CMS Announces Advance Payment ACO Model for Accountable Care Organizations Participating in the Medicare Shared Savings Program

24 October 2011 Publication
Author(s): C. Frederick Geilfuss II Chris E. Rossman

Legal News Alert: Health Care

On October 20, 2011, the Centers for Medicare and Medicaid Services (CMS) released final regulations concerning the Medicare Shared Savings Program (MSSP) utilizing Accountable Care Organizations (ACOs). The final regulations contain several significant changes from the widely criticized proposed rule issued earlier this year. (See Foley’s October 4, 2011 Legal News: Health Care at This Alert is the first in a series of discussions that will address the final MSSP regulations as well as related documents, including the joint CMS/Office of Inspector General Interim Final Rule With Comment Period addressing waivers of certain fraud and abuse laws, and the Federal Trade Commission/Department of Justice Antitrust Policy Statement.

On the same date, CMS, through the Center for Medicare and Medicaid Innovation (Innovation Center), issued a notice announcing the Advance Payment ACO Model. Under the Advance Payment ACO Model, certain eligible ACOs that participate in the MSSP may receive payments to support and fund initial costs of developing infrastructure and systems to participate in the MSSP. CMS’s stated goal is to remove financial barriers for certain smaller ACOs to encourage their participation in the MSSP.

ACOs that are applying for participation in the MSSP and that meet the eligibility criteria described below should consider filing an application for participation in the Advance Payment ACO Model. If such an ACO applies and is selected, the ACO will receive advances against future potential shared savings. If a selected ACO does not achieve shared savings, the ACO may not be responsible to repay the Advance Payment.

Available Funding. The Innovation Center has committed $170 million to the Advance Payment ACO Model. Of that amount, 60 percent will be available for eligible ACOs that begin participation in the MSSP on April 2012, with the remaining 40 percent to be available for those beginning in July 2012. CMS estimates that up to 50 ACOs will be available for funding.

Funding Method. The Advance Payment ACO Model offers three types of funding for eligible ACOs, with such ACOs eligible to receive each type of payment. The nature of the payments reflects that ACOs will have both fixed and variable start-up costs.

  • The first type is an upfront, fixed payment. This payment will be in the amount of $250,000 and will be paid in the first month of participation under the MSSP.
  • The second type is an upfront, variable payment. The amount of the payment will be determined by multiplying the number of preliminary, prospectively assigned beneficiaries to an eligible ACO by $36 and is paid in the first month of participation in the MSSP.
  • The third type is a monthly payment that varies with the size of the ACO. An ACO will receive a monthly payment throughout the agreement period determined by multiplying the number of preliminary, prospectively assigned beneficiaries by $8.

Eligibility for Advance Payments and Selection. The Advance Payment ACO Model is designed to assist certain ACOs for which the significant start-up and ongoing operating costs of participation in the MSSP are likely to constitute a significant financial barrier. The model reflects the belief that ACOs with limited access to capital will be those most in need of assistance.

As such, the Advance Payment ACO Model is only available to ACO applicants that are accepted for participation in the MSSP. Further, only two types of ACOs participating in the MSSP are eligible for advance payments. They are:

  • ACOs that do not include inpatient facilities and have less than $50 million in total revenue
  • ACOs in which the only inpatient facilities are critical-access hospitals or low-volume rural hospitals (defined at 42 U.S.C. § 1395 ww) and have less than $80 million in total annual revenue

Total revenue for this purpose means the average total annual revenue of all ACO providers and suppliers, on average over the most recent three-year period. ACOs co-owned with a health plan are ineligible for advance payment.

ACOs that meet these eligibility criteria will be reviewed and selected according to a rubric CMS has defined. In addition, ACOs are evaluated on the basis of how they intend to spend their advance payments, which must be specified in the application. The rubric favors ACOs with the least access to capital, ACOs that serve rural population, and ACOs that serve a significant number of Medicaid beneficiaries.

Recoupment. The Advance Payments will be recouped out of the savings the ACO generates in the MSSP. If there are insufficient savings to recoup the advance payments, CMS may recoup the payments out of savings under a second agreement. If the ACO does not enter a second agreement or the shared savings paid to the ACO are inadequate, CMS will not pursue amounts in excess of the earned shared savings.

CMS will, however, pursue full repayment from any ACO that does not complete the full, initial agreement period of the MSSP or if the ACO expends funds in a manner inconsistent with its approved use of the advance payment.


CMS continues to look to overcome barriers to participation in the MSSP. The Advance Payment ACO Model addresses one identified barrier for certain smaller ACOs participating in the MSSP that will have challenges accessing capital. Smaller ACOs that will meet the eligibility criteria will want to review the Advance Payment ACO Model and consider applying for it.

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

C. Frederick Geilfuss II
Milwaukee, Wisconsin

Lawrence B. Litwak
Boston, Massachusetts

Chris E. Rossman
Detroit, Michigan

Brandon O. Young
Milwaukee, Wisconsin

Torrey K. Young
Boston, Massachusetts

Lawrence C.Conn
Los Angeles, California

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