CMS Releases Final Rules for Accountable Care Organizations

October 21, 2011


On October 20, 2011, the Centers for Medicare and Medicaid Services (CMS) released a more flexible and potentially profitable final shared savings rule. The final rule provides incentives for health care providers to band together to form Accountable Care Organizations (ACO) to coordinate care and enable those that meet certain quality standards, to share in savings they create for Medicare. The final rule makes a number of changes to the proposed rule. Specifically, the final rule increases the monetary incentives to form an ACO, allows for more flexible governance structures, more flexible beneficiary assignment methods, significantly fewer quality measures, and the first performance year has been modified. In addition, the Health and Human Services (HHS) Office of the Inspector General (OIG) will provided waivers to fraud and abuse laws for ACO formation. Finally, the Federal Trade Commission will not require mandatory antitrust review as it proposed.

Increased Monetary Incentives

The final rule makes a number of economic enhancements that will make it easier on organizations to be able to share in savings they create for Medicare and it eliminates some of the risk involved. ACOs could still choose from two tracks. However the two-sided risk has been removed from Track 1 to allow ACOs to earn shared savings without the risk of having to pay back loses in the final year as was proposed. The second track that includes two-sided risk is still available and provides for greater savings than the first track but losses must be paid back all three years. ACOs may share up to 50 percent of their savings on the first track, and up to 60 percent on the second track, depending on their quality performance.

CMS will establish a target level of spending for each ACO. There will be minimum saving and loss rates to account for normal variations in annual health care spending. The final rule will allow ACOs to share on first dollar savings once the minimum savings threshold is met, unlike the proposed rule.

ACO Governance

ACO governance has been modified to allow additional participants-specifically, Federally Qualified Health Centers (FQHC), Rural Health Clinics (RHC), and certain critical access hospitals. CMS has also clarified that while all Medicare providers are able to participate in an ACO, only physician groups/networks, physician/hospital joint ventures, hospitals, FQHCs, RHCs, and certain Critical Access Hospitals are eligible to sponsor an ACO. CMS has maintained the threshold for participation at 5,000 Medicare Fee For Service beneficiaries.

Beneficiary Assignment

The final rule departs from the proposed rule by allowing prospective assignment of beneficiaries to an ACO. This allows ACOs to know up front which beneficiaries they are responsible for. CMS will update the list of ACO beneficiaries quarterly and will also perform a final reconciliation at the end of the performance year to determine from which ACO their beneficiaries received the plurality of their primary care services.

The final rule also allows a two-step beneficiary assignment process. If a beneficiary has received at least one primary care service, that beneficiary will first be assigned to the ACO which provided a plurality of primary care services by primary care physicians (internal medicine, general practice, family practice, and geriatric medicine) to that beneficiary. The final rule provides for a second method of assignment to account for patients who use a specialist as their primary care provider. If no primary care services are rendered by a primary care physician, then the beneficiary will be assigned to the ACO based on a plurality of primary care charges provided by any ACO professional.

Quality Measures

The final rule still requires ACOs to report on and meet quality standards if they want to receive shared savings but reduces the number of quality measures from 65 to 33. The quality measures comprise four domains consisting of: 1) patient experience, 2) care coordination and patient safety, 3) preventative health, and 4) at-risk populations. CMS has added a measure designed to assess whether the patient has appropriate access to specialists. The quality standards are risk-adjusted to account for treating more complex patients. In the first year, ACOs can meet the quality measure requirements simply by accurately reporting across all domains, but in the second and third years, shared savings are based on how ACOs perform on the measures.

CMS has relaxed the requirement in the proposed rule that 50 percent of the primary care physicians in an ACO be meaningful users of EHR. Instead, Electronic Health Records have been retained as a quality measure but weighted higher than any other measure for scoring purposes.

Performance Year

The ACO program will start January 1, 2012. The first round of applications will be due in early 2012 with the first ACO agreements starting on April 1, 2012, and a second round of agreements starting on July 1, 2012. The first performance year will last 21 or 18 months. ACOs starting in April or July of 2012 will have the option of receiving interim payments if they report on quality measures for 2012. All ACOs must report on quality measures in 2013 to be eligible for first-year performance savings.

OIG Waivers

The HHS Office of Inspector General also announced, through an interim final rule released on the same day that it would provide a number of waivers to the federal fraud and abuse laws to facilitate the formation of ACOs.

Federal Antitrust Enforcement

The Federal Trade Commission has also released a Policy Statement on application of the antitrust laws to ACO formation and has backed away from its proposed policy to require mandatory antitrust review of ACOs that exceed a certain market share. This is generally viewed as a win for hospitals which may be dominant players in most ACOs.