CMS Proposed Rule Describes ACO Quality Performance Standards, Reporting Obligations, and Determination of Shared Savings Methodology

27 April 2011 Publication
Author(s): C. Frederick Geilfuss II Maria E. Gonzalez Knavel

Legal News Alert: Health Care

On March 31, 2011, CMS published a Proposed Rule to implement Section 3022 of the Patient Protection and Affordable Care Act (ACA), which requires the Secretary of the Department of Health and Human Services (HHS) to establish a Medicare Shared Savings Program (SSP). Under the Proposed Rule, eligible providers, hospitals, and suppliers that participate in the SSP by creating or joining accountable care organizations (ACOs) can continue to receive traditional Medicare fee-for-service payments under Medicare Parts A and B and be eligible for additional payments based upon specified quality and savings requirements.

On the same day, CMS and the Office of Inspector General (OIG) jointly issued a Proposed Rule describing the waiver of application of various fraud and abuse laws with respect to ACOs; the FTC and the Department of Justice (DOJ) jointly issued a Proposed Policy concerning the application of antitrust laws to ACOs; and the IRS issued a Notice concerning tax-exempt entity participation in the SSP.

This Legal News Alert is the second in a series of three alerts developed by Foley's Health Care Industry Team to assist you in understanding the newly published guidance. Please see the other alerts in this series:

This Legal News Alert provides an overview of the Proposed Rule’s provisions related to quality performance standards, reporting obligations, and the methodology for determining shared savings.

Quality Performance Standards and Reporting Requirements

Before an ACO can share in any savings, it must demonstrate that it delivers high-quality care by meeting the quality performance standards set by CMS. In the Proposed Rule, CMS describes: (1) measures to assess the quality of care furnished by an ACO; (2) requirements for ACO data submission; (3) quality performance standards; (4) the incorporation of reporting requirements under the Physician Quality Reporting System (PQRS); and (5) requirements for public reporting by ACOs. CMS proposes that an ACO will be considered to have met the quality performance standard with respect to identified measures if the ACO reports required quality data for each measure and meets the applicable performance criteria in accordance with requirements detailed in rulemaking for each of the three performance years.

Quality Measures and Domains. In Table 1 of the Proposed Rule (, CMS lists the 65 nationally recognized quality measures (Measures) CMS proposes to use in the first year to establish quality performance standards that ACOs must meet. For each Measure, Table 1 identifies the Measure’s title, a brief description of the data the Measure captures, applicable PQRS or Electronic Health Records (EHR) Incentive Program information, the Measure’s steward or National Quality Forum (NQF) Measure number (if applicable), the proposed method of data submission, the Measure Type, and the domain in which the Measure resides.

The 65 Measures CMS proposes to use for the first program year are organized into five key domains (Domains):

  • Patient/caregiver experience
  • Care coordination/transitions
  • Patient safety
  • Preventive health
  • At-risk population/frail elderly health

Measures and Domains for subsequent years will be proposed by CMS in future rulemaking. CMS anticipates that ACO quality measures will evolve over time and expects to expand the Measures to include measures related to other highly prevalent conditions, areas of interest, and care furnished in hospitals and other settings, such as home health services and nursing homes.

In selecting the Measures to be used, CMS focused on the common goals of other Medicare incentive programs such as the PQRS, formerly known as the Physician Quality Reporting Initiative, the Electronic Prescribing (eRx) Incentive Program, the EHR Incentive Programs, the Hospital Inpatient Quality Reporting Program, and Medicaid and private sector initiatives. While many of the proposed Measures are currently used in other CMS quality programs, the specifications for some of the proposed Measures will need to be refined in order to be applicable to ACO beneficiary populations. CMS proposes to align the quality Measures specifications for the SSP with the Measures specifications used in existing quality programs to the extent possible and appropriate for purposes of the SSP.

In the Proposed Rule, CMS takes the position that its authority to determine the form and manner of data submission allows it to establish data submission requirements for Measures that it determines to be appropriate for evaluating the quality of care furnished by the ACO, regardless of whether CMS establishes specific quality performance standards with respect to those Measures that must be met in order to be eligible for shared savings.

Data Submission. To be deemed eligible for shared savings consideration, CMS proposes that ACOs must report completely and accurately on each of the identified Measures within all five Domains. ACOs are required to submit data in the form and manner specified by CMS. Much of the data related to the proposed Measures identified in Table 1 can be derived from CMS systems and calculated for the assigned patient population that the ACO serves. For example, as illustrated in the "Method of Data Submission" column of Table 1, CMS proposes to derive data for certain Measures from claims submitted for services furnished during the performance period. ACO participants would not be required to submit any additional data for such Measures.

However, CMS recognizes that there are a number of limitations associated with claims-based reporting, since the claims-processing system was designed for billing purposes and not for the submission of quality data. Therefore, CMS also proposes to make available a CMS-specified Group Practice Reporting Option (GPRO) data collection tool and a survey tool for use in collecting data for certain proposed Measures. The ACO GPRO tool, a new tool based on the data collection tool currently used in the PQRS group practice reporting option, would facilitate ACO submission of laboratory results and other clinical information.

For measures with GPRO listed as the method of data collection, CMS plans to utilize a sampling methodology modeled after the methodology currently used in the 2011 PQRS GPRO I. For the purposes of the GPRO tool, assigned beneficiaries would be limited to those Medicare fee-for-service beneficiaries assigned to the ACO. CMS also plans to provide each ACO with access to a database (the GPRO data collection tool) that will include a sample of its assigned beneficiary population and the GPRO quality measures. CMS will pre-populate the data collection tool with the assigned beneficiaries’ demographic and utilization information based upon their Medicare claims data. CMS intends to use future rulemaking to update quality date submission requirements.

Setting Quality Performance Standards. CMS proposes to set defined quality performance standards for each Measure. For the first year of the SSP, CMS proposes that it will only require ACOs to submit data on each Measure and will not specify the quality performance standard for such Measures. CMS contends that setting the quality performance standard for the first year of the SSP at full and accurate reporting allows ACOs to ramp up, invest in their infrastructure, engage ACO providers/suppliers, and redesign care processes to capture and provide data back to their ACO providers/suppliers to transform care at the point of care. It also provides CMS with the opportunity to learn about the process, establish and refine benchmarks on ACO reported data, and establish improvement targets using data reporting.

CMS plans to utilize actual performance on the reported Measures to raise the quality performance standard requirements beginning in the second program year. Such standards would be based on a Measure’s scale with a minimum attainment level. CMS considered two alternative options for setting quality performance standards: rewards for better performance (Performance Score Approach), and a minimum quality threshold (Threshold Approach). The Performance Score Approach rewards ACOs for better quality with larger percentages of shared savings; while the Threshold Approach allows full shared savings if the ACOs meets minimum standards for quality. Both approaches are described in detail in the Proposed Rule. However, CMS proposes to use only the Performance Score Approach and seeks comment regarding the Threshold Approach. CMS believes that the Performance Score Approach is consistent with the ACA, which requires CMS “seek to improve the quality of care furnished by ACOs over time by specifying higher standards, new measures, or both for the purposes of assessing such quality of care.”

Under the Performance Score Approach, CMS would use quality performance benchmarks and minimum attainment levels to arrive at a total performance score for an ACO. The scoring methodology is described in detail below.

Scoring Methodology. CMS will score each ACO based upon data collected for each Measure. Generally, the ACO’s performance on each Measure will be rolled up into a score for each Domain. The percentage of points earned for each Domain will be averaged to arrive at a single percentage that will be applied to determine the sharing rate for which the ACO is eligible.

Calculating Quality Points for Each Measure. Measures 35 and 52 in Table 1 include diabetes and coronary artery disease composite Measures that CMS proposes to score using an “all or nothing” scoring. CMS proposes that Measures designated as all or nothing Measures receive the maximum available points only if all criteria are met, and zero points if at least one of the criteria is not met. CMS defines "all or nothing" scoring to mean all of the care process steps and expected outcomes for a particular beneficiary with the target condition must be achieved to score positively. This means all five submeasures within the diabetes composite and all five submeasures within the CAD composite would need to be reported in order to earn points for these two composite measures. The intent of all or nothing scoring is to signal to providers that failing to perform any element of a process is unacceptable and will result in a zero score for quality for that Measure. CMS believes that incorporating all or nothing scoring concepts into the ACO quality performance standard would provide greater insight into the use of these methodologies, drive ACOs to aggressively improve their population's health, and encourage future development of composite measures.

For other Measures, an ACO will earn quality points based upon its achievement of CMS’ proposed performance benchmarks and minimum attainment levels as set forth in Table 3 of the Proposed Rule (

CMS proposes to set benchmarks and minimum attainment levels using Medicare fee-for-service claims data, the Medicare Advantage (MA) quality performance rate, or, where appropriate, the corresponding percent performance rates that an ACO will be required to demonstrate. Benchmark and minimum attainment levels for such measures would be made available to ACOs prior to the start of the SSP and each annual performance period thereafter so ACOs will be aware of the benchmarks they must achieve to receive the maximum quality score. In future performance years, CMS plans to raise the benchmarks using actual ACO performance data.

CMS is considering setting the initial minimum attainment level for both one-sided and two-sided shared savings models at 30 percent or the 30th percentile of Medicare fee-for-service or the MA rate, depending on what performance data are available. Performance below the minimum attainment level would earn zero points for that Measure.

Calculating the Performance Score for Each Domain. CMS proposes each Domain would be worth a pre-defined number of points based on the number of individual Measures within the Domain, as shown in Table 4 ( A maximum of two points per Measure could be earned under both the one-sided and two-sided model.

CMS plans to divide the total quality points earned for each Measure in a Domain by the total number of points available in that Domain to calculate the percentage of points an ACO earns in each Domain. CMS then proposes to average the quality Domain percentages into a single overall ACO percentage score. The resulting ACO percentage score would be used to calculate the ACO’s final sharing rate for purposes of determining shared savings or shared losses.

As discussed above, for the first year of the SSP, CMS proposes that it will only require complete and accurate reporting on each Measure; therefore quality scoring is calculated for informational purposes only. Thus, under the one-sided model, CMS proposes that an ACO would receive 50 percent of shared savings (provided that the ACO achieves sufficient cost savings) if the ACO provides 100 percent complete and accurate reporting on all quality Measures listed in Table 1. Under the two-sided model, ACOs would receive 60 percent of shared savings (provided that the ACO realizes sufficient cost savings) if the ACO provides 100 percent complete and accurate reporting on all quality Measures listed in Table 1.

In subsequent years, the average of the Domain percentages would be used to calculate the ACO’s final sharing rate. CMS weights each Domain equally. Therefore, the relevant percentage is not the percentage of the total potential points earned, but the average of the percentages for each Domain. For example, using the sample data set forth below, there are 130 available points, and the ACO earned a total of 102.7 points, or 79.0 percent. However, the average of the percentage earned in each Domain is 67.38 percent. As a result, the ACO would only receive 67.38 percent of the eligible total shared savings (if any) (e.g. 67.38 percent of the possible 50 percent for the one-sided model; and 67.38 percent of the possible 60 percent for the two-sided model).

Sample Calculation



Table 1 Measures

Total Potential Points Per Domain

Actual Points Earned

Percentage of Domain Points

1. Patient/Caregiver Experience

1 - 7 (7 measures)



52.9 percent

2. Care Coordination

8 - 23 (16 measures)



88.0 percent

3. Patient Safety

24 - 25 (2 measures)



25.0 percent

4. Preventive Health

26 - 34 (9 measures )



91.0   percent

5. At-Risk Population/ Frail Elderly Health

35 - 65 (31 measures)



80.0 percent

Average of Domain Scores

67.38 percent



Total Potential Shared savings

ACO Quality Score (percent)

Total Shared Savings

One Sided Model

50 percent

67.38 percent

33.69 percent

Two Sided Model

60 percent

67.38 percent

40.43 percent

Under both the one-sided and two-sided shared savings models, the quality Measures Domain scoring methodology treats all Domains equally regardless of the number of Measures within the Domain. However, the total potential for shared savings will be higher under the two-sided model, since the maximum potential shareable savings based on quality performance is 60 percent of the savings generated, compared to 50 percent under the one-sided model.

Failure to Report or Perform. CMS proposes that if an ACO fails to report one or more Measures, CMS would send the ACO a written request to submit the required data by a specified date and provide a reasonable written explanation for the ACO’s delay in reporting the required information. If the ACO fails to report by the requested deadline and does not provide a reasonable explanation for delayed reporting, CMS will immediately terminate the ACO for failing to report quality Measures. ACOs that exhibit a pattern of inaccurate or incomplete reporting or fail to make timely corrections following notice to resubmit may be terminated from the SSP.

CMS may also declare an ACO ineligible to receive shared savings if the ACO fails to meet minimum quality expectations. However, how this occurs is somewhat unclear. In Section II.E.2.c. of the Proposed Rule, CMS states as follows:

ACOs that do not meet the quality performance thresholds for all proposed measures would not be eligible for shared savings, regardless of how much per capita costs were reduced. Specifically, in those instances where an ACO fails to meet the minimum attainment level for 1 or more quality domains, we propose to give the ACO a warning and to re-evaluate the following year. If the ACO continues to underperform on the quality performance standards in the following year, the ACO agreement will be terminated. [emphasis added]

As discussed above, CMS is considering setting the initial minimum attainment level for each Measure(except all or nothing Measures) at 30 percent or the 30th percentile of Medicare fee-for-service or the MA rate, depending on what performance data are available. Performance below the minimum attainment level would earn zero points for that Measure. However, the Proposed Rule does not describe how CMS plans to set minimum attainment levels for each Domain. Thus, it is unclear whether the failure to achieve the minimum attainment level in a single Measure would trigger ineligibility for shared savings.

Incorporation of PQRS Reporting Requirements. CMS provides multiple incentive payment options for providers to report and use clinical information more proactively in their practices. The ACA gives CMS authority to incorporate reporting requirements and incentive payments from these programs into the SSP, and to use alternative criteria to determine if payments are warranted. CMS proposes to incorporate certain reporting requirements and payments related to the PQRS into the SSP for certain eligible professionals" within an ACO.

CMS proposes to incorporate a PQRS group practice reporting option (GPRO) under the SSP and further proposes that the eligible professionals that are ACO participant providers/suppliers would constitute a group practice for purposes of qualifying for a PQRS incentive under the SSP. Specifically, eligible professionals would be required to submit data through the ACO on the quality Measures proposed in Table 1 using the GPRO tool and methodology to qualify for the PQRS incentive under the SSP. CMS proposes that the ACO would report and submit data on behalf of the eligible professionals in an effort to qualify for the PQRS incentive as a group practice; that is, eligible professionals within an ACO would qualify for the PQRS incentive as a group practice and not as individuals.

With regard to the requirements for satisfactory reporting for purposes of earning the PQRS incentive under the SSP, CMS proposes to incorporate certain aspects of the criteria for satisfactory reporting under the 2011 PQRS GPRO I option (75 FR 73506), with a few modifications. In particular, CMS proposes for purposes of the PQRS incentive for the first performance period under the SSP for an ACO to report on all measures on behalf of its eligible professionals for the ACOs assigned beneficiaries.

Accordingly, eligible professionals within an ACO that satisfactorily report the Measures proposed in Table 1 during the reporting period would qualify under the SSP for a PQRS incentive equal to 0.5 percent of the ACO's eligible professionals' total estimated Medicare Part B fee-for-service allowed charges for covered professional services furnished during the first performance period. "Covered professional services" are services for which payment is made under, or based on, the physician fee schedule and which are furnished under the ACO participant's taxpayer identification number.

CMS plans to align the incorporated PQRS requirements with the general SSP reporting requirements, such that no extra reporting is actually required in order for eligible professionals or the ACO to earn the PQRS incentive under the SSP. Thus, for ACOs that meet the quality performance standard under the SSP for the first performance period, the PQRS eligible professionals within such ACOs will be considered eligible for the PQRS incentive under the SSP for that year.

Failure to meet the SSP quality performance standard would result in failure to be considered eligible for shared savings, as well as failure for the eligible professionals within the ACO to receive a PQRS incentive under the SSP for that year. ACO participant provider/suppliers who meet the quality performance standard but do not generate shareable savings would still be eligible for PQRS incentive payments.

CMS intends to discuss the policy for incorporating the PQRS incentive under the SSP for subsequent years in future rulemaking. CMS noted that ACOs will be eligible for the PQRS incentive under the SSP to the extent that they contain eligible professionals as defined under 42. C.F.R. § 414.90(b). As a result, not all ACOs will necessarily be eligible for the PQRS incentive under the SSP.

Public Reporting. CMS contends that it is desirable and consistent with the ACA for several aspects of an ACO's operation and performance to be transparent to the public. CMS also asserts that public reporting of ACO cost and quality Measure data would improve a beneficiary's ability to make informed health care choices, and facilitate an ACO's ability to improve the quality and efficiency of its care by making available information that enables ACO professionals to assess their performance relative to their peers, and creates incentives for those professionals to improve their performance.

CMS proposes that certain information regarding the operations of ACOs be subject to public reporting to the extent administratively feasible and permitted by law. Specifically, CMS proposes that the following information regarding the ACO be publicly reported: (1) name and location; (2) primary contact; (3) organizational information (including ACO participants, identification, any joint venture, and representatives on governing body); (4) shared savings information (including SSP payments received by ACOs or losses paid to CMS and total proportion of shared savings invested in infrastructure); and (5) quality performance standard scores.

CMS is proposing that each ACO be responsible for making this information available to the public in a standardized format that CMS will make available through subregulatory guidance. This requirement would be included in each ACO's three-year agreement.

Determination of Shared Savings and Losses

The determination of the payment of shared savings or losses will be a key component in incentivizing provider behavior and the formation of ACOs. Organizations considering participation in the SSP as an ACO or an ACO participant will want to understand the mechanics of how the shared savings and shared losses are determined and whether they believe they can successfully achieve savings under the SSP.

Overview of Financial Structure. Under the Proposed Rule, ACO participants will continue to bill the Medicare program for their fee-for-service payments as they do currently. Medicare payments will be made directly to the ACO participant, not to the ACO, based on the claims and services each ACO participant provides.

The ACO itself, as opposed to ACO participants, will be paid the shared savings which the ACO earns and to which it is entitled or be responsible for any shared losses the ACO suffers. The ACO’s contractual arrangements with its ACO participants must address how the ACO participants and providers/suppliers will share in the shared savings payments or be responsible for the losses (including any repayment obligations) incurred, but the Proposed Rule contains no specification as to how savings or losses may be shared.

CMS has proposed that any ACO must be prepared to take not only the upside of shared savings but also some downside risk to participate in the SSP. CMS has concluded that merely providing an upside reward for efficient performance “may not be enough of an incentive for participants to improve the efficiency of health care delivery and cost.”

In recognition of the fact that many wishing to develop ACOs may not be prepared to take downside risk immediately, CMS proposes to offer ACOs a choice of two options or tracks for participation, which differ on how quickly the ACO will accept the downside risk. Under one option, the one-sided model (Track 1), an ACO may receive an upside bonus of any shared savings for the first two of the three-year performance period, and in the third year the ACO must share in the losses as well. Under the second option, the two-sided model (Track 2), in each of the three performance years, an ACO has a potential upside of sharing in the savings but also is responsible to share in losses. The two-sided model (Track 2) provides for an ability to receive a higher percentage of the shared savings as well as certain other adjustments in exchange for taking downside risk from the start of the three-year performance period.

An ACO will want evaluate its readiness and confidence that it can deliver efficient and quality care in deciding between the one-sided Track 1 or the two-sided Track 2. Track 1 is made available to permit a two-year transition period before there is a downside risk in the third year to assist organizations that may not be ready to take on the downside risk at the start of their participation. Track 2 is a suitable option for organizations that are well financed and already have experience with accepting downsize risk, since there is no transition period.

CMS proposes to determine the shared savings and losses through a process involving the following steps:

  • Expenditure Benchmark. Establish a Medicare Part A and Part B per capita expenditure benchmark for beneficiaries assigned or who would be assigned to the ACO.
  • Actual Medicare Costs Incurred for Beneficiaries Assigned to the ACO. Compare the benchmark to actual per capita Medicare expenditures of the ACO assigned beneficiaries in each of the three years during the performance period.
  • Minimum Savings Rate. Establish a minimum savings rate (MSR) that must be met or exceeded for the ACO to be entitled to a sharing of savings. The MSR is intended to account for normal variations in expenditures based on the number of beneficiaries assigned.
  • Floor. Set a floor in certain instances of the amount above which savings are shared. The Floor does not apply in all instances.
  • Percentage of Savings to Be Shared With ACO. Determine a sharing rate, namely the percentage of the realized savings above the Floor (if a Floor is applicable) that is to be paid to the ACO. This sharing rate will vary depending upon the quality performance of the ACO and whether the ACO has Federally Qualified Health Centers (FQHC) and Rural Health Center participation.
  • Cap. Set a cap on amount of the shared savings that may be paid to an ACO.
  • Losses. Determine how losses are to be allocated among ACOs when they are responsible for losses.
  • Mechanism to Ensure Repayment. If there is a loss, establish a mechanism to ensure repayment from the ACO.

Each of these factors requires consideration of a number of issues.

Establishment of the Expenditure Benchmark. Establishment of the expenditure benchmark requires consideration of many matters. ACA required CMS to estimate a benchmark for the ACO based on the most recent available three years of per-beneficiary Medicare expenditures under Part A and Part B for Medicare beneficiaries assigned to the ACO. This is complicated by the fact that beneficiaries will be assigned to the ACO retroactively.

The expenditure benchmark is also to be adjusted for beneficiary characteristics, updated for growth in national per capita expenditures for Parts A and B as estimated by CMS, and reset at the start of each three-year CMS agreement period.

Beneficiary Data Based on Beneficiaries Assigned in the Last Three Years. As noted above, CMS proposes that beneficiaries are assigned to an ACO retroactively based on the ACO in which a particular primary care physician is a participant who provided a plurality of the primary care services to Medicare beneficiaries. In order to establish an expenditure benchmark, CMS proposes to set an ACO’s expenditure benchmark based on Parts A and B Medicare fee-for-service expenditures who would have been assigned to the ACO in each of the three years prior to the start of the three-year performance period based on actual claim records for primary care services of those Medicare beneficiaries who had a plurality of their claims performed by ACO participating primary care physicians. That is, based on the known primary care physician participants of an ACO, CMS reviews claims data for each such primary care physician for the three-year period prior to the start of the ACO three-year agreement period and determines a per capita expenditure benchmark based on the expenses of patients who received a plurality of their services from such primary care physicians. The expenditure benchmark is stated as an average per capita amount.

Trending. Since the method utilizes three years of historic expenditures, CMS proposes to determine a growth index and trend to apply to the benchmark expenditure for the last year of the three-year benchmark period to take account of projected national per capita increases in expenditures. To do this, CMS proposes to trend the historic expenditures using growth rates in per beneficiary expenditures for Parts A and B services. The same growth rate will be used across all geographic areas; CMS proposes no regional variations in setting the trend.

Similarly, in the second and third years of the three-year performance period, CMS proposes to update the expenditure benchmark using the projected absolute amount of growth in national per capita expenditures, which it will apply to adjust the expenditure benchmark each year of the three-year agreement.

Adjustments for Beneficiary Characteristics. The goal of the SSP is to improve the efficiency and quality of health care. But, changes in certain characteristics of beneficiaries assigned to an ACO may also affect expenditures. As such, the ACA has required adjustments for beneficiary characteristics, such as health status.

CMS proposes to make adjustments to the expenditure benchmark for beneficiary characteristics based on a methodology that incorporates diagnostic information of the beneficiaries assigned to an ACO. CMS specifically proposes to use the CMS hierarchical condition categories (CMS-HCC) prospective risk adjustment model, used in the Medicare Advantage Program. Under the CMS-HCC, ACOs with healthier patients will receive a smaller increase and those with sicker patients receive a larger increase.

In the CMS-HCC model, in addition to demographic variables, the adjustment takes into account the beneficiaries’ prior year diagnoses to develop risk scores applied to current year expenditures. To avoid incentives to increase the intensity of coding, CMS proposes to use a specific benchmark risk for the adjustment for each ACO. This single risk score will be used by applying the CMS-HCC model to the assigned beneficiary population attributed to an ACO in each year of the three-year benchmark period.

Other Adjustments. The ACA also authorizes CMS to make adjustments to the benchmark expenditure (but not adjustments to the actual costs during the performance period) for other factors determined by CMS. In the Proposed Rule, CMS proposes to consider the impact of Indirect Medical Education (IME) that teaching hospitals receive, Medicare Disproportionate Share Adjustments (DSH) payments and geographic payment adjustments. CMS also proposes to make adjustments for bonus payments and/or penalties under such initiatives as the PQRS and relating to the adoption of EHR under the HITECH Act. Each of these programs may lead to the difference in expenditures in the benchmark period as compared to the performance period, and thus, affect whether savings are realized.

In the Proposed Rule, with respect to IME, DSH, and geographic payment adjustment payments, CMS does not propose to remove these payments from per capita costs in setting the benchmark expenditures or make any other adjustment to reflect them. Such items may affect the setting of benchmark levels and, to the extent they continue to exist, they also will affect the actual costs compared to them. It is recognized that if such items are not continued by ACO participants throughout the three-year performance period, the ACO may achieve savings because such expenditures are no longer applicable.

With respect to bonus payments and penalties for PQRS and EHR and meaningful use, CMS states it has authority to make adjustments for both setting the benchmark and in measuring the actual expenditures. As such, it proposes to not include incentives or penalties for these initiatives in calculating an entitlement to shared savings in either the benchmark or in measuring actual expenditures.

MSR, Floor, and Sharing Rate

MSR. Under the ACA, ACOs are eligible to receive shared savings only if the savings are a certain percentage below the benchmark. Such percentage is to be determined “to account for normal variation from expenditures . . . based upon the number of Medicare free-for-service beneficiaries assigned to an ACO.” CMS refers to this percentage as the MSR.

The MSR serves as a savings rate that must be met before there may be any shared savings earned or paid. If the MSR is met, shared savings are available; if it is not, no savings may be shared.

CMS proposes to have a different MSR depending on whether ACO is in Track 1 or Track 2, (which includes the third year of Track 1 when down-side risk of the losses is required).

In Track 1, CMS proposes a sliding scale MSR that varies with the exact number of beneficiaries assigned to the ACO. Table 6 in the Proposed Rules ( shows how the MSR will vary with the number of beneficiaries.

In Track 2, CMS proposes a flat two-percent MSR.

Floor. CMS also proposes for Track 1 that there be a two-percent Floor, calculated as two percent of the benchmark expenditure as the benchmark is updated. If an ACO meets its MSR, it will share savings above that Floor. For Track 2, there is no Floor; if the MSR is exceeded, the ACO shares savings from the first saved dollar.

CMS proposes that certain ACOs are exempt from the Floor to encourage the inclusion of providers servicing areas or populations experiencing accessibility challenges. The ACOs exempt from the Floor are those that, in the most recent year for which there is complete claims data, had 10,000 or fewer assigned beneficiaries and that met one of the following factors:

  • The ACO is composed only of ACO professionals in group practice arrangements or groups of individual practices of ACO professionals
  • Seventy-five percent (75 percent) or more of the assigned beneficiaries in the ACO reside in counties outside a Metropolitan Statistical Area in the most recent year for which there is complete claims data
  • Fifty percent (50 percent) or more of the ACO’s assigned beneficiaries were assigned to the ACO on the basis of primary care services received from a Medicare II Critical Access Hospital
  • Fifty percent (50 percent) or more of the ACO’s assigned beneficiaries had at least one encounter with an ACO participant FQHC and/or Rural Health Center in the most recent year for which there is complete claims data

Sharing Rate. CMS proposes that, for Track 1, ACOs receive up to 50 percent of the savings (the actual percentage, which is up to 50 percent depending on the quality performance of the ACO in meeting the criteria for five domains) over the two-percent Floor (if it is applicable), with the possibility of additional 2.5 percentage points share (up to 52.5 percent) based on FQHC and RHC participation as described in the next section.

In Track 2, in exchange for taking a risk of losses, the sharing rate is up to 60 percent (the actual percentage up to 60 percent depends on the quality performance of the ACO in meeting the criteria for the five domains), with the possibility of an additional 5.0 percentage point share (up to 65 percent) based on FQHC and RHC participation.

FQHC and/or RHC Participants: Higher Sharing Rate. As noted above, in Track 1, an ACO can raise its share of savings above the Floor during the first two years if the ACO has a strong FQHC or RHC participant presence.

In Track 1, up to a 2.5 percentage point increase in the sharing rate of the ACO may be made from the ACO that includes FQHCs or RHCs. A sliding scale based on the number of Medicare fee-for-service beneficiaries with one or more visits to an ACO’s participant FQHC or RHC during the performance year, determines what percentage point increase up to the 2.5 is available.

Table 7 of the Proposed Rule ( shows the sliding scale.

In Track 2, the scale goes up to 5.0 percentage points instead of 2.5 percentage points.

CMS also would like to encourage participation of dual eligible Medicare and Medicaid beneficiaries and seeks comment on how to invite their participation in an ACO.

Cap. As the cap on the amount that an ACO is entitled to share, CMS proposes 7.5 percent of the ACO’s benchmark for an ACO that elected Track 1. In Track 2, CMS proposes a cap of 10 percent of the ACO’s benchmark. No payment of shared savings will be made to an ACO in excess of its cap.

Quality May Affect Percentage Share. We have discussed the availability of additional payments based on quality performance standards in Section 2.4 above. For Track 1, the amount to be shared is up to 50 percent, with the actual percentage based on performance on the quality domains with each domain equally weighed. CMS proposes in Track 2 that there would be a potential 60 percent sharing rate, with the actual percentage dependent upon performance on the quality domains with each domain equally weighed. So, high performers in quality savings would have a higher percentage share than lower quality performers.

Sharing of Losses. As noted above, CMS proposes in the third year of Track 1 and in all three years of Track 2 that an ACO is responsible to share in losses measured by actual costs in excess of the benchmark.

CMS proposes a similar methodology for sharing in losses that is similar to the methodology for sharing in savings. For example, CMS suggests there be a minimum loss rate (equivalent to the MSR for the sharing of savings), a shared loss cap (equivalent to the cap for the sharing of savings), and adjustments to the shared loss percentage based on the ACO’s quality performance and FQHC and/or RHC participation.

If expenditures exceed the benchmark by more than the minimum loss rate, then the ACO will share in the losses. The percentage sharing depends on meeting the quality criteria. CMS has proposed a minimum loss rate of two percent, and the percentage share of losses to be calculated as one minus the applicable shared savings rate (which has been adjusted for performance quality scores and FQHC and/or RHC participation).

CMS also proposes a maximum loss sharing cap. It proposes that the loss sharing cap be five percent of the benchmark in the first year of the SSP, 7.5 percent in the second year and 10 percent in the third year with the percentage applied to the expenditure benchmark. For Track 1, in the third year where losses are possible, the loss sharing cap is five percent.

Repayment of Losses. To ensure repayment of potential losses, CMS proposes to withhold 25 percent of any shared savings payment made until the end of the three-year performance period. That is, 25 percent of any shared savings payment earned by an ACO will be held by CMS to ensure repayment of losses that the ACO may bear in the future years of the contract. Any amount not needed to offset losses would be returned to an ACO that completes participation through the three-year period (but is forfeited if the ACO does not complete such participation).

As additional assurance of repayment of losses by an ACO in Track 2, CMS proposes to require the ACO to undertake one of the following methods: (1) obtain reinsurance; (2) place additional funds in escrow; (3) obtain a surety bond; (4) establish a line of credit on which Medicare can draw; or (5) establish another repayment mechanism.

The ACO would be required to submit documentation of such repayment mechanism to CMS for approval. ACOs that elect Track 1 would be required to provide such assurance for the third year of its agreement with CMS when it shares losses.

Summary of Shared Savings Determination

Table 8 in the Proposed Rule ( summarizes the payments related to the SSP.

Other Provisions

Future Participation of Those With a Three-Year Net Loss. If an ACO experiences a net loss during the three-year period, CMS proposes it may not reapply to participate in the SSP. An ACO that cannot bring costs in below the benchmark over the entire three-year contract period is precluded from participation in future years.

Public Reporting. It is proposed that each ACO be required to report publicly on its performance under the SSP. Such reporting requires disclosure of the amount of savings paid or losses suffered by the ACO.

State Insurance Law. CMS also raises the possibility that Track 2, with its requirement that ACOs be obligated to make repayments if the cost of actual care exceeds the benchmark, may trigger risk sharing and thus constitutes the business of insurance under state insurance laws. If the business of insurance is present, a state insurance license with surplus requirements and reporting may be required. CMS solicits comments on how CMS may be able to work with ACOs and states to minimize the burden of any additional regulations.

Verification of Savings and Losses. CMS proposes that an ACO must submit a written request for a shared savings payment and in it must certify the accuracy, completeness and truthfulness of the information justifying the payment. Also, the written report must certify the ACO’s compliance with program requirements, and all information submitted by the ACO and by its participants. The various certifications to obtain payment would bring with them compliance obligations to ensure accuracy of the certifications. Losses must be paid within 30 days of a receipt of notice.

Participation in Other CMS Shared Savings Initiatives. In the Proposed Rule, Medicare providers and suppliers who participate in the independent at home medical practice pilot program, any model tested or expanded under Section 1115A of the Social Security Act (establishing the Center for Medicare and Medicaid Innovation) that involves shared savings, or any other Medicare initiative that involves shared savings, will not be allowed to participate in an ACO. CMS’ goal is to avoid duplicate shared savings payments.

Request for Comments

Interested parties desiring to influence the final CMS rule are encouraged to submit comments on the Proposed Rule. Comments must be received by CMS no later than 5:00 p.m. on June 6, 2011 to be considered. Comments may be submitted to CMS by one of the following methods outlined in the Proposed Rule: electronically; by regular mail; by express or overnight mail; or by hand or courier. 

Legal News Alert is part of our ongoing commitment to providing up-to-the-minute information about pressing concerns or industry issues affecting our health care clients and colleagues. If you have any questions about this alert or would like to discuss this topic further, please contact your Foley attorney or any of the following individuals:

C. Frederick Geilfuss II
Milwaukee, Wisconsin

Maria E. Gonzalez Knavel
Milwaukee, Wisconsin

Maureen F. Kwiecinski
Milwaukee, Wisconsin

Lawrence B. Litwak
Boston, Massachusetts

Shilpa S. Patel
New York, New York

R. Michael Scarano Jr.
San Diego, California

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