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Client Alert

December 31, 2018

Major Changes to the Medicare Shared Savings Program Impact Current and Prospective ACOs


CMS issued final rules on December 21, 2018, that were published in the December 31, 2018 Federal Register (ACO Final Rules), adopting major changes to the Medicare Shared Savings Program (MSSP) which impact currently participating and prospective accountable care organizations (ACOs).  The ACO Final Rules finalize, with some modifications, the changes in the MSSP rules proposed by CMS in August 2018; include provisions addressing those portions of the Bipartisan Budget Act of 2018 pertaining to ACOs; and address the agency’s policy for extreme and uncontrollable circumstances for performance year 2017 (initially established in an interim final rule issued in December 2017). 

The ACO Final Rules make the following key changes in the MSSP:

  • Eliminate the current Track 1, Track 1+ and Track 2 models, and replace these models with the BASIC Track;
  • Maintain the current Track 3 model, which is renamed the ENHANCED Track;
  • Establish eligibility requirements for participation in each track;
  • Revise the agreement periods for participation in the BASIC and ENHANCED Tracks;
  • Adopt a start date of July 1, 2019, for participation in the new tracks;
  • Permit an ACO to select and revise annually its beneficiary assignment methodology;
  • Revise the repayment mechanism requirements for two-sided risk model ACOs;
  • Revise MSSP’s benchmarking methodology;
  • Revise beneficiary notification requirements; and
  • Expand the use of telehealth, SNF 3-day waivers and beneficiary incentive programs in two-sided models. 

In addition, in its preamble commentary to the ACO Final Rules, CMS acknowledges receipt of feedback on how ACOs and sponsors of stand-alone Part D prescription drug plans (Part D Sponsors) can collaborate to improve the coordination of pharmacy care.  However, the ACO Final Rules do not incorporate rule changes to address such collaboration.

ACOs currently participating in a three-year agreement period (with a start date of January 1, 2019 and earlier) under Track 1, Track 2, Track 3, and the Track 1+ Model may complete the remainder of these agreement periods.  In conjunction with the ACO Final Rules, CMS is offering a one-time application cycle for a start date of July 1, 2019, for both currently participating and new ACOs that wish to participate in the redesigned MSSP under either the BASIC or ENHANCED Track.  Both new and existing ACOs that wish to participate in either the BASIC or ENHANCED Track with a July 1 start date must complete a non-binding Notice of Intent to Apply (NOIA), which CMS states will be available from January 2, 2019, through January 18, 2019.  According to CMS, the usual annual application cycle will be available for agreement periods that begin January 1, 2020, and annually thereafter. 

BASIC and ENHANCED Tracks

For agreement periods beginning July 1, 2019, and annually thereafter, the ACO Final Rules eliminate the current Track 1, Track 1+ and Track 2 models, and replace them with the BASIC Track.  The ACO Final Rules rename the current Track 3 model as the ENHANCED Track.  The current 3-year agreement period is replaced with 5-year agreement periods, except for ACOs with agreement periods beginning July 1, 2019, whose agreement periods will be 5 years and 6 months.

The Basic Track

ACOs participating in the BASIC Track gradually take on more risk during the agreement period, progressing through 5 levels:  Level A, Level B, Level C, Level D and Level E.  BASIC Track Levels A and B are one-sided, meaning that the ACO is not responsible for repaying shared losses.  An ACO that meets all requirements for shared savings payments under the BASIC Track Level A receives a shared savings payment of up to 40% of all the savings under the updated benchmark, as determined on the basis of its quality performance, not to exceed 10% of its updated benchmark.  An ACO that meets all requirements for receiving shared savings payments under the BASIC Track Level B receives a shared savings payment of up to 40% of all the savings under the updated benchmark, as determined on the basis of its quality performance, not to exceed 10% of its updated benchmark. 

BASIC Track Levels C, D and E are two-sided, meaning that the ACO shares both savings and losses, with increasing levels of downside risk:

  • A BASIC Track Level C ACO may receive a shared savings payment of up to 50% of the savings under the updated benchmark, as determined on the basis of its quality performance, not to exceed 10% of its updated benchmark, and is required to share a fixed 30% of losses for expenditures over the updated benchmark, which losses may not exceed the lesser of 2% of total Medicare Parts A and B FFS revenue of the ACO’s participants or 1% of the ACO’s updated benchmark.
  • A BASIC Track Level D ACO may receive a shared savings payment of up to 50% of the savings under the updated benchmark, as determined on the basis of its quality performance, not to exceed 10% of its updated benchmark, and is required to share a fixed 30% of losses for expenditures over the updated benchmark, which losses may not exceed the lesser of 4% of total Medicare Parts A and B FFS revenue of the ACO’s participants or 2% of the ACO’s updated benchmark.
  • A BASIC Track Level E ACO may receive a shared savings payment of up to 50% of the savings under the updated benchmark, as determined on the basis of its quality performance, not to exceed 10% of its updated benchmark, and is required to share a fixed 30% of losses for expenditures over the benchmark. The ACO’s shared losses may not exceed the percentage of revenue specified in the revenue-based nominal amount standard under the Quality Payment Program, capped at the amount that is 1% higher than the percentage of the updated benchmark specified in the expenditure-based nominal amount standard under the Quality Payment Program.  Based on this formula, the BASIC Track Level E is the only BASIC Track Level that qualifies as an Advanced Alternative Payment Model (APM) for purposes of the Quality Payment Program. 

Enhanced Track

As with the current Track 3, ENHANCED Track ACOs may receive a shared savings payment of up to 75% of savings under the updated benchmark, as determined on the basis of quality performance, not to exceed 20% of its updated benchmark.  ENHANCED Track ACOs also share losses at a rate determined based on the inverse of the final sharing rate (which is between 40 and 75 percent), not to exceed 15% of the updated benchmark.  The ENCHANCED Track ACOs also qualify as an Advanced APM for purposes of the Quality Payment Program.

Eligibility for BASIC and ENHANCED Tracks

An ACO’s eligibility for either the BASIC or ENHANCED Track and the Level within the BASIC Track depends on the ACO’s experience with Medicare risk models and whether the ACO is a “low revenue ACO” or a “high revenue ACO.”  An ACO is generally considered “experienced with performance-based risk Medicare ACO initiatives” if the ACO is the same legal entity as a current or previous ACO that is participating in or has participated in the BASIC Track, ENHANCED Track, Track 2, Pioneer ACO Model, Next Generation ACO Model, Comprehensive ESRD Model two-sided risk tracks, Track 1+ Model, or another initiative involving two-sided risk as may be specified by CMS.  An ACO also falls into this category if 40% or more of its ACO participants participated in a performance-based risk Medicare ACO initiative.  An ACO is considered a “high revenue ACO” if the total Medicare Parts A and B fee for service (FFS) revenue of its ACO participants (based on the most recent calendar year for which 12 months of data is available) is at least 35% of the total Medicare Parts A and B FFS expenditures for the ACO’s assigned beneficiaries (based on expenditures for the most recent calendar year for which 12 months of data are available).  A “low revenue ACO” is one in which the total Medicare Parts A and B FFS revenue of its ACO participants is less than 35% of the total Medicare Parts A and F FFS expenditures for the ACO’s assigned beneficiaries.  High revenue ACOs tend to be larger and include institutional ACO participants.  Low revenue ACOs tend to be smaller, physician-led ACOs. 

A high revenue ACO that is inexperienced with performance-based risk Medicare ACO initiatives may enter the ENHANCED Track or any Level of the BASIC Track, except an ACO that previously participated in Track 1, or a new ACO that is identified as “re-entering” because more than 50% of its ACO participants have recent prior experience in a Track 1 ACO, may only elect to enter BASIC Track in Levels B through E.  A high revenue ACO that is experienced with performance-based risk Medicare ACO initiatives may enter the ENHANCED Track.  A high revenue ACO that is experienced with performance-based risk Medicare ACO initiatives based on participation in the Track 1+ Model, and is in its first or second agreement period beginning 2016 or 2017, may renew for a consecutive agreement period beginning on July 1, 2019, or January 1, 2010, under either the BASIC Track Level E or the ENHANCED Track. 

A low revenue ACO that is inexperienced with performance-based risk Medicare ACO initiatives may enter the ENHANCED Track or any Level of the BASIC Track, except an ACO that previously participated in Track 1, or a new ACO that is identified as “re-entering” because more than 50% of its ACO participants have recent prior experience in a Track 1 ACO, may only elect to enter BASIC Track in Levels B through E.  A low revenue ACO that is experienced with performance-based risk Medicare ACO initiatives may enter either the ENHANCED Track or the BASIC Track Level E, except that low revenue ACOs may only participate under the BASIC Track for a maximum of two agreement periods and may only participate in the BASIC Track for a second agreement period under certain conditions. 

An ACO that did not previously participate in Track 1 or is not a re-entering ACO with more than 50% of its ACO participants having recent prior experience in a Track 1 ACO may elect to enter the Basic Track at any of the Levels A through E. 

Subject to a few exceptions, unless an ACO elects to transition to a higher level of risk within the BASIC Track glide path, the ACO automatically advances to the next BASIC level at the beginning of each subsequent performance year within the agreement period, if a higher level of risk is available.  One exception applies to low revenue ACOs that are new, not identified as re-entering ACOs, and enter the BASIC Track Level A.  These ACOs may elect to remain in Level B for two years, but they are automatically advanced to Level E following Level B.  Another exception applies to ACOs that enter the BASIC Track on July 1, 2019.  These ACOs do not automatically advance on January 1, 2020.  For performance year 2020, the ACO remains in the same BASIC Track level that it entered on July 1, 2019. 

A BASIC Track ACO must meet all program requirements to participate under performance-based risk prior to entering those Levels involving performance-based risk.  Failure to meet the requirements results in termination of the ACO’s agreement.

Elections by ACOs

ACOs may elect to transition to a higher level of risk (if one is available) than the level of risk to which the ACO would automatically advance.  This assumes, however, that an ACO can meet all of the requirements necessary for that particular Track or Level.  Unlike the current MSSP, ACOs have the option to elect either prospective beneficiary assignment or preliminary prospective assignment with retrospective reconciliation.

Beneficiary Notification Requirements

ACOs are required to notify Medicare FFS beneficiaries: (i) that each ACO participant and its ACO providers/suppliers are participating in the MSSP; (ii) that the beneficiary has the option to decline claims data sharing; and (iii) beginning July 1, 2019, that the beneficiary has the ability (and the process by which) to identify or change identification of the individual provider he or she elects to designate for purposes of voluntary alignment.  In addition to posting signs in facilities and primary care services settings, ACOs or ACO participants must provide each beneficiary with a standardized written notice prior to or at the first primary care visit of the performance year, starting with the performance year beginning on July 1, 2019, and each subsequent year.  Moreover, if an ACO establishes a beneficiary incentive program to provide monetary incentive payments, as described below, the ACO or its ACO participants must notify assigned beneficiaries of the availability of the beneficiary incentive program. 

Revisions to Repayment Mechanism Requirements

CMS also revised the requirements regarding the repayment mechanism for ACOs in performance-based risk tracks.  The amount that must be guaranteed by the repayment mechanism based on ACO participant list changes will be calculated annually, but will not increase unless the difference between the recalculated payment mechanism amount exceeds the existing amount by at least 50% or $1 million.  Among other changes, including requirements for the issuing institutions, the repayment mechanism must be in effect during the agreement period and for 12 months following the agreement period. 

Revisions to Benchmarking Methodology

In the ACO Final Rules, CMS continues to refine the program’s benchmarking methodology, a complex calculation that incorporates the ACO’s risk-adjusted historical expenditures as well as factors based on regional and national FFS spending trends.  The ACO Final Rules incorporate changes to the current benchmarking methodology to address the application of regional and national expenditure rates as well as the application of CMS-Hierarchical Condition Category (HCC) risk scores to adjust the benchmark for agreement periods beginning on July 1, 2019:

  • Factors based on regional FFS expenditures will be applied beginning in the ACO’s first agreement period to establish, adjust and update the ACO’s benchmark, thus moving away from sole use of the ACO’s historical costs.
  • The maximum weight used in calculating the regional adjustment will be reduced to 50% from the current 70%, and the amount of the adjustment will be capped based on a percentage of national FFS expenditures. The schedule of weights used to phase in the regional adjustment will be modified for ACOs with spending levels above their region (increasing in increments from 15% for the first agreement period to 50% for the fourth agreement period). 
  • A blend of regional and national expenditure growth rates will be applied in calculating the growth rate used in trending expenditures in order to establish the benchmark and to update the benchmark each performance year. Increasing weight will be placed on the national component of this blend as the ACO’s penetration in its region increases. 
  • Full HCC risk scores will be used to adjust the benchmark each performance year, subject to a limit of a positive 3% over the agreement period in order to restrict the upward effects of these adjustments.

Expansion of Telehealth

After considering comments to the proposed rule for implementing the telehealth requirements of the Bipartisan Budget Act, the ACO Final Rules finalize the proposed policies for ACOs participating under performance-based risk that have elected prospective assignment under the MSSP.  These policies include, among other things:  (1) finalizing CMS’s proposal to make payment to certain ACO physicians and practitioners for furnishing otherwise covered telehealth services to assigned beneficiaries, when the originating site is the beneficiary’s home and without regard to the geographic limitations under Section 1834(m)(4)(C)(i) of the Social Security Act; and (2) modifying the MSSP rules to include public reporting of an ACO’s use of telehealth services. 

Expansion of SNF 3-Day Waivers

The ACO Final Rules also finalize the policies proposed in CMS’s proposed rules related to the expansion of the SNF 3-day waiver.  These changes include revising the MSSP rules to:  (1) expand eligibility for the SNF 3-day waiver to include ACOs participating in a two-sided model under preliminary or prospective assignment with retrospective conciliation; (2) clarify that SNFs also include providers furnishing SNF services under swing bed arrangements; (3) establish that the minimum 3-star rating requirement applies only if the provider furnishing SNF services is eligible to be included in CMS’s 5-star Quality Rating System; and (4) adding a new provision to allow ACOs participating in performance-based risk within the BASIC Track or ACO’s participating in Track 3 or the ENHANCED Track to request use of the SNF 3-day waiver.

Expansion of Beneficiary Incentive Programs for Primary Care Services

The ACO Final Rules still prohibit giving gifts or other remuneration to beneficiaries as inducements for receiving items or services from, or remaining in, an ACO or with ACO providers/suppliers in a particular ACO, or receiving items or services from ACO participants or ACO providers/suppliers.  The ACO Final Rules also continue to include the prior exception for in-kind incentives but now clarify that the in-kind item or service cannot be a Medicare-covered item or service for the beneficiary on the date the in-kind item or service is furnished to the beneficiary. 

Notably, however, for performance years beginning July 1, 2019, ACOs in Track 2, BASIC Track Levels C, D or E or the ENHANCED Track may establish a beneficiary incentive program to provide monetary incentive payments to Medicare FFS beneficiaries who receive a primary care service with respect to which coinsurance applies under Part B, if the service is furnished through an ACO by a FQHC or RHC, an ACO professional who has a primary care specialty designation, or an ACO professional who is a physician assistant, nurse practitioner or certified nurse specialist.  Each incentive payment must be in the form of a check, debit card or traceable cash equivalent, may not exceed $20 (adjusted annually), must be provided no more than 30 days after the service is furnished, and must be the same amount to each eligible Medicare FFS beneficiary without regard to enrollment in a Medicare supplemental policy, Medicaid or any other health insurance policy or benefit plan.  Beneficiary incentive programs may not be marketed or advertised, and must be approved by CMS following submission of an application to CMS. 

CMS clarified in the ACO Final Rules that an ACO may use shared savings to cover the cost of in-kind items or services or incentive payments provided to a beneficiary.  However, an ACO may not use funds from an organization outside of the ACO to establish or operate a beneficiary incentive program and may not directly, through insurance or otherwise, bill or shift the cost of establishing or operating a beneficiary incentive program to a Federal health care program.

Policy for Extreme and Uncontrollable Circumstances for Performance Year 2017

After considering numerous comments from stakeholders on how to address extreme and uncontrollable circumstances when calculating ACOs’ historical benchmarks, CMS declined to make any changes.  However, the ACO Final Rules did finalize CMS’s proposals to incorporate regional expenditures into its calculation of benchmark trend and update factors for all ACOs including those in their first agreement period.  CMS believes that this methodology will “provide an inherent benchmark to account for the impact of extreme and uncontrollable circumstances on ACO expenditures without suffering from the drawbacks of some of the other methods considered[.]”  CMS noted, however, that it will monitor this approach and may make changes in future rulemaking, as necessary.