * * * 

Participation agreement means the 

written agreement required under 

§ 425.208(a) between the ACO and CMS 

that, along with the regulations in this 

part, govern the ACO’s participation in 

the Shared Savings Program. 

* * * * * 

Primary care services * * * 

(4) CPT codes 99495 and 99496 and 

HCPCS code GXXX1. 

(5) Additional codes designated by 

CMS as primary care services for 

purposes of the Shared Savings 

Program, including new HCPCS/CPT 

and revenue center codes and any 

subsequently modified or replacement 

codes for the HCPCS/CPT and revenue 

center codes identified in paragraphs (1) 

through (4) of this definition. 

* * * * * 

§ 425.100 [Amended] 

■ 4. Amend § 425.100 as follows: 

■ A. In paragraph (b) by removing the 

reference ‘‘under § 425.604 or 

§ 425.606’’ and adding in its place the 

reference ‘‘under § 425.604, § 425.606 or 

§ 425.610’’. 

■ B. In paragraph (c) by removing the 

phrase ‘‘under the two-sided model’’ 

and adding in its place the phrase 

‘‘under a two-sided model’’. 

■ C. In paragraph (c) by removing the 

reference ‘‘under § 425.606’’ and adding 

in its place the reference ‘‘under 

§ 425.604, § 425.606 or § 425.610’’. 

■ 5. Amend § 425.102 as follows: 

■ A. By adding paragraph (a)(8). 

■ B. In paragraph (b) by removing the 

phrase ‘‘eligible participate’’ and adding 

in its place the phrase ‘‘eligible to 

participate’’. 

The addition reads as follows: 

§ 425.102 Eligible providers and suppliers. 

(a) * * * 

(8) Teaching hospitals that have 

elected under § 415.160 of this chapter 

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to receive payment on a reasonable cost 

basis for the direct medical and surgical 

services of their physicians. 

* * * * * 

§ 425.104 [Amended] 

■ 6. Amend § 425.104(b), by removing 

the phrase ‘‘otherwise independent 

ACO participants must’’ and adding in 

its place the phrase ‘‘ACO participants, 

each of which is identified by a unique 

TIN, must’’. 

■ 7. Amend § 425.106 by revising 

paragraphs (a), (b)(3), (c)(1), (c)(2), and 

(c)(5) to read as follows: 

§ 425.106 Shared governance. 

(a) General rule. (1) An ACO must 

maintain of an identifiable governing 

body with ultimate authority to execute 

the functions of an ACO as defined 

under this part, including but not 

limited to the processes defined under 

§ 425.112 to promote evidence-based 

medicine and patient engagement, to 

report on quality and cost measures, and 

to coordinate care. 

(2) The governing body of the ACO 

must satisfy all of the following criteria: 

(i) Be the same as the governing body 

of the legal entity that is the ACO. 

(ii) Be separate and unique to the 

ACO and must not be the same as the 

governing body of any ACO participant, 

in the case of an ACO that comprises 

two or more ACO participants. 

(iii) Satisfy all other requirements of 

this section. 

(b) * * * 

(3) The governing body members must 

have a fiduciary duty to the ACO, 

including the duty of loyalty, and must 

act consistent with that fiduciary duty. 

* * * * * 

(c) * * * 

(1) The ACO must—(i) Establish a 

mechanism for shared governance 

among the ACO participants or 

combinations of ACO participants (as 

identified in § 425.102(a)) that formed 

the ACO; and 

(ii) Provide for meaningful 

participation in the composition and 

control of the ACO’s governing body for 

ACO participants or their designated 

representatives. 

(2) The ACO governing body must 

include a Medicare beneficiary who— 

(i) Is served by the ACO; 

(ii) Is not an ACO provider/supplier; 

(iii) Does not have a conflict of 

interest with the ACO; and 

(iv) Does not have an immediate 

family member who has a conflict of 

interest with the ACO. 

* * * * * 

(5) In cases in which the composition 

of the ACO’s governing body does not 

meet the requirements of paragraphs 

(c)(2) of this section, the ACO must 

describe— 

(i) Why it seeks to differ from this 

requirement; and 

(ii) How it will provide meaningful 

representation of Medicare beneficiaries 

in ACO governance. 

* * * * * 

■ 8. Amend § 425.108 by removing 

paragraph (e) and revising paragraph (c) 

to read as follows: 

§ 425.108 Leadership and management. 

* * * * * 

(c) Clinical management and oversight 

must be managed by a senior-level 

medical director. The medical director 

must be— 

(1) A board-certified physician; 

(2) Licensed in a State in which the 

ACO operates; and 

(3) Physically present on a regular 

basis at any clinic, office or other 

location of the ACO, ACO participant or 

ACO provider/supplier. 

* * * * * 

■ 9. Amend § 425.110 by revising 

paragraphs (a)(2) and (b) to read as 

follows: 

§ 425.110 Number of ACO professionals 

and beneficiaries. 

(a) * * * 

(2) CMS deems an ACO to have 

initially satisfied the requirement to 

have at least 5,000 assigned 

beneficiaries as specified in paragraph 

(a)(1) of this section if 5,000 or more 

beneficiaries are historically assigned to 

the ACO participants in each of the 3 

benchmark years, as calculated using 

the assignment methodology set forth in 

subpart E of this part. In the case of the 

third benchmark year, CMS uses the 

most recent data available to estimate 

the number of assigned beneficiaries. 

(b) If at any time during the 

performance year, an ACO’s assigned 

population falls below 5,000, the ACO 

may be subject to the actions described 

in §§ 425.216 and 425.218. 

(1) While under a CAP, the ACO 

remains eligible for shared savings and 

losses and the MSR is set at a level 

consistent with the number of assigned 

beneficiaries. 

(2) If the ACO’s assigned population 

is not at least 5,000 by the end of the 

performance year specified by CMS in 

its request for a CAP, CMS terminates 

the participation agreement and the 

ACO is not eligible to share in savings 

for that performance year. 

■ 10. Amend § 425.112 by adding 

paragraphs (b)(4)(ii)(C), (D), and (E) to 

read as follows: 

§ 425.112 Required processes and patientcenteredness criteria. 

* * * * * 

(b) * * * 

(4) * * * 

(ii) * * * 

(C) Describe how the ACO will 

encourage and promote use of enabling 

technologies for improving care 

coordination for beneficiaries. Enabling 

technologies may include one or more 

of the following: 

(1) Electronic health records and other 

health IT tools. 

(2) Telehealth services, including 

remote patient monitoring. 

(3) Electronic exchange of health 

information. 

(4) Other electronic tools to engage 

beneficiaries in their care. 

(D) Describe how the ACO intends to 

partner with long-term and post-acute 

care providers, both inside and outside 

the ACO, to improve care coordination 

for their assigned beneficiaries. 

(E) Define and submit a set of major 

milestones or performance metrics the 

ACO will use in each performance year 

to assess the progress of its ACO 

participants in implementing the 

processes described in paragraph (b)(4) 

of this section. 

■ 11. Add § 425.116 to subpart B to read 

as follows: 

§ 425.116 Agreements with ACO 

participants and ACO providers/suppliers. 

(a) ACO participant agreements. The 

ACO must have an ACO participant 

agreement with each ACO participant 

that complies with the following 

criteria: 

(1) The only parties to the agreement 

are the ACO and the ACO participant. 

(2) The agreement must be signed on 

behalf of the ACO and the ACO 

participant by individuals who are 

authorized to bind the ACO and the 

ACO participant, respectively. 

(3) The agreement must expressly 

require the ACO participant to agree, 

and to ensure that each ACO provider/ 

supplier billing through the TIN of the 

ACO participant agrees, to participate in 

the Shared Savings Program and to 

comply with the requirements of the 

Shared Savings Program and all other 

applicable laws and regulations 

(including, but not limited to, those 

specified at § 425.208(b)). 

(4) The agreement must set forth the 

ACO participant’s rights and obligations 

in, and representation by, the ACO, 

including without limitation, the quality 

reporting requirements set forth in 

subpart F of this part, the beneficiary 

notification requirements set forth at 

§ 425.312, and how participation in the 

Shared Savings Program affects the 

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ability of the ACO participant and its 

ACO providers/suppliers to participate 

in other Medicare demonstration 

projects or programs that involve shared 

savings. 

(5) The agreement must describe how 

the opportunity to receive shared 

savings or other financial arrangements 

will encourage the ACO participant to 

adhere to the quality assurance and 

improvement program and evidencebased medicine guidelines established 

by the ACO. 

(6) The agreement must require the 

ACO participant to update its 

enrollment information, including the 

addition and deletion of ACO 

professionals and ACO providers/

suppliers billing through the TIN of the 

ACO participant, on a timely basis in 

accordance with Medicare program 

requirements and to notify the ACO of 

any such changes within 30 days after 

the change. 

(7) The agreement must permit the 

ACO to take remedial action against the 

ACO participant, and must require the 

ACO participant to take remedial action 

against its ACO providers/suppliers, 

including imposition of a corrective 

action plan, denial of incentive 

payments, and termination of the ACO 

participant agreement, to address 

noncompliance with the requirements 

of the Shared Savings Program and 

other program integrity issues, 

including those identified by CMS. 

(8) The agreement must be for a term 

of at least one performance year and 

must articulate potential consequences 

for early termination from the ACO. 

(9) The agreement must require 

completion of a close-out process upon 

termination or expiration of the 

agreement that requires the ACO 

participant to furnish all data necessary 

to complete the annual assessment of 

the ACO’s quality of care and addresses 

other relevant matters. 

(b) Agreements with ACO providers/

suppliers. ACOs have the option of 

contracting directly with its ACO 

providers/suppliers regarding items and 

services furnished to beneficiaries 

aligned to the ACO. An ACO’s 

agreement with an ACO provider/

supplier regarding such items and 

services must satisfy the following 

criteria: 

(1) The only parties to the agreement 

are the ACO and the ACO provider/

supplier. 

(2) The agreement must be signed by 

the ACO provider/supplier and by an 

individual who is authorized to bind the 

ACO. 

(3) The agreement must expressly 

require the ACO provider/supplier to 

agree to participate in the Shared 

Savings Program and to comply with the 

requirements of the Shared Savings 

Program and all other applicable laws 

and regulations (including, but not 

limited to, those specified at 

§ 425.208(b)). 

(4) The agreement must set forth the 

ACO provider’s/supplier’s rights and 

obligations in, and representation by, 

the ACO, including without limitation, 

the quality reporting requirements set 

forth in subpart F of this part, the 

beneficiary notification requirements set 

forth at § 425.312, and how 

participation in the Shared Savings 

Program affects the ability of the ACO 

provider/supplier to participate in other 

Medicare demonstration projects or 

programs that involve shared savings. 

(5) The agreement must describe how 

the opportunity to receive shared 

savings or other financial arrangements 

will encourage the ACO provider/

supplier to adhere to the quality 

assurance and improvement program 

and evidence-based medicine guidelines 

established by the ACO. 

(6) The agreement must require the 

ACO provider/supplier to— 

(i) Update its enrollment information 

on a timely basis in accordance with 

Medicare program requirements; and 

(ii) Notify the ACO of any such 

changes within 30 days after the change. 

(7) The agreement must permit the 

ACO to take remedial action including 

the following against the ACO provider/ 

supplier to address noncompliance with 

the requirements of the Shared Savings 

Program and other program integrity 

issues, including those identified by 

CMS: 

(i) Imposition of a corrective action 

plan. 

(ii) Denial of incentive payments. 

(iii) Termination of the ACO 

participant agreement. 

(c) Submission of agreements. The 

ACO must submit an executed ACO 

participant agreement in accordance 

with CMS guidance for each ACO 

participant at the time of its initial 

application, participation agreement 

renewal process, and when adding to its 

list of ACO participants in accordance 

with § 425.118. The agreements may be 

submitted in the form and manner set 

forth in § 425.204(c)(6). 

■ 12. Add new § 425.118 to subpart B to 

read as follows: 

§ 425.118 Required reporting of ACO 

participants and ACO providers/suppliers. 

(a) List requirements. (1) The ACO 

must maintain, update, and submit to 

CMS an accurate and complete list 

identifying each ACO participant 

(including its Medicare-enrolled TIN) 

and each ACO provider/supplier 

(including its NPI or other identifier) in 

accordance with this section. 

(2) Before the start of an agreement 

period, before each performance year 

thereafter, and at such other times as 

specified by CMS, the ACO must submit 

to CMS an ACO participant list and an 

ACO provider/supplier list. 

(3) The ACO must certify the 

submitted lists in accordance with 

§ 425.302(a)(2). 

(4) All Medicare enrolled individuals 

and entities that have reassigned their 

right to receive Medicare payment to the 

TIN of the ACO participant must be 

included on the ACO provider/supplier 

list and must agree to participate in the 

ACO and comply with the requirements 

of the Shared Savings Program before 

the ACO submits the ACO participant 

list and the ACO provider/supplier list. 

(b) Changes to the ACO participant 

list. (1) Additions. (i) An ACO must 

submit to CMS a request to add an 

entity and its Medicare enrolled TIN to 

its ACO participant list. This request 

must be submitted at such time and in 

the form and manner specified by CMS. 

(ii) If CMS approves the request, the 

entity and its Medicare enrolled TIN is 

added to the ACO participant list 

effective January 1 of the following 

performance year. 

(iii) CMS may deny the request on the 

basis that the entity is not eligible to be 

an ACO participant or on the basis of 

the results of the screening performed 

under § 425.304(b). 

(2) Deletions. (i) An ACO must notify 

CMS no later than 30 days after the 

termination of an ACO participant 

agreement. Such notice must be 

submitted in the form and manner 

specified by CMS and must include the 

termination date of the ACO participant 

agreement. 

(ii) The entity is deleted from the 

ACO participant list as of the 

termination date of the ACO participant 

agreement. 

(3) Adjustments. (i) CMS annually 

adjusts an ACO’s assignment, historical 

benchmark, the quality reporting 

sample, and the obligation of the ACO 

to report on behalf of ACO providers/

suppliers for certain CMS quality 

initiatives to reflect the addition or 

deletion of entities from the list of ACO 

participants that is submitted to CMS 

before the start of a performance year in 

accordance with paragraph (a) of this 

section. 

(ii) Absent unusual circumstances, 

CMS does not make adjustments during 

the performance year to the ACO’s 

assignment, historical benchmark, 

performance year financial calculations, 

the quality reporting sample, or the 

obligation of the ACO to report on 

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behalf of ACO providers/suppliers for 

certain CMS quality initiatives to reflect 

the addition or deletion of entities from 

the ACO participant list that become 

effective during the performance year. 

CMS has sole discretion to determine 

whether unusual circumstances exist 

that would warrant such adjustments. 

(c) Changes to the ACO provider/

supplier list. (1) Additions. (i) An ACO 

must notify CMS within 30 days after an 

individual or entity becomes a 

Medicare-enrolled provider or supplier 

that bills for items and services it 

furnishes to Medicare fee-for-service 

beneficiaries under a billing number 

assigned to the TIN of an ACO 

participant. The notice must be 

submitted in the form and manner 

specified by CMS. 

(ii) If the ACO timely submits notice 

to CMS, the addition of an individual or 

entity to the ACO provider/supplier list 

is effective on the date specified in the 

notice furnished to CMS, but no earlier 

than 30 days before the date of the 

notice. If the ACO fails to submit timely 

notice to CMS, the addition of an 

individual or entity to the ACO 

provider/supplier list is effective on the 

date of the notice. 

(2) Deletions. (i) An ACO must notify 

CMS no later than 30 days after an 

individual or entity ceases to be a 

Medicare-enrolled provider or supplier 

that bills for items and services it 

furnishes to Medicare fee-for-service 

beneficiaries under a billing number 

assigned to the TIN of an ACO 

participant. The notice must be 

submitted in the form and manner 

specified by CMS. 

(ii) The deletion of an ACO provider/ 

supplier from the ACO provider/

supplier list is effective on the date the 

individual or entity ceased to be a 

Medicare-enrolled provider or supplier 

that bills for items and services it 

furnishes to Medicare fee-for-service 

beneficiaries under a billing number 

assigned to the TIN of an ACO 

participant. 

(d) Update of Medicare enrollment 

information. The ACO must ensure that 

all changes to enrollment information 

for ACO participants and ACO 

providers/suppliers, including changes 

to reassignment of the right to receive 

Medicare payment, are reported to CMS 

consistent with § 424.516. 

■ 13. Amend § 425.200 as follows: 

■ A. By revising the section heading. 

■ B. In paragraph (a), by removing the 

term ‘‘three’’ and adding in its place the 

figure ‘‘3’’. 

■ C. In the heading of paragraph (b), and 

paragraphs (b)(1) introductory text, 

(b)(1)(i), (b)(1)(ii), (b)(2)(ii), and (c)(1) by 

removing the term ‘‘agreement’’ each 

time it appears and adding in its place 

the terms ‘‘participation agreement’’. 

The revision reads as follows: 

§ 425.200 Participation agreement with 

CMS. 

* * * * * 

■ 14. Amend § 425.202 by revising 

paragraphs (b) and (c) to read as follows: 

§ 425.202 Application procedures. 

* * * * * 

(b) Condensed application form. (1) 

PGP demonstration sites applying to 

participate in the Shared Savings 

Program will have an opportunity to 

complete a condensed application form. 

(2) A Pioneer ACO may use a 

condensed application form to apply for 

participation in the Shared Savings 

Program if it satisfies all of the following 

criteria: 

(i) The applicant is the same legal 

entity as the Pioneer ACO. 

(ii) ACO participant list does not 

contain any ACO participant TINs that 

did not appear on the ‘‘Confirmed 

Annual TIN/NPI List’’ (as defined in the 

Pioneer ACO Model Innovation 

Agreement with CMS) for the applicant 

ACO’s last full performance year in the 

Pioneer ACO Model. 

(iii) The applicant is not applying to 

participate in the one-sided model. 

(c) Application review. CMS reviews 

applications in accordance with 

§ 425.206. 

■ 15. Amend § 425.204 as follows: 

■ A. In paragraph (b)(2) by removing the 

terms ‘‘ACO agreement’’ and adding in 

its place the terms ‘‘participation 

agreement’’. 

■ B. In paragraph (b)(3) by removing the 

term ‘‘agreement’’ and adding in its 

place the terms ‘‘participation 

agreement’’. 

■ C. By revising paragraphs (c)(1) 

introductory text and (c)(1)(i), (iii), and 

(iv). 

■ D. In paragraph (c)(1)(vi) by removing 

the terms ‘‘ACO’s agreement’’ and 

adding in its place the terms 

‘‘participation agreement’’. 

■ E. By revising paragraph (c)(3). 

■ F. In paragraph (c)(4)(ii), by removing 

the phrase ’’ among multiple, 

independent ACO participants’’ and 

adding in its place the phrase ‘‘among 

two or more ACO participants’’. 

■ G. By revising paragraph (c)(5)(i). 

■ H. By adding paragraph (c)(6). 

■ I. In paragraph (e)(1), removing the 

phrase ‘‘an ACO must specify whether 

it is applying to participate in Track 1 

or Track 2’’ and adding in its place the 

phrase ‘‘an ACO must specify the Track 

for which it is applying’’ 

■ J. By revising paragraph (f). 

■ K. By adding paragraph (g). 

The revisions and additions read as 

follows: 

§ 425.204 Content of the application. 

* * * * * 

(c) * * * 

(1) As part of its application, and 

upon request thereafter, an ACO must 

submit to CMS the following supporting 

materials to demonstrate that the ACO 

satisfies the requirements set forth in 

this part: 

(i) Documents (for example, ACO 

participant agreements, agreements with 

ACO providers/suppliers, employment 

contracts, and operating policies) 

sufficient to describe the ACO 

participants’ and ACO providers’/

suppliers’ rights and obligations in and 

representation by the ACO, and how the 

opportunity to receive shared savings or 

other financial arrangements will 

encourage ACO participants and ACO 

providers/suppliers to adhere to the 

quality assurance and improvement 

program and evidence-based clinical 

guidelines. 

* * * * * 

(iii) Materials documenting the ACO’s 

organization and management structure, 

including an organizational chart, a list 

of committees (including names of 

committee members) and their 

structures, and job descriptions for 

senior administrative and clinical 

leaders specifically noted in § 425.108 

and § 425.112(a)(2). 

(iv) Evidence that the governing 

body— 

(A) Is an identifiable body; 

(B) Represents a mechanism for 

shared governance for ACO participants; 

(C) Is composed of representatives of 

its ACO participants; and 

(D) Is at least 75 percent controlled by 

its ACO participants. 

* * * * * 

(3) If an ACO requests an exception to 

the governing body requirement in 

§ 425.106(c)(2), the ACO must 

describe— 

(i) Why it seeks to differ from this 

requirement; and 

(ii) How the ACO will provide 

meaningful representation in ACO 

governance by Medicare beneficiaries. 

* * * * * 

(5) * * * 

(i) The ACO must submit a list of all 

ACO participants and ACO providers/

suppliers in accordance with § 425.118. 

* * * * * 

(6) As part of the application process 

and upon request by CMS, the ACO 

must submit documents demonstrating 

that its ACO participants, ACO 

providers/suppliers, and other 

individuals or entities performing 

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functions or services related to ACO 

activities are required to comply with 

the requirements of the Shared Savings 

Program. The evidence to be submitted 

must include, without limitation, 

sample or form agreements and, in the 

case of ACO participant agreements, the 

first and signature page(s) of each 

executed ACO participant agreement. 

CMS may request all pages of an 

executed ACO participant agreement to 

confirm that it conforms to the sample 

form agreement submitted by the ACO. 

The ACO must certify that all of its ACO 

participant agreements comply with the 

requirements of this part. 

* * * * * 

(f) Assurance of ability to repay. (1) 

An ACO must have the ability to repay 

all shared losses for which it may be 

liable under a two-sided model. 

(i) As part of the application or 

participation agreement renewal 

process, an ACO that is seeking to 

participate under a two-sided model of 

the Shared Savings Program must 

submit for CMS approval 

documentation that it is capable of 

repaying shared losses that it may incur 

during the agreement period. 

(ii) The documentation specified in 

paragraph (f)(1)(i) of this section must 

include details supporting the adequacy 

of the mechanism for repaying shared 

losses equal to at least 1 percent of the 

ACO’s total per capita Medicare parts A 

and B fee-for-service expenditures for its 

assigned beneficiaries based on 

expenditures used to calculate the 

benchmark for the applicable agreement 

period, as estimated by CMS at the time 

of application or participation 

agreement renewal. 

(2) An ACO may demonstrate its 

ability to repay shared losses by placing 

funds in escrow, obtaining a surety 

bond, establishing a line of credit (as 

evidenced by a letter of credit that the 

Medicare program can draw upon), or 

establishing a combination of such 

repayment mechanisms, that will ensure 

its ability to repay the Medicare 

program. 

(3) An ACO participating under a twosided model must demonstrate the 

adequacy of this repayment mechanism 

prior to the start of each agreement 

period in which it takes risk, and upon 

request thereafter. After the repayment 

mechanism has been used to repay any 

portion of shared losses owed to CMS, 

the ACO must replenish the amount of 

funds available through the repayment 

mechanism within 60 days. 

(4) The repayment mechanism must 

be in effect for a sufficient period of 

time after the conclusion of the 

agreement period to permit CMS to 

calculate the amount of shared losses 

owed and to collect this amount from 

the ACO. 

(g) Consideration of claims billed 

under merged and acquired Medicareenrolled TINs. An ACO may request that 

CMS consider, for purposes of 

beneficiary assignment and establishing 

the ACO’s benchmark under § 425.602, 

claims billed by Medicare-enrolled 

entities’ TINs that have been acquired 

through sale or merger by an ACO 

participant. 

(1) The ACO may include an acquired 

Medicare-enrolled entity’s TIN on its 

ACO participant list under the following 

circumstances: 

(i) The ACO participant has subsumed 

the acquired entity’s TIN in its entirety, 

including all of the providers and 

suppliers that reassigned their right to 

receive Medicare payment to the 

acquired entity’s Medicare-enrolled 

TIN. 

(ii) Each provider or supplier that 

previously reassigned his or her right to 

receive Medicare payment to the 

acquired entity’s TIN has reassigned his 

or her right to receive Medicare 

payment to the TIN of the acquiring 

ACO participant and has been added to 

the ACO provider/supplier list under 

paragraph (c)(5) of the section. 

(iii) The acquired entity’s TIN is no 

longer used to bill Medicare. 

(2) The ACO must submit the 

following supporting documentation in 

the form and manner specified by CMS. 

(i) An attestation that— 

(A) Identifies by Medicare-enrolled 

TIN both the acquired entity and the 

ACO participant that acquired it; 

(B) Specifies that all the providers and 

suppliers that previously reassigned 

their right to receive Medicare payment 

to the acquired entity’s TIN have 

reassigned such right to the TIN of the 

identified ACO participant and have 

been added to the ACO provider/

supplier list under paragraph (c)(5) of 

this section; and 

(C) Specifies that the acquired entity’s 

TIN is no longer used to bill Medicare. 

(ii) Documentation sufficient to 

demonstrate that the acquired entity’s 

TIN was merged with or purchased by 

the ACO participant. 

■ 16. Amend § 425.206 by revising 

paragraph (a) to read as follows: 

§ 425.206 Evaluation procedures for 

applications. 

(a) Basis for evaluation and 

determination. (1) CMS evaluates an 

ACO’s application to determine whether 

an applicant satisfies the requirements 

of this part and is qualified to 

participate in the Shared Savings 

Program. Applications are approved or 

denied on the basis of the following: 

(i) Information contained in and 

submitted with the application by a 

deadline specified by CMS. 

(ii) Supplemental information that 

was submitted by a deadline specified 

by CMS in response to CMS’ request for 

information. 

(iii) Other information available to 

CMS. 

(2) CMS notifies an ACO applicant 

when supplemental information is 

required for CMS to make such 

determination and provides an 

opportunity for the ACO to submit the 

information. 

(3) CMS may deny an application if 

an ACO applicant fails to submit 

information by the deadlines 

established by CMS. 

* * * * * 

■ 17. Amend § 425.212 by revising the 

section heading and paragraph (a) to 

read as follows: 

§ 425.212 Changes to program 

requirements during the agreement period. 

(a) An ACO is subject to all regulatory 

changes that become effective during 

the agreement period, with the 

exception of the following program 

areas, unless otherwise required by 

statute: 

(1) Eligibility requirements 

concerning the structure and 

governance of ACOs. 

(2) Calculation of sharing rate. 

* * * * * 

■ 18. Amend § 425.214 as follows: 

■ A. By revising the section heading. 

■ B. By removing paragraph (a). 

■ C. By redesignating paragraphs (b) and 

(c) as paragraphs (a) and (b), 

respectively. 

■ D. By revising newly redesignated 

paragraph (a). 

■ E. In newly redesignated paragraph (b) 

introductory text, removing the phrase 

‘‘Upon receiving’’ and adding in its 

place the phrase ‘‘Upon becoming aware 

of a significant change or receiving’’. 

■ F. In newly redesignated paragraphs 

(b)(2) and (4) by removing the term 

‘‘agreement’’ and adding in its place the 

terms ‘‘participation agreement’’. 

The revisions read as follows: 

§ 425.214 Managing changes to the ACO 

during the agreement period. 

(a)(1) An ACO must notify CMS 

within 30 days of any significant 

change. 

(2) An ACO’s failure to notify CMS of 

a significant change shall not preclude 

CMS from determining that the ACO has 

experienced a significant change. 

(3) A ‘‘significant change’’ occurs 

when — 

(i) An ACO is no longer able to meet 

the eligibility or program requirements 

of this part; or 

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(ii) The number or identity of the 

ACO participants on the ACO’s list of 

ACO participants has changed by 50 

percent or more. 

* * * * * 

§ 425.216 [Amended] 

■ 19. Amend § 425.216 in paragraph (b) 

by removing the term ‘‘ACO’s 

agreement’’ and adding in its place the 

terms ‘‘participation agreement’’. 

■ 20. Amend § 425.218 by revising the 

section heading and adding paragraphs 

(b)(4) and (5) to read as follows: 

§ 425.218 Termination of the participation 

agreement by CMS. 

* * * * * 

(b) * * * 

(4) Failure to comply with CMS 

requests for documentation or other 

information by the deadline specified by 

CMS. 

(5) Submitting false or fraudulent data 

or information. 

* * * * * 

§ 425.220 [Amended] 

■ 21. Amend § 425.220 by removing and 

reserving paragraph (b). 

■ 22. Add § 425.221 to read as follows: 

§ 425.221 Close-out procedures and 

payment consequences of early 

termination. 

(a) Close-out procedures. (1) An ACO 

whose participation agreement has 

expired or is terminated by CMS under 

§ 425.218 or by the ACO under 

§ 425.220 must implement close-out 

procedures regarding the following in a 

form and manner and by a deadline 

specified by CMS: 

(i) Notice to ACO participants of 

termination. 

(ii) Record retention. 

(iii) Data sharing. 

(iv) Quality reporting. 

(v) Beneficiary continuity of care 

(vi) Other relevant operational matters 

established through guidance. 

(2) ACOs that fail to complete closeout procedures in the form and manner 

and by the deadline specified by CMS 

will not be eligible to share in savings. 

(b) Payment consequences of early 

termination. (1) An ACO whose 

participation agreement is terminated by 

the ACO under § 425.220 is eligible to 

receive shared savings for the 

performance year during which the 

termination becomes effective only if— 

(i) CMS designates or approves an 

effective date of termination of 

December 31st of such performance 

year; 

(ii) The ACO has completed all closeout procedures by the deadline 

specified by CMS; and 

(iii) The ACO has satisfied the criteria 

for sharing in savings for the 

performance year. 

(2) An ACO that terminates its 

participation agreement under § 425.220 

before December 31 of a performance 

year or whose participation agreement is 

terminated by CMS under § 425.218 at 

any time is not eligible to receive shared 

savings for the performance year during 

which the termination becomes 

effective. 

■ 23. Amend § 425.222 by revising 

paragraph (c) to read as follows: 

§ 425.222 Reapplication after termination. 

* * * * * 

(c) An ACO whose participation 

agreement was previously terminated 

may reenter the program under a 

subsequent agreement period. 

(1) If the termination occurred less 

than half way through the agreement 

period, an ACO that was previously 

under a one-sided model may reenter 

the program under the one-sided model 

or a two-sided model. If the ACO 

reenters the program under the onesided model, the ACO will be 

considered to be in its first agreement 

period under the one-sided model. 

(2) If the termination occurred more 

than half way through the agreement 

period, an ACO that was previously 

under a one-sided model may reenter 

the program under the one-sided model 

or a two-sided model. If the ACO 

reenters the program under the onesided model, the ACO will be 

considered to be in its second agreement 

period under the one-sided model. 

(3) Regardless of the date of 

termination, an ACO that was 

previously under a two-sided model 

may only reapply for participation in a 

two-sided model. 

■ 24. Add § 425.224 to subpart C to read 

as follows: 

§ 425.224 Renewal of participation 

agreements. 

(a) General rules. An ACO may 

request renewal of its participation 

agreement for a second or subsequent 

agreement period. 

(1) In order to obtain a determination 

regarding whether it meets the 

requirements for renewal of its 

participation agreement, the ACO must 

submit a complete renewal request in 

the form and manner and by the 

deadline specified by CMS. 

(2) An ACO executive who has the 

authority to legally bind the ACO must 

certify to the best of his or her 

knowledge, information, and belief that 

the information contained in the 

renewal request is accurate, complete, 

and truthful. 

(3) An ACO that seeks renewal of its 

participation agreement and was newly 

formed after March 23, 2010, as defined 

in the Antitrust Policy Statement, must 

agree that CMS can share a copy of its 

renewal request with the Antitrust 

Agencies. 

(b) Review of renewal request. (1) 

CMS determines whether to renew a 

participation agreement based on an 

evaluation of all of the following factors: 

(i) Whether the ACO satisfies the 

criteria for operating under the selected 

risk track. 

(ii) The ACO’s history of compliance 

with the requirements of the Shared 

Savings Program. 

(iii) Whether the ACO has established 

that it is in compliance with the 

eligibility and other requirements of the 

Shared Savings Program, including the 

ability to repay losses, if applicable. 

(iv) Whether the ACO met the quality 

performance standard during at least 

one of the first 2 years of the previous 

agreement period. 

(v) For ACOs under a two-sided 

model, whether the ACO has repaid 

losses owed to the program that it 

generated during the first 2 years of the 

previous agreement period. 

(vi) The results of a program integrity 

screening of the ACO, its ACO 

participants, and its ACO providers/

suppliers (conducted in accordance 

with § 425.304(b)). 

(2) Renewal requests are approved or 

denied on the basis of the following 

information: 

(i) Information contained in and 

submitted with the renewal request by 

a deadline specified by CMS. 

(ii) Supplemental information that 

was submitted by a deadline specified 

by CMS in response to CMS’ request for 

information. 

(iii) Other information available to 

CMS. 

(3) CMS notifies the ACO when 

supplemental information is required 

for CMS to make such a determination 

and provides an opportunity for the 

ACO to submit the information. 

(c) Notice of determination. (1) CMS 

notifies in writing each ACO of its 

determination to approve or deny the 

ACO’s renewal request. 

(2) If CMS denies the renewal request, 

the notice of determination— 

(i) Specifies the reasons for the denial; 

and 

(ii) Informs the ACO of its right to 

request reconsideration review in 

accordance with the procedures 

specified in subpart I of this part. 

§ 425.304 [Amended] 

■ 25. Amend § 425.304 by removing 

paragraph (d). 

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■ 26. Revise § 425.306 to read as 

follows: 

§ 425.306 Participant agreement and 

exclusivity of ACO participants. 

(a) Each ACO participant must 

commit to the term of the participation 

agreement and sign an ACO participant 

agreement that complies with the 

requirements of this part. 

(b)(1) Except as specified in paragraph 

(b)(2) of this section, ACO participants 

are not required to be exclusive to one 

Shared Savings Program ACO. 

(2) Each ACO participant that submits 

claims for primary care services used to 

determine the ACO’s assigned 

population under subpart E of this part 

must be exclusive to one Shared Savings 

Program ACO. 

■ 27. Revise § 425.308 to read as 

follows: 

§ 425.308 Public reporting and 

transparency. 

(a) ACO public reporting Web page. 

Each ACO must create and maintain a 

dedicated Web page on which it 

publicly reports the information set 

forth in paragraph (b) of this section. 

The ACO must report the address of 

such Web page to CMS in a form and 

manner specified by CMS and must 

notify CMS of changes to the Web 

address in the form and manner 

specified by CMS. 

(b) Information to be reported. The 

ACO must report the following 

information in a standardized format 

specified by CMS: 

(1) Name and location. 

(2) Primary contact. 

(3) Organizational information, 

including all of the following: 

(i) Identification of ACO participants. 

(ii) Identification of participants in 

joint ventures between ACO 

professionals and hospitals. 

(iii) Identification of the members of 

its governing body. 

(iv) Identification of key clinical and 

administrative leadership. 

(v) Identification of associated 

committees and committee leadership. 

(vi) Identification of the types of ACO 

participants or combinations of ACO 

participants (as listed in § 425.102(a)) 

that formed the ACO. 

(4) Shared savings and losses 

information, including the following: 

(i) Amount of any payment of shared 

savings received by the ACO or shared 

losses owed to CMS. 

(ii) Total proportion of shared savings 

invested in infrastructure, redesigned 

care processes and other resources 

required to support the three-part aim 

goals of better health for populations, 

better care for individuals and lower 

growth in expenditures, including the 

proportion distributed among ACO 

participants. 

(5) The ACO’s performance on all 

quality measures. 

(c) Approval of public reporting 

information. Information reported on an 

ACO’s public reporting Web page in 

compliance with the requirements of the 

standardized format specified by CMS is 

not subject to marketing review and 

approval under § 425.310. 

(d) Public reporting by CMS. CMS 

may publicly report ACO-specific 

information, including but not limited 

to the ACO public reporting Web page 

address and the information required to 

be publicly reported under paragraph 

(b) of this section. 

■ 28. Amend § 425.312 by removing and 

reserving paragraph (b) and revising 

paragraph (a) to read as follows: 

§ 425.312 Notification to beneficiaries of 

participation in the shared savings 

program. 

(a) ACO participants must notify 

beneficiaries at the point of care that 

their ACO providers/suppliers are 

participating in the Shared Savings 

Program and of the opportunity to 

decline claims data sharing under 

§ 425.708. 

(1) Notification is carried out when an 

ACO participant posts signs in its 

facilities and, in settings in which 

beneficiaries receive primary care 

services, by making standardized 

written notices available upon request. 

(2) The ACO must use template 

language developed by CMS for 

notifications described in paragraph 

(a)(1) of this section. 

* * * * * 

§ 425.314 [Amended] 

■ 29. Amend § 425.314 in paragraph (c) 

by removing the word ‘‘agreement’’ and 

adding in its place the words 

‘‘participation agreement’’. 

§ 425.316 [Amended] 

■ 30. Amend § 425.316 as follows: 

■ A. By removing paragraphs (c)(3) and 

(4). 

■ B. By redesignating paragraph (c)(5) as 

(c)(3). 

■ C. In newly redesignated paragraph 

(c)(3) by removing the phrase ‘‘fully and 

completely’’ and adding in its place the 

phrase ‘‘accurately, completely, and 

timely’’. 

■ 31. Amend § 425.400 as follows: 

■ A. By adding paragraph (a)(1) 

introductory text. 

■ B. By revising paragraph (a)(1)(i). 

■ C. In paragraph (a)(1)(ii), by removing 

the phrase ‘‘by a physician who is an 

ACO provider/supplier during the 

performance year’’ and adding in its 

place the phrase ‘‘by a physician who is 

an ACO professional during each 

benchmarking year and during each 

performance year’’. 

■ D. By adding a subject heading to 

paragraph (a)(2). 

■ E. By adding paragraph (a)(3). 

The additions read as follows: 

§ 425.400 General. 

(a)(1) General. (i) A Medicare fee-forservice beneficiary is assigned to an 

ACO for a performance year if the— 

(A) Beneficiary meets the eligibility 

criteria under § 425.401(a); and 

(B) Beneficiary’s utilization of 

primary care services meets the criteria 

established under the assignment 

methodology described in § 425.402 and 

§ 425.404. 

* * * * * 

(2) Assignment under Tracks 1 and 2. 

* * * * * 

(3) Prospective assignment under 

Track 3. (i) Medicare fee-for-service 

beneficiaries are prospectively assigned 

to an ACO under Track 3 at the 

beginning of each performance year 

based on the beneficiary’s use of 

primary care services in the most recent 

12 months for which data are available, 

using the assignment methodology 

described in § 425.402 and § 425.404. 

(ii) Beneficiaries that are 

prospectively assigned to an ACO under 

paragraph (a)(3)(i) of this section will 

remain assigned to the ACO at the end 

of the performance year unless they 

meet any of the exclusion criteria under 

§ 425.401(b). 

* * * * * 

■ 32. Add § 425.401 to read as follows: 

§ 425.401 Criteria for a beneficiary to be 

assigned to an ACO. 

(a) A beneficiary may be assigned to 

an ACO under the assignment 

methodology in §§ 425.402 and 425.404, 

for a performance or benchmark year, if 

the beneficiary meets all of the 

following criteria during the assignment 

window: 

(1)(i) Has at least 1 month of Part A 

and Part B enrollment; and 

(ii) Does not have any months of Part 

A only or Part B only enrollment. 

(2) Does not have any months of 

Medicare group (private) health plan 

enrollment. 

(3) Is not assigned to any other 

Medicare shared savings initiative. 

(4) Lives in the United States or U.S. 

territories and possessions, based on the 

most recent available data in our 

beneficiary records regarding the 

beneficiary’s residence at the end of the 

assignment window. 

(b) A beneficiary will be excluded 

from the prospective assignment list of 

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an ACO participating under Track 3 at 

the end of a performance or benchmark 

year, if the beneficiary meets any of the 

following criteria during the 

performance or benchmark year: 

(1)(i) Does not have at least 1 month 

of Part A and Part B enrollment; and 

(ii) Has any months of Part A only or 

Part B only enrollment. 

(2) Has any months of Medicare group 

(private) health plan enrollment. 

(3) Did not live in the United States 

or U.S. territories and possessions, 

based on the most recent available data 

in our beneficiary records regarding the 

beneficiary’s residency at the end of the 

year. 

■ 33. Revise § 425.402 to read as 

follows: 

§ 425.402 Basic assignment methodology. 

(a) For purposes of benchmarking, 

preliminary prospective assignment 

(including quarterly updates) and 

retrospective reconciliation, and 

prospective assignment, CMS employs 

the following step-wise methodology to 

assign Medicare fee-for-service 

beneficiaries to an ACO: 

(1) Identify all beneficiaries that had 

at least one primary care service with a 

physician who is an ACO professional 

in the ACO and who is a primary care 

physician as defined under § 425.20 or 

who has one of the primary specialty 

designations included in paragraph (b) 

of this section. 

(2) Identify all primary care services 

furnished to beneficiaries identified in 

paragraph (a)(1) by ACO professionals of 

that ACO who are primary care 

physicians as defined under § 425.20, 

non-physician ACO professionals, and 

physicians with specialty designations 

included in paragraph (b) of this section 

during the applicable assignment 

window. 

(3) Under the first step, a beneficiary 

identified in paragraph (a)(1) of this 

section is assigned to an ACO if the 

allowed charges for primary care 

services furnished to the beneficiary by 

primary care physicians who are ACO 

professionals and non-physician ACO 

professionals in the ACO are greater 

than the allowed charges for primary 

care services furnished by primary care 

physicians, nurse practitioners, 

physician assistants, and clinical nurse 

specialists who are— 

(i) ACO professionals in any other 

ACO; or 

(ii) Not affiliated with any ACO and 

identified by a Medicare-enrolled billing 

TIN. 

(4) The second step considers the 

remainder of the beneficiaries identified 

in paragraph (a)(1) of this section who 

have not had a primary care service 

rendered by any primary care physician, 

nurse practitioner, physician assistant, 

or clinical nurse specialist, either inside 

the ACO or outside the ACO. The 

beneficiary will be assigned to an ACO 

if the allowed charges for primary care 

services furnished to the beneficiary by 

physicians who are ACO professionals 

with specialty designations as specified 

in paragraph (b) of this section are 

greater than the allowed charges for 

primary care services furnished by 

physicians with specialty designations 

as specified in paragraph (b) of this 

section— 

(i) Who are ACO professionals in any 

other ACO; or 

(ii) Who are unaffiliated with an ACO 

and are identified by a Medicareenrolled billing TIN. 

(b) ACO professionals considered in 

the second step of the assignment 

methodology in paragraph (a)(4) of this 

section include physicians who have 

one of the following primary specialty 

designations: 

(1) Allergy/immunology. 

(2) Cardiology. 

(3) Gastroenterology. 

(4) Neurology. 

(5) Obstetrics/gynecology. 

(6) Hospice and palliative care. 

(7) Sports medicine. 

(8) Physical medicine and 

rehabilitation. 

(9) Pulmonary disease. 

(10) Pediatric medicine. 

(11) Nephrology. 

(12) Infectious disease. 

(13) Endocrinology. 

(14) Rheumatology. 

(15) Multispecialty clinic or group 

practice. 

(16) Hematology. 

(17) Hematology/oncology. 

(18) Preventive medicine. 

(19) Medical oncology. 

(20) Gynecology/oncology. 

(c) When considering services 

furnished by ACO professionals in 

teaching hospitals that have elected 

under § 415.160 to receive payment on 

a reasonable cost basis for the direct 

medical and surgical services of their 

physicians in the assignment 

methodology under paragraph (a) of this 

section, CMS uses the amount payable 

under the physician fee schedule for the 

specified HCPCS code as a proxy for the 

amount of the allowed charges for the 

service. 

■ 34. Amend § 425.404 by revising 

paragraph (b) to read as follows: 

§ 425.404 Special assignment conditions 

for ACOs including FQHCs and RHCs. 

* * * * * 

(b) Under the assignment 

methodology in § 425.402, CMS treats a 

service reported on an FQHC/RHC claim 

as— 

(1) A primary care service if the claim 

includes a HCPCS or revenue center 

code that meets the definition of 

primary care services under § 425.20; 

(2) A primary care service performed 

by a primary care physician if the NPI 

of a physician identified in the 

attestation provided under paragraph (a) 

of this section is reported on the claim 

for a primary care service (as described 

in paragraph (b)(1) of this section) as the 

attending provider; and 

(3) A primary care service performed 

by a non-physician ACO professional if 

the NPI reported on the claim for a 

primary care service (as described in 

paragraph (b)(1) of this section) as the 

attending provider is an ACO 

professional but is not identified in the 

attestation provided under paragraph (a) 

of this section. 

■ 36. Amend § 425.600 as follows: 

■ A. In paragraph (a)(2), by removing 

the phrase ‘‘under the two-sided model’’ 

and adding in its place the phrase 

‘‘under a two-sided model’’. 

■ B. By adding paragraph (a)(3). 

■ C. By revising paragraph (b). 

The addition and revision read as 

follows: 

§ 425.600 Selection of risk model. 

(a) * * * 

(3) Track 3. Under Track 3, the ACO 

operates under a two-sided model (as 

described under § 425.610), sharing both 

savings and losses with the Medicare 

program for the agreement period. 

(b) An ACO may not operate under 

the one-sided model for a second 

agreement period unless the— 

(1) Immediately preceding agreement 

period was under the one-sided model; 

(2) The ACO did not generate losses 

in excess of its negative MSR in both of 

the first 2 performance years of the 

previous agreement period; and 

(3) The ACO meets the criteria 

established for ACOs seeking to renew 

their agreements under § 425.224(b). 

* * * * * 

§ 425.602 [Amended] 

■ 37. Amend § 425.602 (a)(8), by 

removing the phrase ‘‘The ACO’s 

benchmark may be adjusted’’ and 

adding in its place the phrase ‘‘The 

ACO’s benchmark will be adjusted in 

accordance with § 425.118(b)’’. 

■ 38. Amend § 425.604 as follows: 

■ A. By redesignating the text of 

paragraph (d) as paragraph (d)(1). 

■ B. In newly redesignated paragraph 

(d)(1), removing the phrase ‘‘under the 

one-sided model’’ and adding in its 

place the phrase ‘‘during a performance 

year in its first agreement period under 

the one-sided model’’. 

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■ D. By adding a paragraph (d)(2). 

The addition reads as follows: 

§ 425.604 Calculation of savings under the 

one-sided model. 

* * * * * 

(d) * * * 

(2) An ACO that meets all the 

requirements for receiving shared 

savings payments during a performance 

year in its second agreement period 

under the one-sided model will receive 

a shared savings payment of up to 40 

percent of all savings under the updated 

benchmark, as determined on the basis 

of its quality performance under 

§ 425.502 (up to the performance 

payment limit described in paragraph 

(e)(2) of this section). 

* * * * * 

■ 39. Amend § 425.606 as follows: 

■ A. By revising the section heading. 

■ B. In paragraph (a) introductory text, 

by removing the phrase ‘‘under the twosided model,’’ and adding in its place 

the phrase ‘‘under Track 2,’’. 

■ C. By revising paragraph (b). 

■ D. In paragraph (d), by removing the 

phrase ‘‘under the two-sided model’’ 

and adding in its place the phrase 

‘‘under Track 2’’. 

■ E. In paragraph (e)(2), by removing the 

phrase ‘‘under the two-sided model’’ 

and adding in its place the phrase 

‘‘under Track 2’’. 

■ F. In paragraph (g)(1), by removing the 

phrase ‘‘in a two-sided model’’ and 

adding in its place the phrase ‘‘in Track 

2’’. 

The revisions read as follows: 

§ 425.606 Calculation of shared savings 

and losses under Track 2. 

* * * * * 

(b) Minimum savings or loss rate. 

CMS uses a sliding scale, based on the 

number of beneficiaries assigned to the 

ACO under subpart E of this part, to 

establish the MSR and MLR for an ACO 

participating under Track 2. The MSR 

under Track 2 is the same as the MSR 

that would apply in the one-sided 

model under § 425.604(b) and is based 

on the number of assigned beneficiaries. 

The MLR under Track 2 is equal to the 

negative MSR. 

(1) To qualify for shared savings 

under Track 2, an ACO’s average per 

capita Medicare expenditures for the 

performance year must be below its 

updated benchmark costs for the year by 

at least the MSR established for the 

ACO. 

(2) To be responsible for sharing 

losses with the Medicare program, an 

ACO’s average per capita Medicare 

expenditures for the performance year 

must be above its updated benchmark 

costs for the year by at least the MLR 

established for the ACO. 

* * * * * 

■ 40. Add § 425.610 to subpart G to read 

as follows: 

§ 425.610 Calculation of shared savings 

and losses under Track 3. 

(a) General rule. For each performance 

year, CMS determines whether the 

estimated average per capita Medicare 

expenditures under the ACO for 

Medicare fee-for-service beneficiaries 

for Parts A and B services are above or 

below the updated benchmark 

determined under § 425.602. In order to 

qualify for a shared savings payment 

under Track 3, or to be responsible for 

sharing losses with CMS, an ACO’s 

average per capita Medicare 

expenditures under the ACO for 

Medicare fee-for-service beneficiaries 

for Parts A and B services for the 

performance year must be below or 

above the updated benchmark, 

respectively, by at least the minimum 

savings or loss rate under paragraph (b) 

of this section. 

(1) Newly assigned beneficiaries. CMS 

uses an ACO’s HCC prospective risk 

score to adjust for changes in severity 

and case mix in this population. 

(2) Continuously assigned 

beneficiaries. (i) CMS uses demographic 

factors to adjust for changes in the 

continuously assigned beneficiary 

population. 

(ii) If the prospective HCC risk score 

is lower in the performance year for this 

population, CMS adjusts for changes in 

severity and case mix for this 

population using this lower prospective 

HCC risk score. 

(3) Assigned beneficiary changes in 

demographics and health status are used 

to adjust benchmark expenditures as 

described in § 425.602(a). In adjusting 

for health status and demographic 

changes CMS makes separate 

adjustments for each of the following 

populations of beneficiaries: 

(i) ESRD. 

(ii) Disabled. 

(iii) Aged/dual eligible Medicare and 

Medicaid beneficiaries. 

(iv) Aged/non-dual eligible Medicare 

and Medicaid beneficiaries. 

(4) To minimize variation from 

catastrophically large claims, CMS 

truncates an assigned beneficiary’s total 

annual Parts A and B fee-for-service per 

capita expenditures at the 99th 

percentile of national Medicare fee-forservice expenditures as determined for 

each performance year. 

(5) CMS uses a 3-month claims run 

out with a completion factor to calculate 

an ACO’s per capita expenditures for 

each performance year. 

(6) Calculations of the ACO’s 

expenditures will include the payment 

amounts included in Part A and B feefor-service claims. 

(i) These calculations will exclude 

indirect medical education (IME) and 

disproportionate share hospital (DSH) 

payments. 

(ii) These calculations will take into 

consideration individually beneficiary 

identifiable payments made under a 

demonstration, pilot or time limited 

program. 

(7) In order to qualify for a shared 

savings payment, the ACO’s average per 

capita Medicare expenditures for the 

performance year must be below the 

applicable updated benchmark by at 

least the minimum savings rate 

established for the ACO under 

paragraph (b) of this section. 

(b) Minimum savings or loss rate. (1) 

To qualify for shared savings under 

Track 3 an ACO’s average per capita 

Medicare expenditures for the 

performance year must be below its 

updated benchmark costs for the year by 

at least 2 percent. 

(2) To be responsible for sharing 

losses with the Medicare program under 

Track 3, an ACO’s average per capita 

Medicare expenditures for the 

performance year must be at least 2 

percent above its updated benchmark 

costs for the year. 

(c) Qualification for shared savings 

payment. To qualify for shared savings, 

an ACO must meet the minimum 

savings rate requirement established 

under paragraph (b) of this section, meet 

the minimum quality performance 

standards established under § 425.502, 

and otherwise maintain its eligibility to 

participate in the Shared Savings 

Program under this part. 

(d) Final sharing rate. An ACO that 

meets all the requirements for receiving 

shared savings payments under Track 3 

will receive a shared savings payment of 

up to 75 percent of all the savings under 

the updated benchmark, as determined 

on the basis of its quality performance 

under § 425.502 (up to the performance 

payment limit described in paragraph 

(e)(2) of this section). 

(e) Performance payment. (1) If an 

ACO qualifies for savings by meeting or 

exceeding the MSR, the final sharing 

rate will apply to an ACO’s savings on 

a first dollar basis. 

(2) The amount of shared savings an 

eligible ACO receives under Track 3 

may not exceed 20 percent of its 

updated benchmark. 

(f) Shared loss rate. The shared loss 

rate— 

(1) For an ACO that is required to 

share losses with the Medicare program 

for expenditures over the updated 

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benchmark, the amount of shared losses 

is determined based on the inverse of its 

final sharing rate described in 

§ 425.610(d) (that is, 1 minus the final 

shared savings rate determined under 

§ 425.610(d)); 

(2) May not exceed 75 percent; and 

(3) May not be less than 40 percent. 

(g) Loss recoupment limit. The 

amount of shared losses for which an 

eligible ACO is liable may not exceed 15 

percent of its updated benchmark as 

determined under § 425.602. 

(h) Notification of savings and losses. 

(1) CMS notifies an ACO in writing 

regarding whether the ACO qualifies for 

a shared savings payment, and if so, the 

amount of the payment due. 

(2) CMS provides written notification 

to an ACO of the amount of shared 

losses, if any, that it must repay to the 

program. 

(3) If an ACO has shared losses, the 

ACO must make payment in full to CMS 

within 90 days of receipt of notification. 

■ 41. Amend § 425.702 by revising 

paragraph (c)(1) to read as follows: 

§ 425.702 Aggregate reports. 

* * * * * 

(c) * * * 

(1) At the beginning of the agreement 

period, during each quarter (and in 

conjunction with the annual 

reconciliation), and at the beginning of 

each performance year, CMS, upon the 

ACO’s request for the data for purposes 

of population-based activities relating to 

improving health or reducing growth in 

health care costs, process development, 

care management, and care 

coordination, will provide the ACO 

with information about its fee-forservice population. 

(i) Under Tracks 1 and 2, the 

following information is made available 

regarding preliminarily prospectively 

assigned beneficiaries and beneficiaries 

that received a primary care service 

during the previous 12 months from one 

of the ACO participants that submits 

claims for primary care services used to 

determine the ACO’s assigned 

population under subpart E of this part: 

(A) Beneficiary name. 

(B) Date of birth. 

(C) Health Insurance Claim Number 

(HICN). 

(D) Sex. 

(ii) Under Tracks 1 and 2, information 

in the following categories, which 

represents the minimum data necessary 

for ACOs to conduct health care 

operations work is made available 

regarding preliminarily prospectively 

assigned beneficiaries: 

(A) Demographic data such as 

enrollment status. 

(B) Health status information such as 

risk profile and chronic condition 

subgroup. 

(C) Utilization rates of Medicare 

services such as the use of evaluation 

and management, hospital, emergency, 

and post-acute services, including the 

dates and place of service. 

(D) Expenditure information related to 

utilization of services. 

(iii) The information under 

paragraphs (c)(1)(i) and (c)(1)(ii) of this 

section will be made available to ACOs 

in Track 3, but will be limited to the 

ACO’s prospectively assigned 

beneficiaries. 

* * * * * 

■ 42. Amend § 425.704 as follows: 

■ A. By revising the section heading. 

■ B. In the introductory text, by 

removing the phrase ‘‘claims data for 

preliminary prospectively assigned 

beneficiaries’’ and adding in its place 

the phrase ‘‘claims data for 

preliminarily prospectively and 

prospectively assigned beneficiaries’’. 

■ C. In the introductory text, by 

removing the phrase ‘‘upon whom 

assignment is based during the 

agreement period’’ and adding in its 

place the phrase ‘‘that submits claims 

for primary care services used to 

determine the ACO’s assigned 

population under subpart E of this part 

during the performance year’’. 

■ D. In paragraph (a) by removing the 

phrase ‘‘ACOs may request data as 

often’’ and adding in its place ‘‘ACOs 

may access requested data as often’’. 

■ E. By revising paragraph (d)(1). 

■ F. In paragraph (d)(2) by removing the 

phrase ‘‘has been notified in writing 

how the ACO intends to use’’ and 

adding in its place the phrase ‘‘has been 

notified in compliance with § 425.708 

that the ACO has requested access to’’. 

The revisions read as follows: 

§ 425.704 Beneficiary-identifiable claims 

data. 

* * * * * 

(d) * * * 

(1) For an ACO participating— 

(i) In Track 1 or 2, the beneficiary’s 

name appears on the preliminary 

prospective assignment list provided to 

the ACO at the beginning of the 

performance year, during each quarter 

(and in conjunction with the annual 

reconciliation) or the beneficiary has 

received a primary care service from an 

ACO participant upon whom 

assignment is based (under subpart E of 

this part) during the most recent 12- 

month period. 

(ii) In Track 3, the beneficiary’s name 

appears on the prospective assignment 

list provided to the ACO at the 

beginning of the performance year. 

* * * * * 

■ 43. Amend § 425.708 as follows: 

■ A. Revising the section heading and 

paragraph (a). 

■ B. Removing paragraphs (b) and (c). 

■ C. Redesignating paragraphs (d) 

through (f) as paragraphs (b) through (d), 

respectively. 

■ D. Revising newly redesignated 

paragraphs (b) and (c). 

The revisions read as follows: 

§ 425.708 Beneficiaries may decline claims 

data sharing. 

(a) Beneficiaries must receive 

notification about the Shared Savings 

Program and the opportunity to decline 

claims data sharing and instructions on 

how to inform CMS directly of their 

preference. 

(1) FFS beneficiaries are notified 

about the opportunity to decline claims 

data sharing through CMS materials 

such as the Medicare & You Handbook 

and through the notifications required 

under § 425.312. 

(2) The notifications provided under 

§ 425.312 must state that the ACO may 

have requested beneficiary identifiable 

claims data about the beneficiary for 

purposes of its care coordination and 

quality improvement work, and inform 

the beneficiary how to decline having 

his or her claims information shared 

with the ACO in the form and manner 

specified by CMS. 

(3) Beneficiary requests to decline 

claims data sharing will remain in effect 

unless and until a beneficiary 

subsequently contacts CMS to amend 

that request to permit claims data 

sharing with ACOs. 

(b) The opportunity to decline having 

claims data shared with an ACO under 

paragraph (a) of this section does not 

apply to the information that CMS 

provides to ACOs under § 425.702(c). 

(c) In accordance with 42 U.S.C. 

290dd–2 and the implementing 

regulations at 42 CFR part 2, CMS does 

not share beneficiary identifiable claims 

data relating to the diagnosis and 

treatment of alcohol and substance 

abuse without the explicit written 

consent of the beneficiary. 

* * * * * 

■ 44. Amend § 425.802 by revising 

paragraph (a)(2) to read as follows: 

§ 425.802 Request for review. 

(a) * * * 

(2) The reconsideration review must 

be held on the record (review of 

submitted documentation). 

* * * * * 

■ 45. Amend § 425.804 as follows: 

■ A. By revising paragraph (a)(3). 

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■ B. By removing paragraph (d). 

■ C. Redesignating paragraphs (e) and (f) 

as paragraphs (d) and (e), respectively. 

The revision reads as follows: 

§ 425.804 Reconsideration review process. 

(a) * * * 

(3) A briefing schedule that permits 

each party to submit only one written 

brief, including any evidence, for 

consideration by the reconsideration 

official in support of the party’s 

position. 

* * * * * 

Dated: November 20, 2014. 

Marilyn Tavenner, 

Administrator, Centers for Medicare & 

Medicaid Services. 

Dated: November 21, 2014. 

Sylvia M. Burwell, 

Secretary, Department of Health and Human 

Services. 

[FR Doc. 2014–28388 Filed 12–1–14; 4:15 pm] 

BILLING CODE 4120–01–P 

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