CMS Releases Final ACO Rules Implementing the Medicare Shared Savings Program

01 November 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 the final Accountable Care Organization (ACO) regulations (Final Rule) implementing the Medicare Shared Savings Program (MSSP) under Section 3022 of the Affordable Care Act. The Final Rule reflects CMS’s response to the comments it received regarding the proposed ACO regulations published on April 7, 2011 (Proposed Rule).

The Proposed Rule generally was not well received by potential ACOs. Based on this critical reception and the more than 1,300 comments CMS received, CMS has stated that the Final Rule makes “significant modifications to reduce [the] burden and cost for participating ACOs.”

Simultaneously with the issuance of the Final Rule, CMS and the Office of Inspector General of the Department of Health and Human Services jointly issued an interim final rule with an opportunity for comment, implementing waivers of certain fraud and abuse laws for those participating in the MSSP, and the Federal Trade Commission and Department of Justice jointly issued a final policy statement concerning antitrust guidance for those participating in the MSSP. Foley has issued separate Alerts covering the content of these other releases.

  • FTC and DOJ Issue Policy Statement for ACOs Participating in the Medicare Shared Savings Program, October 24, 2011 (
  • ACOs: OIG/CMS Waivers of Fraud and Abuse Laws, October 24, 2011 (
  • CMS Announces Advance Payment ACO Model for Accountable Care Organizations Participating in the Medicare Shared Savings Program, October 24, 2011 (

This Alert focuses on the changes made in the MSSP in the Final Rule from the provisions contained in the Proposed Rule. (A description of the Proposed Rule is available at

Establishing the Agreement With CMS

The Final Rule makes a variety of revisions to the Proposed Rule with respect to the participation agreements ACOs must have with CMS.

  • Options for start date of the first performance year. In response to concerns that a January 1, 2012 start date is not feasible, CMS has provided for two alternative start dates of the participation agreement in the first year, 2012, of the MSSP. An ACO may apply for either 1) an April 1, 2012 start date, in which case the first performance year will be 21 months, ending on December 31, 2013, or 2) a July 1, 2012 start date, in which case the first performance year will be 18 months, ending on December 31, 2013. In either case, the term of the agreement will be three performance years — including the longer first performance year — ending December 31, 2015.

    After completing the first performance year, an ACO will be evaluated based on quality metrics, and a shared savings payment will be calculated. An ACO will be eligible for Physician Quality Reporting System incentive payments for each calendar year in which it fully reports Group Practice Reporting Option measures, regardless of the start date.
  • Timing and process for evaluating shared savings. Shared savings determinations will be based on three-months claims run-out data, with the application of an appropriate completion percentage, to calculate the benchmark and per capita expenditures for the performance year. The Proposed Rule had included a six-month claims run-out to determine an ACO’s entitlement to a shared savings payment. The three-month run-out allows a quicker determination and more timely feedback to ACOs.
  • New program standards established during the agreement period. CMS has reserved the right to modify various requirements concerning the MSSP, even during an agreement term. ACOs will be held responsible for all regulatory changes in policy during the agreement, with the exception of eligibility requirements concerning the structure and governance of ACOs, calculation of the sharing rate, and beneficiary assignment. However, an ACO will be allowed to voluntarily terminate the agreement if regulatory standards are changed or established during the agreement period and the ACO believes those changes will impact its ability to continue to participate in the MSSP.
  • Managing significant changes to the ACO during the agreement. The Final Rule allows ACO participants and providers/suppliers to be added or subtracted during the agreement term. ACOs must notify CMS within 30 days of any such change. An ACO also must notify CMS within 30 days of any significant change, which is defined as an event that results in the ACO being unable to meet the eligibility or program requirements of the MSSP. A significant change may require an adjustment to a benchmark or may result in termination of the agreement (e.g., losing a large primary care practice that causes the ACO’s assigned patient population to fall below 5,000, which is the minimum number required for participation).
  • Coordination with other agencies. The Final Rule does not impose any mandatory antitrust review requirement and does not condition eligibility for participation in the MSSP on obtaining a letter from the antitrust agencies — the Federal Trade Commission and the Department of Justice — stating they have no intent to challenge the ACO. However, the ACO must agree to allow CMS to share the ACO’s MSSP application with the antitrust agencies. The antitrust agencies will offer voluntary expedited antitrust review of 90 days to any new ACO before it is approved to participate in the MSSP. The antitrust agencies will rely on existing enforcement processes for evaluating concerns regarding an ACO’s formation or conduct if the ACO is outside the safety zone established by the policy statement released by the antitrust agencies on October 20, 2011.

Eligibility and Governance

The Final Rule implements changes that enlarge the pool of entities eligible to form ACOs, lowers the administrative burdens for participation, and clarifies provider mobility between, and relationships with, multiple ACOs.

  • Provider exclusivity to single ACO is limited. A key clarification reflected in the Final Rule relates to the ability of participants and providers/suppliers to change ACOs or participate in more than one ACO. Because beneficiaries are assigned and incentive payments are determined based on primary care services received — based on billing Tax Identification Number (TIN) — coupled with some confusing statements in the Proposed Regulations, many commenters concluded that ACO primary care practitioners had to be exclusive to a single ACO for the three-year agreement period. In the Final Rule, CMS has clarified that this exclusivity requirement was not intended as a blanket rule for all primary care providers; instead, it would only apply where the provider is using his or her own TIN to bill and upon which assignment of a beneficiary is based. The practical effect of this is that providers billing through the different TINs of one or more group practices could participate in multiple ACOs; however, solo practitioners — including specialists who provide primary care services upon which beneficiary assignment is based — billing under their personal TIN would need to be exclusive to a single ACO.
  • FQHCs and RHCs as full participants. FQHCs and RHCs received some good news in the Final Rule. While always able to participate in ACOs organized by others entities, they could not form their own ACOs and their primary care services could not be the basis for beneficiary assignment. CMS has now reversed course and determined it has the technical means to identify primary care services provided by an FQHC or RHC. The practical effect is that FQHCs and RHCs may now create their own ACOs. In addition, their primary care services may serve as the basis for beneficiary assignment, either to their own ACO or one in which they participate. CMS clarified that entities organized under federal or tribal laws also may participate in the MSSP.
  • Administrative burdens lessened. CMS has reduced many of the governance and administrative burdens for participating ACOs. The highlights of these changes include:
    • There is no longer a requirement that each participant in an ACO have a seat at the governing body table. Instead, CMS will require that each ACO participant, or its designated representative, be afforded meaningful participation in the composition and control of the ACO’s governing body. At the same time, CMS also abandoned the proposed requirement that control of the governing body by participants occur on a proportionate basis.
    • While CMS finalized the requirement that at least 75 percent of the persons on an ACO’s governing body come from participants in the ACO, and that there be at least one Medicare beneficiary serviced by the ACO on the governing body, it also injected some flexibility. Where one or both of these requirements cannot be met, the ACO in its application must include a description of how the proposed governing structure would involve the ACO’s participants in innovative ways and how the ACO would provide a meaningful opportunity for Medicare beneficiary participation. CMS will assess each alternative ACO structure to determine if it is a suitable alternative to the requirements.
    • The medical director no longer must be full-time; however, he or she must still come from one of the ACO’s participants. Additionally, the suite of clinical and administrative documents required to be submitted with an ACO application has been simplified and streamlined.

Assignment of Beneficiaries

The Final Rule now clarifies certain key aspects of beneficiary assignment to ACOs and also makes some changes to facilitate the independent participation by FQHCs and RHCs.

  • Expansion of qualifying primary care service providers. Key changes have been made in the Final Rule regarding how beneficiaries are assigned to an ACO. Instead of the proposed methodology for beneficiary assignment where the assignment was retroactively made based on primary care services delivered by primary care physicians, CMS has created a two-step process for assignment and allows for limited-specialists services to be the basis for assignment.

    Step 1: Identifies beneficiaries who have received at least one primary care service from a primary care physician in an ACO and assigns beneficiaries to an ACO based on this data. If the beneficiary received such services from multiple physicians in an ACO or in different ACOs, then the ACO that provided the greatest amount of primary care services to the beneficiary, based on allowed charges, drives beneficiary assignment. However, no assignment to any ACO is made where a greater amount of such services was received from a primary care physician who does not participate in an ACO.

    Step 2: This step is resorted to only when it is not possible to identify any primary care services rendered to a beneficiary by a primary care physician, whether occurring inside or outside of an ACO. If no such services are identified, then assignment will occur if the beneficiary has received at least a single primary care service from any physician (including specialists) in an ACO during the year. Assignment is made to the ACO having the greatest amount of billed charges for primary care services, and no assignment is made where the plurality of primary care services is received from providers (including physician extenders) who are not affiliated with any ACO.
  • Looking forward and backward on assignment. Another important change made in the Final Rule is that assignment will no longer occur only on a retrospective (look-back) basis. Instead, the Final Rule provides that prospective assignment will occur followed by a reconciliation process at the end of each performance year. ACOs will now be advised in a preliminary manner each year that beneficiaries are tentatively in their ACO, based on 12 months of historical data, which is then updated quarterly based on a rolling 12-month period. At the end of each performance year, the beneficiaries will be definitively assigned (if at all) based on data from the full performance year. This means that some beneficiaries expected to be in an ACO during the year could be assigned elsewhere at the end of the year based on primary care service patterns; however, the Final Rule does provide some early indicia of which beneficiaries are likely to be assigned to the ACO as the year progresses.
  • FQHC and RHC claims data acceptance. CMS will now permit FQHCs and RHCs to participate independently and for their primary care services to be considered for purposes of assignment. CMS was hesitant in the Proposed Rule to allow such participation, as FQHC and RHC claims contain minimal data to facilitate identification of the primary care services and the rendering physician. In the Final Rule, however, CMS has determined that it will be able to identify primary care services on FQHC and RHC claims by cross-walking the revenue codes on the claims to the list of primary care service HCPCS codes listed in the regulations.

    An additional challenge that CMS faced is that FQHC and RHC claims do not identify performing providers, but instead list the attending provider’s NPI number. Because of this, FQHCs and RHCs are required to provide to CMS an attestation listing the NPI numbers of those physicians who provide direct primary care services to patients at the FQHC or RHC — and not only supervision. For purposes of beneficiary assignment, CMS will consider all primary care services listed on a claim where the attending physician NPI number on the claim is also listed on the attestation — including where the attending physician is a specialist.

Financial Structure: Sharing of Savings and Losses

The Final Rule makes a number of changes in the financial structure of the MSSP, most notably eliminating the obligation of an ACO to take down-side risk. The Final Rule makes it more likely that participating ACOs will receive a share of the Medicare Part A and Part B Savings and, if entitled to share in the savings realized, participating ACOs will receive a higher amount of savings. Among the changes to the financial structure of the Final Rule are:

  • No obligation to take down-side risk in one-sided model. One of the most controversial provisions in the Proposed Rule was the requirement that all ACOs bear down-side risk, including those in the one-sided model beginning with the final year of their initial agreement. Perhaps the most significant change made in the Final Rule is that an ACO may elect to participate in a three-year agreement in the MSSP without taking any down-side risk. The Final Rule eliminates the down-side risk in the final year of the first agreement for ACOs electing the one-sided model. That is, there is no sharing of losses in that first agreement. If the ACO renews for a second agreement, then the ACO will be obligated to take down-side risk, sharing with CMS in any losses. But, an ACO need not elect to renew its participation in the agreement.

    As in the Proposed Rule, ACOs that are more advanced may elect the two-sided model in which they share losses in each year of the first agreement and in exchange receive a higher share of savings.
  • Net loss during first agreement does not preclude further participation. The Final Rule also allows ACOs that have a net loss in their first three-year (or three plus years) agreement to renew their participation. This was not permitted in the Proposed Regulations.
  • Sharing is from the first dollar of savings. In the Proposed Rule, ACOs participating in the one-sided model that meet the minimum savings rate were entitled to share in the savings measured against the expenditure benchmark, but CMS retained the first two percent of such savings, with an exception for smaller ACOs. CMS, believing its retention of the first two percent of savings would deter participation, has eliminated this provision in the Final Rule. Every ACO participating in the one-sided model that has savings that exceed the minimum savings rate will share in the first dollar of savings.
  • Maximum payment is increased. The Proposed Rule capped the maximum amount of savings payable to ACOs. For those participating in the one-sided model, the cap was 7.5 percent of the expenditure benchmark and for those participating in the two-sided model the cap was 10 percent. While retaining a cap, the Final Rule raises it from 7.5 percent to 10 percent for the one-sided model, and from 10 percent to 15 percent in the two-sided model.
  • Cap on percentage share of losses in two-sided model. The Proposed Rule provided that an ACO in the two-sided model would share losses based on a loss rate determined by subtracting the shared savings rate from one. This would have meant that ACOs that met only some quality standards and, therefore, had a lower shared savings rate (e.g., 10 percent) could be responsible to share in 90 percent of the losses. The Final Rule caps the percentage share of losses that an ACO may be required to bear at 60 percent, so that the percentage mirrors the maximum percentage share of savings that an ACO may receive.
  • Repayment of losses. The Proposed Rule provided that 25 percent of any shared savings would be withheld to ensure repayment of potential losses in future years. This automatic 25 percent withhold is eliminated for every ACO.

    Other assurances of repayment of potential losses, such as a letter of credit or some other means of assuring CMS of repayment, are still present in the Final Rule.
  • Time to repay losses extended. The Final Rule extends to 90 days from 30 days the time an ACO has to repay CMS for a loss.
  • IME and DSH eliminated from expenditure benchmark and in measuring performance. The Final Rule also eliminates including IME and DSH payments in calculating the expenditure benchmark and in measuring performance against the benchmark. Previously, an ACO’s expenditure benchmark included any IME and DSH payments attributable to beneficiaries who were projected to be assigned to an ACO, and such IME and DSH payments also were to be counted in each performance year’s costs for measurement against the benchmark. CMS concluded that including IME and DSH in those measurements would create incentives not to utilize academic medical centers and, accordingly, the Final Rule eliminates them.
  • No added share for FQHC and RHC participation in an ACO. The Proposed Rule permitted an ACO to earn an additional share of savings if it had FQHC and RHC participation (up to an additional 2.5 percent in the one-sided model and five percent in the two-sided model). The Final Rule, which permits FQHCs and RHCs to form their own ACOs, eliminates these add-ons.
  • Interim payments. The Final Rule allows ACOs to start on April 1, 2012 and July 1, 2012, which means the term of the first agreements of ACOs with such start dates will be extended beyond three years to three years and nine months, or three years and six months. The first performance year in such arrangements will thus be 21 months for those starting April 1, 2012 and 18 months for those starting July 1, 2012. This longer first performance year will potentially delay the date first shared payments are received until the end of a longer initial year. To address this delay, the Final Rule allows ACOs with such start dates the opportunity to receive interim payments based on performance in the initial 12 months of the longer first performance year. For those ACOs electing to receive an interim payment, there will be a reconciliation after the end of the first performance year — the 21 or 18 months — with a potential obligation for repayment of the interim payment.
  • Repayment of interim payments. ACOs that elect to take interim payments must establish an adequate repayment mechanism should a repayment obligation occur. The potential repayment mechanisms are similar to those described in the Proposed Rule for repayment of shared losses. There is no automatic withholding of 25 percent of any sharing savings for such purpose, however.

Program Requirements and Beneficiary Protections

  • Marketing materials. In the Proposed Rule, all marketing materials (including brochures, advertisements, mailings, social media, and other materials to educate, solicit, or contact Medicare beneficiaries, providers, or suppliers) were required to be submitted to CMS for approval prior to utilization. The definition of marketing materials has been revised to exclude those materials and activities that do not constitute marketing under provisions of the Health Insurance Portability and Accountability Act (see 45 C.F.R. § § 164.501 and 164.508(a)(3)(i)).

    Also, CMS has clarified that marketing materials submitted to CMS may be used by an ACO if not disapproved by within five days, provided the ACO certifies that the marketing materials comply with the Final Rule. The running of the five days does not mean that CMS may not disapprove the marketing materials at a later time.

    Marketing materials must use template language when available, must not be used in a discriminatory manner or for discriminatory purposes, must comply with the prohibition on beneficiary inducements, and must not be inaccurate or misleading.
  • Signs. The Final Rule requires that signs be posted in the facilities of the ACO and where primary care services are provided, indicating participation in the MSSP as an ACO. The signs must be in plain language.
  • Monitoring compliance. The Final Rule provides more flexibility for CMS in monitoring compliance with quality standards. It now permits for immediate termination of an agreement or requirement of a Corrective Action Plan, in addition to a warning letter for ACOs that are underperforming on quality standards.
  • Compliance plans updating and reporting. Each ACO is required to maintain a compliance plan. The Final Rule requires ACOs to update their compliance plans periodically to reflect changes in the law, including those concerning mandatory compliance plan requirements.

    The Final Rule also requires that probable violations of law must be reported to law enforcement. It also clarifies that legal counsel and the compliance officer of the ACO must be different individuals. The compliance officers must report directly to the ACO’s governing body.
  • ACO certifications. The Final Rule makes clear that the ACO must make annual certifications to CMS concerning the accuracy of all information and data that CMS relies on in determining eligibility for shared savings, the amount of any shared savings payments, and the amount of shared losses, if applicable.
  • Prohibition on conditioning participants on referrals of non-ACO businesses. CMS has indicated its concern that as an ACO, ACO participants, and ACO providers/suppliers work together to decrease costs, they may inappropriately offer or be offered inducements to overutilize services or otherwise increase government expenditures for beneficiaries not assigned to an ACO. The Final Rule prohibits an ACO from conditioning participation in an ACO on referrals of non-ACO businesses. CMS also will closely monitor inappropriate cost shifting.
  • Prohibition on limiting or requiring referrals of beneficiaries to ACO participants or ACO providers/suppliers in the same ACO. A cornerstone principal underlying the MSSP is that a Medicare beneficiary has freedom of choice of provider. An ACO is not a limited network model. The Final Rule expressly prohibits limiting or restricting referrals of beneficiaries to those participating in an ACO. Agreements between an ACO and its ACO participants may not require such referrals. There is an exception to this prohibition — similar to the exception in the Stark Law — for referrals made by employees or contractors who are operating within the scope of their employment or contract to the employer or contracting entity, so long as the patient does not express a contrary preference; the patient’s insurer determines the provider or supplier; or such referral is not in the patient’s best medical interest.
  • Beneficiary inducements. In the Final Rule ACOs, ACO participants, ACO providers/suppliers, and others performing functions related to ACO activities are prohibited from providing gifts, cash, or other remuneration to beneficiaries as inducements for receiving services or remaining in an ACO. Such activities are prohibited unless the requirements of the Beneficiary Inducement Waiver, contained in the CMS/OIG waivers set forth in the interim final rule released simultaneously with the Final Rule, are all met.

Changes in Quality and Other Reporting Requirements

The Final Rule discusses measures to assess the quality of care furnished by an ACO; requirements for data submission by ACOs; quality performance standards; the incorporation of reporting requirements under the Act for the Physician Quality Reporting System (PQRS); and aligning ACO quality measures with other laws and regulations.

  • Reduced number of quality measures. The most significant change in the quality portion of the Final Rule is that CMS has reduced the number of quality measures used in calculating incentive payments from 65 quality measures in five domains to 33 quality measures in four domains. The Final Rule seeks to align the quality measures with other quality programs that providers are more accustomed to using, thereby reducing the burdensome nature of the Final Rule’s reporting requirements.
  • Elimination of “meaningful use” requirement for participants. The Proposed Regulations included a requirement that half of the ACO’s primary care physicians must meet meaningful use rules by the beginning of the second year of an ACO’s first agreement with CMS. The Final Rule eliminates this 50-percent requirement. Use of an electronic health record remains as a quality measure and is weighted higher than any other quality measure; however, the Final Rule also provides that ACO participants may use survey, claims, and administrative information to report quality measures instead of reporting electronically. ACO participants also can use a Web-based group practice reporting option for submission of quality measures.

Data Sharing Provisions

The Final Rule addresses data sharing with ACOs. No changes were made to the Proposed Rule relating to sharing of aggregate data, but there were significant changes to the sharing of beneficiary identifiable data provisions.

  • Notification to beneficiaries with opt-out. The Proposed Rule allowed ACOs access to beneficiary identifiable data only after the beneficiary has visited a primary care participating provider and has not declined to participate in data sharing. The Final Rule modifies these provisions to allow an ACO the option of contacting beneficiaries from the list of preliminarily prospectively assigned beneficiaries in order to notify them of the ACO’s participation in the program and their intent to request beneficiary identifiable data. If, after 30 days from the date the ACO provides notification, neither the ACO nor CMS has received notification that the beneficiary is declining data sharing, then the ACO will be able to request beneficiary identifiable data from CMS. ACOs may, but are not required to, request beneficiary identifiable data on a monthly basis. The ACO will still be responsible for notifying and giving the beneficiary the opportunity to decline data sharing again during the next face-to-face encounter with the beneficiary.
  • Earlier notice. Data sharing is an important aspect of the ACO model because, as noted in the Final Rule, CMS has the goal to promote better physician-patient relationships and transparency. Contacting beneficiaries from the preliminary prospective list allows ACOs to have more timely access to beneficiaries’ claims data and begin coordinating care as soon as possible. ACOs will no longer have to wait for beneficiaries to have an appointment with a primary care practitioner, which could have occurred late in the year. Under the Final Rule, beneficiaries will still have a meaningful choice about the sharing of their protected health information, but the administrative burdens of requiring monthly beneficiary identifiable data are removed.


The Final Rule makes a number of revisions that add flexibility and should encourage greater participation in the MSSP. Providers who decided not to participate based on the Proposed Rule may want to reconsider that decision. The elimination of taking down-side risk in the one-sided model, the increased ability to share in savings, and the relaxation of a number of burdensome requirements for participation make participation in the MSSP more promising. Moreover, the presence of various legal waivers creates less risk for those who participate.

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 any of the following individuals:

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

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