thefederalregister.com

Daily Rules, Proposed Rules, and Notices of the Federal Government

DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Part 425

[CMS-1345-P]

RIN 0938-AQ22

Medicare Program; Medicare Shared Savings Program: Accountable Care Organizations

AGENCY: Centers for Medicare & Medicaid Services (CMS), HHS.
ACTION: Proposed rule.
SUMMARY: This proposed rule would implement section 3022 of the Affordable Care Act which contains provisions relating to Medicare payments to providers of services and suppliers participating in Accountable Care Organizations (ACOs). Under these provisions, providers of services and suppliers can continue to receive traditional Medicare fee-for-service payments under Parts A and B, and be eligible for additional payments based on meeting specified quality and savings requirements.
DATES: To be assured consideration, comments must be received at one of the addresses provided below, no later than 5 p.m. on June 6, 2011.
ADDRESSES: 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 tohttp://www.regulations.gov.Follow the "Submit a comment" instructions.

2.By regular mail.You may mail written comments to the following address ONLY: Centers for Medicare & Medicaid Services, Department of Health and Human Services, Attention: CMS-1345-P, P.O. Box 8013, Baltimore, MD 21244-8013.

Please allow sufficient time for mailed comments to be received before the close of the comment period.

3.By express or overnight mail.You may send written comments to the following address only: Centers for Medicare & Medicaid Services, Department of Health and Human Services, Attention: CMS-1345-P, Mail Stop C4-26-05, 7500 Security Boulevard, Baltimore, MD 21244-1850.

4.By hand or courier.If you prefer, you may deliver (by hand or courier) your written comments before the close of the comment period to either of the following addresses: a. For delivery in Washington, DC--Centers for Medicare & Medicaid Services, Department of Health and Human Services, Room 445-G, Hubert H. Humphrey Building, 200 Independence Avenue, SW., Washington, DC 20201.

(Because access to the interior of the Hubert H. Humphrey Building is not readily available to persons without Federal government identification, commenters are encouraged to leave their comments in the CMS drop slots located in the main lobby of the building. A stamp-in clock is available for persons wishing to retain a proof of filing by stamping in and retaining an extra copy of the comments being filed.)

b. For delivery in Baltimore, MD--Centers for Medicare & Medicaid Services, Department of Health and Human Services, 7500 Security Boulevard, Baltimore, MD 21244-1850.

If you intend to deliver your comments to the Baltimore address, please call telephone number (410) 786-7195 in advance to schedule your arrival with one of our staff members.

Comments mailed to the addresses indicated as appropriate for hand or courier delivery may be delayed and received after the comment period.

Submission of comments on paperwork requirements.You may submit comments on this document's paperwork requirements by following the instructions at the end of the "Collection of Information Requirements" section in this document.

For information on viewing public comments, see the beginning of theSUPPLEMENTARY INFORMATIONsection.

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

Inspection of Public Comments:All comments received before the close of the comment period are available for viewing by the public, including any personally identifiable or confidential business information that is included in a comment. We post all comments received before the close of the comment period on the following Web site as soon as possible after they have been received:http://www.regulations.gov.Follow the search instructions on that Web site to view public comments.

Comments received timely will also be available for public inspection as they are received, generally beginning approximately 3 weeks after publication of a document, at the headquarters of the Centers for Medicare & Medicaid Services, 7500 Security Boulevard, Baltimore, Maryland 21244, Monday through Friday of each week from 8:30 a.m. to 4 p.m. To schedule an appointment to view public comments, phone 1-800-743-3951.

Table of Contents

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

I. Background A. Introduction and Overview of Value-Based Purchasing B. Statutory Basis for the Medicare Shared Savings Program C. Overview and Intent of the Medicare Shared Savings Program D. Related Affordable Care Act Provisions 1. Establishment of Center for Medicare and Medicaid Innovation (Innovation Center) 2. Independence at Home Medical Practices 3. State Option To Provide Health Homes 4. Community Health Teams E. Related Ongoing CMS Efforts 1. Physician Group Practice Demonstration 2. Medicare Health Care Quality Demonstration II. Provisions of the Proposed Rule A. Organizations of the Proposed Rule B. Eligibility and Governance 1. Eligible Entities 2. Legal Structure and Governance a. Legal Entity b. Governance c. Composition of the Governing Body 3. Leadership and Management Structure 4. Accountability for Beneficiaries 5. Agreement Requirement 6. Distribution of Savings 7. Sufficient Number of Primary Care Providers and Beneficiaries 8. Required Reporting on Participating ACO Professionals 9. Processes To Promote Evidence-Based Medicine, Patient Engagement, Reporting, and Coordination of Care a. Processes To Promote Evidence-Based Medicine b. Processes To Promote Patient Engagement c. Processes To Report on Quality and Cost Measures d. Processes To Promote Coordination of Care 10. Patient Centeredness Criteria a. Beneficiary Experience of Care Survey b. Patient Involvement in Governance c. Evaluation of Population Health Needs and Consideration of Diversity d. Implementation of Individualize Care Plans and Integration of Community Resources 11. ACO Marketing Guidelines 12. Program Integrity Requirements a. Compliance Plans b. Compliance With Program Requirements c. Conflicts of Interest d. Screening of ACO Applicants e. Prohibition on Certain Required Referrals and Cost Shifting C. Establishing the 3-YearAgreement With the Secretary 1. Options for Start Date of the Performance Year 2. Timing and Process for Evaluating Shared Savings 3. Data Sharing 4. Sharing Aggregate Data 5. Identification of Historically Assigned Beneficiaries 6. Sharing Beneficiary Identifiable Claims Data a. Legal Authority To Provide Beneficiary Identifiable Data to ACOs (1) Sharing Data Related to Medicare Parts A and B (2) Sharing Data Related to Medicare Part D b. Beneficiary Opportunity To Opt Out of Claims Data Sharing 7. New Program Standards Established During 3-Year Agreement Period 8. Managing Significant Changes to the ACO During the Agreement Period 9. Future Participation of Previously Terminated Program Participants D. Assignment of Medicare Fee-For-Service Beneficiaries 1. Operational Identification of an ACO 2. Definition of Primary Care Services 3. Prospective vs. Retrospective Beneficiary Assignment to Calculate Eligibility for Shared Savings 4. Majority vs. Plurality Rule for Beneficiary Assignment 5. Beneficiary Information and Notification E. Quality and Other Reporting Requirements 1. Introduction 2. Proposed Measures To Assess the Quality of Care Furnished by an ACO a. General b. Considerations in Selecting Measures 1. Use of Measures 2. Scoring Methodology c. Proposed Quality Measures for Use in Establishing Quality Performance Standards that ACOs Must Meet for Shared Savings 3. Requirements for Quality Measures Data Submission by ACOs a. General b. GPRO Tool c. Certified EHR Technology 4. Quality Performance Standards a. General b. Option 1—Performance Scoring (1) Measure Domains and Measures Included in the Domains (2) Methodology for Calculating a Performance Score for Each Measure Within a Domain (3) Methodology for Calculating a Performance Score for Each Domain (4) The Quality Performance Standard Level c. Option 2—Quality Threshold (1) Minimum Quality Threshold (2) Considerations in Establishing a Quality Threshold 5. Incorporation of Other Reporting Requirements Related to the Physician Quality Reporting System and Electronic Health Records Technology Under Section 1848 of the Act 6. Public Reporting 7. Aligning ACO Quality Measures with other Laws and Regulations F. Shared Savings Determination 1. Background 2. Overview of Shared Savings Determination 3. Establishing an Expenditure Benchmark a. Background b. Option 1 c. Option 2 d. Summary 4. Adjusting the Benchmark and Average Per Capita Expenditures for Beneficiary Characteristics 5. Technical Adjustments to the Benchmark Impact of IME and DSH 6. Technical Adjustments to the Benchmark Impact of Geographic Payment Adjustments on the Calculation of the Benchmark 7. Technical Adjustments to the Benchmark Impact of Bonus Payments and Penalties on the Calculation of the Benchmark and Actual Expenditures 8. Trending Forward Prior Years' Experience To Obtain an Initial Benchmark a. Flat Dollar vs Growth Rate as a Benchmark Trending Factor b. National vs Local Growth Rate as a Benchmark Trending Factor 9. Updating the Benchmark During the Agreement Period 10. Minimum Savings Rate (MSR) and Sharing Rate 11. Net Sharing Rate 12. Additional Shared Savings Payments 13. Withholding Performance Payments To Offset Future Losses 14. Performance Payment Limit G. Two-Sided Model 1. Risk-Based Payment Models 2. Two Tracks Provide Incremental Approach to Incorporating Risk 3. Elements of the Two-Sided Model a. Beneficiary Notification and Protections b. Eligibility Requirements c. Quality Performance Measurement and Scoring d. Shared Savings Methodology (1) Minimum Savings Rate (2) Additional Shared Savings Payments (3) Net Sharing Rate (4) Calculating Sharing in Losses (5) Maximum Shared Savings and Shared Loss Caps e. Ensuring ACO Repayment of Shared Losses f. Future Participation of Under-performing Organizations g. Public Reporting h. Impact on States 4. Verification of Savings and Losses H. Monitoring and Termination of ACOs 1. Monitoring Avoidance of At Risk Beneficiaries 2. Monitoring Compliance with Quality Performance Standards 3. Terminating an ACO Agreement 4. Reconsideration Review Process I. Coordination With Other Agencies 1. Waivers of CMP, Anti Kickback, and Physician Self Referral Laws 2. IRS Guidance Relating to Tax Exempt Organization 3. Antitrust Policy Statement 4. Prohibition Against the Shared Savings Program Participation by ACOs With Market Power a. Coordinating the Shared Savings Program Application With the Antitrust Agencies b. Competition and Quality of Care c. Competition, Price, and Access to Care J. Overlap With Other CMS Shared Savings Initiatives 1. Duplication in Participation in Medicare Shared Savings Programs 2. Transition of the Physician Group Practice (PGP) Demonstration Sites Into the Shared Savings Program 3. Overlap With the Center for Medicare & Medicaid Innovation (Innovation Center Shared Savings Models III. Collection of Information Requirements IV. Response to Comments V. Regulatory Impact Analysis A. Introduction B. Statement of Need C. Anticipated Effects 1. Effects on the Medicare Program a. Assumptions and Uncertainties b. Detailed Stochastic Modeling Results c. Further Considerations 2. Impact on Beneficiaries 3. Impact on Providers and Suppliers D. Alternatives Considered E. Accounting Statement and Table F. Conclusion Acronyms ACOAccountable Care Organizations AHRQAgency for Healthcare Research and Quality BCBSMABlue Cross Blue Shield of Massachusetts BIPABenefits Improvement and Protection Act BQIBetter Quality Information CADCoronary Artery Disease CAHPSConsumer Assessment of Health Providers and Systems CAHsCritical Access Hospitals CAMComplementary and Alternative Services CBICCompetitive Bidding Implementation Contractor CCNCCommunity Care of North Carolina CHCsCommunity Health Centers CHIPChildren's Health Insurance Program CMMICenter for Medicare and Medicaid Innovation CMPCivil Monetary Penalties CMSCenters for Medicare and Medicaid Services CNMCertified Nurse Midwife CMS-HCCCMS Hierarchal Condition Category COPDChronic Obstructive Pulmonary Disease CPCertified Psychologist CSWClinical Social Worker CVEChartered Value Exchange CWFCommon Working File DHHSDepartment of Health and Human Services DMDiabetes Mellitus DOJDepartment of Justice DRADeficit Reduction Act of 2005(Pub. L. 109-171) DSHDisproportionate Share Hospital DUAData use Agreement E&MEvaluation and Management EDBEnrollment Database EHRElectronic Health Record ESRDEnd Stage Renal Disease eRxElectronic Prescribing Incentive Program FFSFee For Service FQHCsFederally Qualified Health Centers FTCFederal Trade Commission GAOGovernment Accountability Office GPCIGeographic Practice Cost Index GPROGroup Practice Reporting Option HACHospital Acquired Conditions HCAHPSHealth Care Providers Systems and Surveys HCCHierarchal Condition Category HCOHealth Care Organizations HCPCSHealth Care Procedural Coding System HHAHome Health Agencies HICNHealth Insurance Claim Number HIPAAHeath Insurance Portability and Accountability Act of 1996 HIEHealth Information Exchange HITHealth Information Technology HITECHHealth Information Technology for Economic and Clinical Health HMOHealth Maintenance Organization HRSAHealth Resources Services Administration HVBPHospital Value Based Purchasing IHIEIndiana Health Information Exchange IMEIndirect Medical Education INPCIndiana Network for Patient Care IOMInstitute of Medicine IPPSInpatient Prospective Payment System IQRInpatient Quality Reporting IRSInternal Revenue Services LTCHsLong-Term Acute Care Hospitals MAMedicare Advantage MAeHCMassachusetts eHealth Collaborative MDCsMajor Diagnostic Categories MedPACMedicare Payment Advisory Commission MHCQMedicare Health Care Quality MMAMedicare Prescription Drug, Improvement, and Modernization Act MPFSMedicare Physician Fee Schedule MS-DRGsMedicare Severity-Diagnosis Related Groups MSPMinimum Savings Percentage MSRMinimum Savings Rate NC-CCNNorth Carolina Community Care Networks NCHNational Claims History NCQANational Committee for Quality Assurance NPNurse Practitioner NPINational Provider Identifier NQFNational Quality Forum NYCLIXThe New York Clinical Information Exchange OIGOffice of Inspector General OMBOffice of Management and Budget PAPhysician Assistant PACEProgram of All Inclusive Care for the Elderly PACFsPost-Acute Care Facilities PCMHPatient Centered Medical Home PFSPhysician Fee Schedule PGPPhysician Group Practice PHIProtected health information POSPoint of Service PPOPreferred provider organization PPSProspective Payment System PQRIPhysician Quality Reporting Initiative PQRSPhysician Quality Reporting System PRAPaperwork Reduction Act PSAPrimary Service Areas RFIRequest for Information RHCsRural Health Centers RHQDAPUReporting Hospital Quality Data for Annual Payment Update RIARegulatory Impact Analysis SNFsSkilled Nursing Facilities SORPrivacy Act Systems of Record SSASocial Security Administration SSNSocial Security Number TINTax Identification Number I. Background A. Introduction and Overview of Value-Based Purchasing

On March 23, 2010, the Patient Protection and Affordable Care Act (Pub. L. 111-148) was enacted. Following the enactment of Public Law 111-148, the Health Care and Education Reconciliation Act of 2010 (Pub. L. 111-152) (enacted on March 30, 2010), amended certain provisions of Public Law 111-148. These public laws are collectively known as the Affordable Care Act. The Affordable Care Act includes a number of provisions designed to improve the quality of Medicare services, support innovation and the establishment of new payment models in the program, better align Medicare payments with provider costs, strengthen program integrity within Medicare, and put Medicare on a firmer financial footing.

With respect to quality improvement, the Affordable Care Act includes provisions to expand value-based purchasing, broaden quality reporting, improve the level of performance feedback available to suppliers, create incentives to enhance quality, improve beneficiary outcomes, and increase the value of care.

Value-based purchasing is a concept that links payment directly to the quality of care provided and is a strategy that can help transform the current payment system by rewarding providers for delivering high quality, efficient clinical care. We have significant experience in developing, refining, and expanding health care quality performance measures through our experience with value-based demonstration efforts, noting some of these efforts later in the document, and various Medicare payment systems. For example, since 2005, we have applied the Hospital Inpatient Quality Reporting (IQR) Program under the hospital inpatient prospective payment system. Hospital IQR provides differential payments to hospitals that meet certain requirements, including publicly reporting their performance on a defined set of inpatient care performance measures. Beginning in 2007, under the physician fee schedule, we have provided for quality measure reporting through the Physician Quality Reporting System, which includes incentive payments for eligible professionals who satisfactorily report data on quality measures for covered professional services furnished to Medicare beneficiaries. In 2009, Congress passed the Health Information and Technology for Economic and Clinical Health (HITECH) Act. As part of the Electronic Health Records (EHR) Incentive Program under HITECH, we have defined measures for the meaningful use of certified electronic health records technology and have developed incentive payment programs for both Medicare and Medicaid providers. We have extended similar efforts to additional payment systems, including the hospital outpatient prospective payment system and various post-acute care systems.

In addition to improving quality, value-based purchasing initiatives seek to reduce growth in health care expenditures. It is widely recognized that the trajectory for the nation's health care spending is unsustainable. Medicare beneficiaries share in the burden of rising costs, as they pay higher premiums, and larger cost-sharing obligations and out-of-pocket expenses. The Affordable Care Act includes a series of reforms expected to significantly slow growth in the Medicare spending rate while simultaneously strengthening the care provided to Medicare beneficiaries. These reforms build upon existing value-based purchasing efforts currently underway within CMS to find ways to better coordinate care and reduce unnecessary services to lower the growth in Medicare spending while improving the quality of care received by beneficiaries.

We view value-based purchasing as an important step to revamping how care and services are paid for, moving increasingly toward rewarding better value, outcomes, and innovations instead of merely volume. In implementing these value-based purchasing initiatives, we seek to meet certain common goals, as follows:

• Improving quality.

++ Value-based payment systems and public reporting should rely on a mix of standards, processes, outcomes, and patient experience measures, including measures of care transitions and changes in patient functional status. Across all programs, we seek to move as quickly as possible to the use of outcome and patient experience measures. To the extent practicable and appropriate, these outcome and patient experience measures should be adjustedfor risk or other appropriate patient, population, or provider characteristics.

++ To the extent possible, and recognizing differences in payment system readiness and statutory authorities, measures should be aligned across Medicare and Medicaid's public reporting and payment systems. We seek to evolve a focused core-set of measures appropriate to each specific provider category that reflects the level of care and the most important areas of service and measures for that provider.

++ The collection of information should minimize the burden on providers to the extent possible. As part of that effort, we will continuously seek to align our measures with the adoption of meaningful use standards for health information technology (HIT), so the collection of performance information is part of care delivery.

++ To the extent practicable, the measures used by the Shared Savings Program should be nationally endorsed by a multistakeholder organization. We should align measures with best practices among other payers and the needs of the end users of the measures.

• Lowering growth in expenditures.

++ Providers should be accountable for the cost of care, and be rewarded for reducing unnecessary expenditures and be responsible for excess expenditures.

++ In reducing excess expenditures, providers should continually improve the quality of care they deliver and must honor their commitment to do no harm to beneficiaries.

++ To the extent possible, and recognizing differences in payers' value-based purchasing initiatives, providers should apply cost reducing and quality improving redesigned care processes to their entire patient population.

As noted previously, the Affordable Care Act includes provisions to expand value-based purchasing, broaden quality reporting, improve the level of performance feedback available to suppliers, create incentives to enhance quality, improve beneficiary outcomes, and increase the value of care. Among these provisions, section 3022 of the Affordable Care Act requires the Secretary to establish the Medicare Shared Savings Program (Shared Savings Program), intended to encourage the development of Accountable Care Organizations (ACOs) in Medicare. The Affordable Care Act intends the Medicare Shared Saving Program to be a program “that promotes accountability for a patient population and coordinates items and services under parts A and B, and encourages investment in infrastructure and redesigned care processes for high quality and efficient service delivery.” The Shared Savings Program is a key Medicare delivery system reform initiatives that will be implemented under the Affordable Care Act and is a new approach to the delivery of health care aimed at: (1) Better care for individuals; (2) better health for populations; and (3) lower growth in expenditures. We refer to this approach throughout the document as the three-part aim.

B. Statutory Basis for the Medicare Shared Savings Program

Section 3022 of the Affordable Care Act amended Title XVIII of the Social Security Act (the Act) (42 U.S.C. 1395et seq.) by adding new section 1899 to the Act to establish a Shared Savings Program that promotes accountability for a patient population, coordinates items and services under Parts A and B, and encourages investment in infrastructure and redesigned care processes for high quality and efficient service delivery. Section 1899(a)(1) of the Act requires the Secretary to establish this program no later than January 1, 2012. Section 1899(a)(1)(A) of the Act further provides that, “groups of providers of services and suppliers meeting criteria specified by the Secretary may work together to manage and coordinate care for Medicare fee-for-service beneficiaries through an [ACO]”. Section 1899(a)(1)(B) of the Act also provides that ACOs that meet quality performance standards established by the Secretary are eligible to receive payments for “shared savings”.

Section 1899(b)(1) of the Act establishes the types of groups of providers of services and suppliers, with established mechanisms for shared governance, that are eligible to participate as ACOs under the program, subject to the succeeding provisions of section 1899 of the Act, as determined appropriate by the Secretary. Specifically, sections 1899(b)(1)(A) through (E) of the Act provide, respectively, that the following groups of providers of services and suppliers are eligible to participate:

• ACO professionals in group practice arrangements.

• Networks of individual practices of ACO professionals.

• Partnerships or joint venture arrangements between hospitals and ACO professionals.

• Hospitals employing ACO professionals.

• Such other groups of providers of services and suppliers as the Secretary determines appropriate.

Section 1899(b)(2) of the Act establishes the requirements that such eligible groups must meet in order to participate in the program. Specifically, sections 1899(b)(2)(A) through (H) of the Act provide, respectively, that eligible groups of providers of services and suppliers must meet the following requirements to participate in the program as ACOs:

• The ACO shall be willing to become accountable for the quality, cost, and overall care of the Medicare fee-for-service (FFS) beneficiaries assigned to it.

• The ACO shall enter into an agreement with the Secretary to participate in the program for not less than a 3-year period.

• The ACO shall have a formal legal structure that would allow the organization to receive and distribute payments for shared savings to participating providers of services and suppliers.

• The ACO shall include primary care ACO professionals that are sufficient for the number of Medicare FFS beneficiaries assigned to the ACO. At a minimum, the ACO shall have at least 5,000 such beneficiaries assigned to it in order to be eligible to participate in the Shared Savings Program.

• The ACO shall provide the Secretary with such information regarding ACO professionals participating in the ACO as the Secretary determines necessary to support the assignment of Medicare fee-for-service beneficiaries to an ACO, the implementation of quality and other reporting requirements, and the determination of payments for shared savings.

• The ACO shall have in place a leadership and management structure that includes clinical and administrative systems.

• The ACO shall define processes to promote evidence-based medicine and patient engagement, report on quality and cost measures, and coordinate care, such as through the use of telehealth, remote patient monitoring, and other such enabling technologies.

• The ACO shall demonstrate to the Secretary that it meets patient-centeredness criteria specified by the Secretary, such as the use of patient and caregiver assessments or the use of individualized care plans.

Section 1899(b)(3) of the Act establishes the quality and other reporting requirements for the Shared Savings Program. For purposes of quality reporting, section 1899(b)(3)(A) of the Act provides that the Secretary shall determine appropriate measures to assess the quality of care furnished by the ACO, such as measures of clinical processes and outcomes, patient and,where practicable, caregiver experience of care, and utilization (such as rates of hospital admissions for ambulatory care sensitive conditions). Section 1899(b)(3)(B) of the Act requires an ACO to submit data in a form and manner specified by the Secretary on measures the Secretary determines necessary for the ACO to report in order to evaluate the quality of care furnished by the ACO. This provision further states that such data may include care transitions across health care settings, including hospital discharge planning and post-hospital discharge follow-up by ACO professionals, as determined to be appropriate by the Secretary. Section 1899(b)(3)(C) of the Act requires the Secretary to establish quality performance standards to assess the quality of care furnished by ACOs. That section also requires that the Secretary shall seek to improve the quality of care furnished by ACOs over time by specifying higher standards, new measures, or both for purposes of assessing such quality of care. Finally, section 1899(b)(3)(D) of the Act provides that the Secretary may, as the Secretary determines appropriate, incorporate reporting requirements and incentive payments related to the Physician Quality Reporting System under section 1848 of the Act, including such requirements and such payments related to electronic prescribing, electronic health records, and other similar initiatives under section 1848 of the Act, and may use alternative criteria than would otherwise apply under such section for determining whether to make such payments. CMS should not take the incentive payments described in the preceding sentence into consideration when calculating any payments otherwise made under of section 1899(d) the Act.

Section 1899(b)(4) of the Act prohibits duplication in participation in other shared savings programs by participants in the Shared Savings Program. Specifically, a provider of services or supplier that participates in any of the following is not eligible to participate in an ACO under the Shared Savings Program: A model tested or expanded under section 1115A of the Act that involves shared savings under this title, any other program or demonstration project that involves such shared savings, or the Independence at Home Demonstration under section 1866E of the Act.

Section 1899(c) of the Act provides the Secretary with discretion to determine an appropriate method to assign Medicare FFS beneficiaries to an ACO participating in the Shared Savings Program. This discretion is limited, however, by the fact that under the Act, assignment must be based on beneficiaries' utilization of primary care services provided under Medicare by an ACO professional who is a physician as defined in section 1861(r)(1) of the Act.

Section 1899(d) of the Act establishes the principles and requirements for payments and treatment of savings under the Shared Savings Program. Specifically, section 1899(d)(1)(A) of the Act provides that, subject to the requirements concerning monitoring avoidance of at-risk patients, payments shall continue to be made to providers of services and suppliers participating in an ACO under the original Medicare FFS program under Parts A and B in the same manner as they would otherwise be made, except that a participating ACO is eligible to receive payment for shared savings if the following occur:

• The ACO meets quality performance standards established by the Secretary; and

• The ACO meets the requirements for realizing savings.

Section 1899(d)(1)(B) of the Act establishes the savings requirements and the method for establishing and updating the benchmark against which any savings would be determined. Specifically, section 1899(d)(1)(B)(i) of the Act establishes that, in each year of the agreement period, an ACO shall be eligible to receive payment for shared savings only if the estimated average per capita Medicare expenditures under the ACO for Medicare FFS beneficiaries for Parts A and B services, adjusted for beneficiary characteristics, is at least the percent specified by the Secretary below the applicable benchmark. The Secretary shall determine the appropriate percent of shared savings to account for normal variation in Medicare expenditures, based upon the number of Medicare FFS beneficiaries assigned to an ACO. Section 1899(d)(1)(B)(ii) of the Act, in turn, requires the Secretary to estimate a benchmark for each agreement period for each ACO using the most recent available 3 years of per beneficiary expenditures for Parts A and B services for Medicare FFS beneficiaries assigned to the ACO. This benchmark must be adjusted for beneficiary characteristics and such other factors as the Secretary determines appropriate and updated by the projected absolute amount of growth in national per capita expenditures for Parts A and B services under the original Medicare FFS program, as estimated by the Secretary. Furthermore, the benchmark must be reset at the start of each new agreement period.

Section 1899(d)(2) of the Act provides for the actual payments for shared savings under the Shared Savings Program. Specifically, if an ACO meets the quality performance standards established by the Secretary, and meets the savings requirements, a percent (as determined appropriate by the Secretary) of the difference between the estimated average per capita Medicare expenditures in the year, adjusted for beneficiary characteristics, and the benchmark for the ACO may be paid to the ACO as shared savings and the remainder of the difference shall be retained by the Medicare program. The Secretary is required to establish limits on the total amount of shared savings paid to an ACO.

Section 1899(d)(3) of the Act requires the Secretary to monitor ACOs for avoidance of at-risk patients. Specifically, if the Secretary determines that an ACO has taken steps to avoid patients at risk in order to reduce the likelihood of increasing costs to the ACO, the Secretary may impose an appropriate sanction on the ACO, including termination from the program. Section 1899(d)(4) of the Act, in turn, provides that the Secretary may terminate an agreement with an ACO if it does not meet the quality performance standards established by the Secretary. Section 1899(e) of the Act provides that chapter 35 of title 44 of the U.S. Code, which includes such provisions as the Paperwork Reduction Act (PRA), shall not apply to the Shared Savings Program. Section 1899(f) of the Act further provides the Secretary with the authority to waive such requirements of sections 1128A and 1128B of the Act and title XVIII of the Act as may be necessary to carry out the Shared Savings Program. Section 1899(g) of the Act establishes limitations on judicial and administrative review of the Shared Savings Program. This section provides that there shall be no administrative or judicial review under section 1869 of the Act, section 1878 of the Act, or otherwise of the following:

• The specification of criteria under 1899(a)(1)(B) of the Act.

• The assessment of the quality of care furnished by an ACO and the establishment of performance standards under 1899(b)(3) of the Act.

• The assignment of Medicare FFS beneficiaries to an ACO under 1899(c) of the Act.

• The determination of whether an ACO is eligible for shared savings under 1899(d)(2) of the Act and the amount of such shared savings, including the determination of the estimated average per capita Medicare expenditures under the ACO for Medicare FFS beneficiariesassigned to the ACO and the average benchmark for the ACO under 1899(d)(1)(B) of the Act.

• The percent of shared savings specified by the Secretary under 1899(d)(2) of the Act and any limit on the total amount of shared savings established by the Secretary under such subsection.

• The termination of an ACO under 1899(d)(4) of the Act for failure to meet the quality performance standards.

Section 1899(h) of the Act defines some basic terminology that applies to the Shared Savings Program. Specifically, section 1899(h)(1) of the Act defines the term “ACO professional” as a physician (as defined in section 1861(r)(1) of the Act) or a practitioner described in section 1842(b)(18)(C)(i) of the Act (that is, a physician assistant, nurse practitioner or clinical nurse specialist (as defined in section 1861(aa)(5) of the Act)). Section 1899(h)(2) of the Act defines the term “hospital” as a hospital (as defined in section 1886(d)(1)(B) of the Act.” (A “subsection (d) hospital” is a hospital located in one of the fifty States or the District of Columbia, excluding hospitals and hospital units that are not paid under the inpatient prospective payment system under section 1886(d)(1)(B) of the Act, such as psychiatric, rehabilitation, long term care, children's, and cancer hospitals.) Section 1899(h)(3) of the Act defines the term “Medicare fee-for-service beneficiary” as an individual who is enrolled in the original Medicare FFS program under Medicare Parts A and B and is not enrolled in a Medicare Advantage (MA) plan under Medicare Part C, an eligible organization under section 1876 of the Act, or a Program of All-Inclusive Care for the Elderly (PACE) under section 1894 of the Act.

Section 1899(i) of the Act provides that the Secretary may use either a partial capitation model or other payment model, rather than the payment model described in section 1899(d) of the Act, for making payments under the Shared Savings Program. Sections 1899(i)(2)(B) and 1899(i)(3)(B) of the Act require that any such model maintain budget neutrality. Specifically, these sections require that any such model adopted by the Secretary, “does not result in spending more for such ACO for such beneficiaries than would otherwise be expended for such ACO for such beneficiaries for such year if the model were not implemented, as estimated by the Secretary.”

Finally, section 1899(k) of the Act provides for an extension to the Physician Group Practice (PGP) demonstration: “During the period beginning on the date of the enactment of this section and ending on the date the program is established, the Secretary may enter into an agreement with an ACO under the demonstration under section 1866A, subject to rebasing and other modifications deemed appropriate by the Secretary.”

C. Overview and Intent of the Medicare Shared Savings Program

The intent of the Shared Savings Program is to promote accountability for a population of Medicare beneficiaries, improve the coordination of FFS items and services, encourage investment in infrastructure and redesigned care processes for high quality and efficient service delivery, and incent higher value care. As an incentive to ACOs that successfully meet quality and savings requirements, the Medicare Program can share a percentage of the achieved savings with the ACO. In order to meet the intent of the Shared Savings Program as established by the Affordable Care Act, we will focus on achieving, as our highest-level goal, the three-part aim, which consists of the following:

• Better care for individuals—as described by all six dimensions of quality in the Institute of Medicine report: Safety, effectiveness, patient-centeredness, timeliness, efficiency, and equity;

• Better health for populations with respect to educating beneficiaries about the upstream causes of ill health—like poor nutrition, physical inactivity, substance abuse, economic disparities—as well as the importance of preventive services such as annual physicals and flu shots; and

• Lower growth in expenditures by eliminating waste and inefficiencies while not withholding any needed care that helps beneficiaries.

Under the Shared Savings Program, ACOs will only share in savings if they first generate shareable savings and then meet the quality standards. In the spirit of the three-part aim and the vision of always keeping the beneficiary in the forefront of all decisions, we believe that an ACO should embrace the following goals:

• An ACO will put the beneficiary and family at the center of all its activities. It will honor individual preferences, values, backgrounds, resources, and skills, and it will thoroughly engage people in shared decision-making about diagnostic and therapeutic options.

• An ACO will ensure coordination of care for beneficiaries regardless of its time or place. In an ACO, people will find that they no longer carry the burden of ensuring that everyone caring for them has the information they need. Beneficiaries will see that organizational teamwork improves their health care.

• An ACO will attend carefully to care transitions, especially as beneficiaries journey from one part of the care system to another.

• An ACO will manage resources carefully and respectfully. It will ensure continual waste reduction, and that every step in care adds value to the beneficiary. An ACO will be able to make investments where investments count, and move resources to meet beneficiaries' needs. Because of its capabilities with respect to prevention and anticipation, especially for chronically ill people, an ACO will be able to continually reduce its dependence on inpatient care. Instead, its patients will more likely be able to be home, where they often want to be, and, during a hospital admission, they receive assurance that their discharges will be well coordinated, and that they will not return due to avoidable complications.

• An ACO will be proactive by reaching out to patients with reminders and advice that can help them stay healthy and let them know when it is time for a checkup or a test.

• An ACO will collect, evaluate, and use data on health care processes and outcomes sufficiently to measure what it achieves for beneficiaries and communities over time and use such data to improve care delivery and patient outcomes.

• An ACO will be innovative in the service of the three-part aim of better care for individuals, better health for populations, and lower growth in expenditures. It will draw upon the best, most advanced models of care, using modern technologies, including telehealth and electronic health records, and other tools to continually reinvent care in the modern age. It will monitor and compare its performance to other ACOs, identify and examine new processes for care improvement, and adopt those approaches that are demonstrated to be effective.

• An ACO will continually invest in the development and pride of its own workforce, including affiliated clinicians. It will maintain and execute plans for helping build skill, knowledge, and teamwork.

As proposed in this notice of proposed rulemaking (NPRM), the Shared Savings Program encourages providers of services and suppliers to form ACOs that seek to achieve a three-part aim of better care for individuals, better health for populations, and lower growth in expenditures. The proposedrule establishes the requirements for ACOs to take responsibility for improving the quality of care they deliver to a group of Medicare FFS beneficiaries, while lowering the growth in costs, in return for a share of the resulting savings. In addition to establishing a shared savings model for rewarding quality and financial performance, the program also holds ACOs accountable for excess expenditures by establishing, as an option, a two-sided risk model which requires repayment of losses to us. This represents a new approach for the Medicare FFS program, under which providers have traditionally had little or no financial incentive to coordinate the care for their patients or to be accountable for the total costs and quality of the care provided.

Since there is little comparative experience with implementing a Shared Savings Program and alternative payment models at the national level, we sought input on the impact of this proposed program from a wide range of external experts, including credentialed actuaries, clinical managers, and academic researchers on the potential impact of the program through, for example, the White House meeting, multiple listening sessions, Special Open Door Forum on ACOs, Workshop Regarding ACOs with CMS, OIG, and the Antitrust Agencies, and a Request For Information. Incorporating their input, we estimate that up to 5 million Medicare beneficiaries will receive care from providers participating in ACOs, many of which are located in higher cost areas, and that the program can have a significant impact on lowering Medicare expenditure growth. Furthermore, projections on the initial impact of the program by the Congressional Budget Office also suggest the Shared Savings Program could result in significant savings to the Medicare program.

We also believe that the Shared Savings Program should provide an entry point for all willing organizations who wish to move in a direction of providing value-driven healthcare. Consequently, in accordance with the authority granted to the Secretary under section 1899(i) of the Act, we are proposing for comment creating and implementing both a shared savings model (one-sided model) and a shared savings/losses model (two-sided model). Under this proposal, balanced maximum sharing rates under the two options to provide greater reward for ACOs accepting risk while maintaining an incentive to encourage ACOs not immediately ready to accept risk to participate in the one-sided model. This approach provides an entry point for organizations with less experience managing care and accepting financial risk, such as physician-driven organizations or smaller ACOs, to gain experience with population management in the FFS setting before transitioning to more risk.

We believe that ACOs electing to initially enter the one-sided model automatically transition to a two-sided risk model during the final year of their initial agreement. We also believe that a two-sided model that builds off a one-sided model could be offered as an option at the beginning of the program. We would immediately reward ACOs electing to enter the two-sided model with higher sharing rates available under that model. This approach provides an opportunity for more experienced ACOs that are ready to accept risk to enter a sharing arrangement that provides greater reward for greater responsibility. For more detail on the two-sided risk model refer to section II.G. of this proposed rule.

In addition to the opportunity to implement alternative payment models such as partial capitation under 1899(i) of the Act, the Center for Medicare and Medicaid Innovation (Innovation Center), created by the Affordable Care Act also has authority to test innovative payment models. As we gain experience with the shared savings model and alternative payment models, we will continue to refine and improve the program over time to make it increasingly effective in achieving our three-part aim of better care for individuals, better health for populations, and lower growth in expenditures. Finally, in developing the Shared Savings Program, and in response to stakeholder suggestions, we have worked very closely with agencies across the Federal government to develop policies to encourage participation and to ensure a coordinated and aligned inter- and intra-agency effort in the implementation of the program. The result of this effort is the release of several notices with which potential participants are strongly encouraged to become familiar. Detailed descriptions of these notices appear in section II.I of this proposed rule, and include: (1) A joint CMS and DHHS OIG Medicare Program; Waiver Designs in Connection with the Medicare Shared Savings Program and the Innovation Center; (2) an Internal Revenue Service (IRS) notice soliciting comments regarding the need for additional tax guidance for tax-exempt organizations, including tax-exempt hospitals, participating in the Shared Savings Program; and (3) a proposed Antitrust Policy Statement issued by the FTC and DOJ (collectively, the Antitrust Agencies).

D. Related Affordable Care Act Provisions

The Affordable Care Act intends to improve quality and make health care more affordable through the Shared Savings Program as well as through other provisions. There are four programs authorized by the Affordable Care Act discussed later in the document which may affect Shared Savings Program policy or help to guide future Shared Savings Program policy, or may intersect with the Shared Savings Program in other ways.

1. Establishment of Center for Medicare and Medicaid Innovation (Innovation Center)

Section 1115A of the Act, as added by section 3021 of the Affordable Care Act, required the establishment of the new Innovation Center not later than January 1, 2011 to test innovative payment and service delivery models to reduce program expenditures under Medicare, Medicaid, and the Children's Health Insurance Program (CHIP) while preserving or enhancing the quality of care furnished to beneficiaries under these programs. In selecting such models for testing, the statute requires the Secretary to give preference to models that also improve the coordination, quality, and efficiency of health care services furnished under Medicare, Medicaid, and CHIP.

Section 1115A authorizes the Secretary to expand the duration and scope of a model being tested through rulemaking (including implementation on a nationwide basis) to the extent the Secretary—

• Determines expected expansion to reduce spending under the applicable title without reducing the quality of care or improve the quality of patient care without increasing spending;

• Obtains a certification from our Chief Actuary that such expansion would reduce (or would not result in any increase in) net program spending under applicable titles; and

• Determines that such expansion would not deny or limit the coverage or provision of benefits under Medicare, Medicaid, or CHIP.

Through the Innovation Center, we plan to explore alternative payment models for the Shared Savings Program. As we test and refine these models, gain operational experience, and put the necessary infrastructure in place to support program wide implementation, including critical monitoring andpatient protection infrastructure, we plan to make these options available under the Shared Savings Program in future rulemaking. Our intent is to move participants of the demonstration models that have a demonstrated track record of realizing shared savings and high quality performance into the Shared Savings Program in future agreement periods.

2. Independence at Home Medical Practices

Section 1866E of the Act, as added by section 3024 of the Affordable Care Act authorizes the Secretary to conduct a demonstration program to test a payment incentive and service delivery model that utilizes Independence at Home Medical Practices, which are comprised of physician and nurse practitioner directed home-based primary care teams, to provide services designed to reduce expenditures and improve health outcomes for certain Medicare beneficiaries.

Subject to performance on quality measures established for the demonstration, participating practices may be eligible to receive an incentive payment in the form of shared savings. In determining whether savings were generated, the Secretary shall establish an estimated annual spending target, for the amount the Secretary estimates would have been spent in absence of the demonstration, for items and services covered under Parts A and B furnished to applicable beneficiaries for each qualifying Independence at Home medical practice. A practice is eligible to receive an incentive payment if actual expenditures for the year for the applicable beneficiaries it enrolls are less than the estimated spending target established for the year. An incentive payment for each year shall be equal to a portion of the amount by which actual expenditures for applicable beneficiaries under Parts A and B for the year are estimated to be less than 5 percent less than the estimated spending target for the year.

3. State Option To Provide Health Homes

Section 1945 of the Act, as added by section 2703 of the Affordable Care Act authorizes a State option under Medicaid to provide a health home for individuals with chronic conditions. The definition of the term “health home” is defined as a designated provider (including a provider that operates in coordination with a team of health care professionals) or a health team selected by an eligible individual with chronic conditions to provide health home services. Health home services are defined as comprehensive and timely high-quality services, including comprehensive care management; care coordination and health promotion; comprehensive transitional care, including appropriate follow-up, from inpatient to other settings; patient and family support (including authorized representatives); referral to community and social support services, if relevant; and use of health information technology to link services, as feasible and appropriate.

Under section 1945 of the Act, States pay the designated provider, team of health care professionals operating with such a provider, or health team for the provision of health home services to each eligible individual with chronic conditions that selects them as their health home. A State specifies in their State plan amendment the methodology it will use to determine payment for health home services. The methodology may be tiered to reflect, with respect to each eligible individual with chronic conditions, the severity or number of such individual's chronic conditions or the specific capabilities of the provider, team of health care professionals, or health team. A time-limited higher Federal Medicaid matching payment is available for health home services.

4. Community Health Teams

Section 3502 of the Affordable Care Act requires the Secretary to establish a program to provide grants to or enter into contracts with eligible entities to establish community based interdisciplinary, inter-professional teams (referred to in the statute as “health teams”) to support primary care practices, including obstetrics and gynecology practices, within the hospital service areas served by the eligible entities. These grants or contracts shall be used to establish health teams to provide support services to primary care providers and provide capitated payments to primary care providers as determined by the Secretary. For purposes of this section, primary care is the provision of integrated, accessible health care services by clinicians who are accountable for addressing a large majority of personal health care needs, developing a sustained partnership with patients, and practicing in the context of the family and community.

A health team established under a grant or contract must establish contractual agreements with primary care providers to provide support services. The team must support patient-centered medical homes, defined as a mode of care that includes—(1) Personal physicians; (2) whole person orientation; (3) coordinated and integrated care; (4) safe and high-quality care through evidence-informed medicine, appropriate use of health information technology, and continuous quality improvements; (5) expanded access to care; and (6) payment that recognizes added value from additional components of patient centered care.

Health teams must also collaborate with local primary care providers and existing State and community-based resources to coordinate—(1) disease prevention; (2) chronic disease management; (3) transitioning between health care providers and settings; and (4) case management for patients, including children, with priority given to those amenable to prevention and with chronic diseases or conditions identified by the Secretary. In collaboration with local health care providers, a health team must develop and implement interdisciplinary, interprofessional care plans that integrate clinical and community preventive and health promotion services for patients, including children, with a priority given to those amenable to prevention and with chronic diseases or conditions identified by the Secretary.

E. Related Ongoing CMS Efforts 1. Physician Group Practice Demonstration

We have previous experience developing and implementing shared savings models through demonstrations. First, under section 412 of the Medicare, Medicaid, and CHIP Benefits Improvement and Protection Act of 2000 (BIPA), we implemented the Physician Group Practice (PGP) Demonstration in April of 2005—our first attempt at establishing a Shared Savings ACO model. The PGP Demonstration offered a unique payment model by which PGP providers received their normal Parts A and B FFS payments for services rendered and offered an additional performance payment for demonstrating “value.” The performance payments were tied directly to achieving targets for process and outcome quality measures as well as cost savings. The PGP Demonstration showed that physician-driven organizations are willing to engage in efforts to improve the overall quality and cost efficiency of care for the patient population they serve. Under the demonstration, the PGPs were accountable for a patient population to whom they provided the plurality of office-based evaluation andmanagement care. The assignment of patients to the PGP at the end of each performance year and data has shown that assigned patients had on average four or five visits at the PGP during the year. This provided the opportunity for the organizations to better coordinate services and improve the quality and efficiency of care provided to Medicare FFS patients. Medicare patients retained their entitlement to see any Medicare provider they chose and were not enrolled or required to only see PGP physicians under the demonstration.

Based on their experience with the PGP demonstration, participants identified several factors as critical to improving quality and the opportunity to share savings:

• An integrated organization with an environment that supports expending resources on multiple programs and initiatives to improve quality and reduce unnecessary services.

• Dedicated physician leadership with a proven ability to motivate physicians to participate in the development and implementation of quality improvement a