Medicare Program; Medicare Shared Savings Program: Accountable Care Organizations, 32691-32845 [2015-14005]

Agencies

• Centers for Medicare & Medicaid Services
• DEPARTMENT OF HEALTH AND HUMAN SERVICES

[Federal Register Volume 80, Number 110 (Tuesday, June 9, 2015)]
[Rules and Regulations]
[Pages 32691-32845]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-14005]



[[Page 32691]]

Vol. 80

Tuesday,

No. 110

June 9, 2015

Part III





Department of Health and Human Services





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Centers for Medicare & Medicaid Services





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42 CFR Part 425





Medicare Program; Medicare Shared Savings Program: Accountable Care 
Organizations; Final Rule

Federal Register / Vol. 80 , No. 110 / Tuesday, June 9, 2015 / Rules 
and Regulations

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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Part 425

[CMS-1461-F]
RIN 0938-AS06


Medicare Program; Medicare Shared Savings Program: Accountable 
Care Organizations

AGENCY: Centers for Medicare & Medicaid Services (CMS), HHS.

ACTION: Final rule.

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SUMMARY: This final rule addresses changes to the Medicare Shared 
Savings Program including provisions relating to the payment of 
Accountable Care Organizations participating in the Medicare Shared 
Savings Program. Under the Medicare Shared Savings Program, providers 
of services and suppliers that participate in an Accountable Care 
Organizations continue to receive traditional Medicare fee-for-service 
payments under Parts A and B, but the Accountable Care Organizations 
may be eligible to receive a shared savings payment if it meets 
specified quality and savings requirements.

DATES: Effective Dates: With the exception of the amendments to 
Sec. Sec.  425.312, 425.704, and 425.708, the provisions of this final 
rule are effective on August 3, 2015. The amendments to Sec.  425.312 
and Sec.  425.708 are effective November 1, 2015. The amendments to 
Sec.  425.704 are effective January 1, 2016.
    Applicability Dates: In the SUPPLEMENTARY INFORMATION section of 
this final rule, we provide a table (Table 1) that lists key changes in 
this final rule that have an applicability date other than the 
effective date of this final rule.

FOR FURTHER INFORMATION CONTACT: Dr. Terri Postma or Elizabeth 
November, 410-786-8084, Email address: aco@cms.hhs.gov.

SUPPLEMENTARY INFORMATION: 
    Table 1 lists key changes that have an applicability date or 
effective date other than 60 days after the date of publication of this 
final rule. By indicating a provision is applicable to a performance 
year (PY) or agreement period, activities related to implementation of 
the policy may precede the start of the performance year (in the case 
of an upcoming year) or agreement period or follow the conclusion of 
the performance year (in the case of a past year) or the agreement 
period.

 Table 1--Applicability and Effective Dates of Select Provisions of the
                               Final Rule
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                        Section title/      Effective     Applicability
 Preamble section        description           date           date
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II.B.1............  Agreement              ...........  PY 2017 and
                     Requirements (Sec.                  subsequent
                     425.116(a) and (b)).                performance
                                                         years.
II.D.2............  Provision of           ...........  PY 2016 and
                     Aggregate and                       subsequent
                     Beneficiary                         performance
                     Identifiable Data                   years.
                     (Sec.
                     425.702(c)(1)(ii)).
II.D.3............  Claims Data Sharing       1/1/2016  ................
                     (Sec.   425.704).
II.D.3............  Beneficiary              11/1/2015  ................
                     Opportunity to
                     Decline Claims Data
                     Sharing (Sec.
                     425.312 and Sec.
                     425.708).
II.E.3............  Definitions of         ...........  PY 2016 and
                     Primary Care                        subsequent
                     Physician and                       performance
                     Primary Care                        years.
                     Services (Sec.
                     425.20).
II.E.4............  Consideration of       ...........  PY 2016 and
                     Physician                           subsequent
                     Specialties and Non-                performance
                     Physician                           years.
                     Practitioners in the
                     Assignment Process
                     (Sec.   425.402(b)).
II.F.2............  Modifications to the   ...........  Agreement
                     Track 2 Financial                   periods
                     Model (Sec.                         starting on or
                     425.606(b)(1)(ii)).                 after January
                                                         1, 2016.
II.F.7............  Waivers of payment     ...........  PY 2017 and
                     rules or other                      subsequent
                     Medicare                            performance
                     requirements (Sec.                  years.
                     425.612).
------------------------------------------------------------------------

Table of Contents

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

I. Executive Summary and Background
    A. Executive Summary
    1. Purpose
    2. Summary of the Major Provisions
    3. Summary of Costs and Benefits
    B. Background
    1. General Background
    2. Statutory Basis for the Medicare Shared Savings Program
    3. Overview of the Medicare Shared Savings Program
II. Provisions of the Proposed Regulations and Analysis of Responses 
to Public Comments
    A. Definitions
    1. Proposed Definitions
    2. Proposed Revisions to Existing Definitions
    B. ACO Eligibility Requirements
    1. Agreement Requirements
    a. Overview
    b. Proposed Revisions
    2. Sufficient Number of Primary Care Providers and Beneficiaries
    a. Overview
    b. Proposed Revisions
    3. Identification and Required Reporting of ACO Participants and 
ACO Providers/Suppliers
    a. Overview
    b. Proposed Revisions
    (1) Certified List of ACO Participants and ACO Providers/
Suppliers
    (2) Managing Changes to ACO Participants
    (3) Managing Changes to ACO Providers/Suppliers
    (4) Update of Medicare Enrollment Information
    4. Significant Changes to an ACO
    a. Overview
    b. Proposed Revisions
    5. Consideration of Claims Billed by Merged/Acquired Medicare-
Enrolled Entities
    a. Overview
    b. Proposed Revisions
    6. Legal Structure and Governance
    a. Legal Entity and Governing Body
    (1) Overview
    (2) Proposed Revisions
    b. Fiduciary Duties of Governing Body Members
    (1) Overview
    (2) Proposed Revisions
    c. Composition of the Governing Body
    (1) Overview
    (2) Proposed Revisions
    7. Leadership and Management Structure
    a. Overview
    b. Proposed Revisions
    8. Required Process To Coordinate Care
    a. Overview
    b. Accelerating Health Information Exchange
    c. Proposed Revisions
    9. Transition of Pioneer ACOs Into the Shared Savings Program
    a. Overview
    b. Proposed Revisions
    C. Establishing and Maintaining the Participation Agreement With 
the Secretary
    1. Background
    2. Application Deadlines
    a. Overview
    b. Proposed Revisions

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    3. Renewal of Participation Agreements
    a. Overview
    b. Proposed Revisions
    4. Changes to Program Requirements During the 3-Year Agreement
    a. Overview
    b. Proposed Revisions
    D. Provision of Aggregate and Beneficiary Identifiable Data
    1. Background
    2. Aggregate Data Reports and Limited Identifiable Data
    a. Overview
    b. Proposed Revisions
    3. Claims Data Sharing and Beneficiary Opportunity To Decline 
Claims Data Sharing
    a. Overview
    b. Proposed Revisions
    E. Assignment of Medicare FFS Beneficiaries
    1. Background
    2. Basic Criteria for a Beneficiary To Be Assigned to an ACO
    3. Definition of Primary Care Services
    a. Overview
    b. Proposed Revisions
    4. Consideration of Physician Specialties and Non-Physician 
Practitioners in the Assignment Process
    a. Overview
    b. Proposed Revisions
    (1) Including Primary Care Services Furnished by Non-Physician 
Practitioners in Step 1
    (2) Excluding Services Provided by Certain Physician Specialties 
From Step 2
    (3) Other Assignment Methodology Considerations
    5. Assignment of Beneficiaries to ACOs That Include FQHCs, RHCs, 
CAHs, or ETA Hospitals
    a. Assignment of Beneficiaries to ACOs That Include FQHCs and 
RHCs
    (1) Overview
    (2) Proposed Revisions
    b. Assignment of Beneficiaries to ACOs That Include CAHs
    c. Assignment of Beneficiaries to ACOs That Include ETA 
Hospitals
    6. Applicability Date for Changes to the Assignment Algorithm
    F. Shared Savings and Losses
    1. Background
    2. Modifications to the Existing Payment Tracks
    a. Overview
    b. Transition From the One-Sided to Two-Sided Model
    (1) Second Agreement Period for Track 1 ACOs
    (2) Eligibility Criteria for Continued Participation in Track 1
    (3) Maximum Sharing Rate for ACOs in a Second Agreement Period 
Under Track 1
    (4) Eligibility for Continued Participation in Track 1 by 
Previously Terminated ACOs
    c. Modifications to the Track 2 Financial Model
    3. Creating Options for ACOs That Participate in Risk-Based 
Arrangements
    a. Overview
    b. Assignment of Beneficiaries Under Track 3
    (1) Prospective Versus Retrospective Assignment
    (2) Exclusion Criteria for Prospectively Assigned Beneficiaries
    (3) Timing of Prospective Assignment
    (4) Interactions Between Prospective and Retrospective 
Assignment Models
    c. Determining Benchmark and Performance Year Expenditures Under 
Track 3
    d. Risk Adjusting the Updated Benchmark for Track 3 ACOs
    e. Final Sharing/Loss Rate and Performance Payment/Loss 
Recoupment Limit Under Track 3
    f. Minimum Savings Rate and Minimum Loss Rate in Track 3
    g. Monitoring for Gaming and Avoidance of At-Risk Beneficiaries
    4. Modifications to Repayment Mechanism Requirements
    a. Overview
    b. Amount and Duration of the Repayment Mechanism
    c. Permissible Repayment Mechanisms
    5. Methodology for Establishing, Updating, and Resetting the 
Benchmark
    a. Overview
    b. Modifications to the Rebasing Methodology
    (1) Equally Weighting the Three Benchmark Years
    (2) Accounting for Shared Savings Payments When Resetting the 
Benchmark
    c. Use of Regional Factors in Establishing, Updating and 
Resetting Benchmarks
    6. Technical Adjustments to the Benchmark and Performance Year 
Expenditures
    7. Ways To Encourage ACO Participation in Performance-Based Risk 
Arrangements
    a. Payment Requirements and Other Program Requirements That May 
Need To Be Waived in Order To Carry Out the Shared Savings Program
    (1) SNF 3-Day Rule
    (2) Billing and Payment for Telehealth Services
    (3) Homebound Requirement Under the Home Health Benefit
    (4) Waivers for Referrals to Post-Acute Care Settings
    (5) Solicitation of Comment on Specific Waiver Options
    b. Other Options for Improving the Transition to Two-Sided 
Performance-Based Risk Arrangements.
    (1) Beneficiary Attestation
    (2) Solicitation of Comment on a Step-Wise Progression for ACOs 
To Take on Performance Based Risk
    G. Additional Program Requirements and Beneficiary Protections
    1. Background
    2. Public Reporting and Transparency
    a. Overview
    b. Proposed Revisions
    3. Terminating Program Participation
    a. Overview
    b. Proposed Revisions
    (1) Grounds for Termination
    (2) Close-Out Procedures and Payment Consequences of Early 
Termination
    4. Reconsideration Review Process
    a. Overview
    b. Proposed Revisions
    5 Monitoring ACO Compliance With Quality Performance Standards
III. Collection of Information Requirements
IV. Regulatory Impact Analysis
    A. Statement of Need
    B. Overall Impact
    C. Anticipated Effects
    1. Effects on the Medicare Program
    a. Assumptions and Uncertainties
    b. Detailed Stochastic Modeling Results
    c. Further Considerations
    2. Effects on Beneficiaries
    3. Effect on Providers and Suppliers
    4. Effect on Small Entities
    5. Effect on Small Rural Hospitals
    6. Unfunded Mandates
    D. Alternatives Considered
    E. Accounting Statement and Table
    F. Conclusion

Regulations Text

Acronyms

ACO Accountable Care Organization
CAHs Critical Access Hospitals
CCM Chronic Care Management
CEHRT Certified Electronic Health Record Technology
CG-CAHPS Clinician and Group Consumer Assessment of Health Providers 
and Systems
CHIP Children's Health Insurance Program
CMP Civil Monetary Penalties
CMS Centers for Medicare & Medicaid Services
CNM Certified Nurse Midwife
CMS-HCC CMS Hierarchal Condition Category
CPT [Physicians] Current Procedural Terminology (CPT codes, 
descriptions and other data only are copyright 2013 American Medical 
Association. All rights reserved.)
CWF Common Working File
DHHS Department of Health and Human Services
DOJ Department of Justice
DSH Disproportionate Share Hospital
DUA Data Use Agreement
EHR Electronic Health Record
ESRD End Stage Renal Disease
ETA Electing Teaching Amendment
FFS Fee-for-service
FQHCs Federally Qualified Health Centers
FTC Federal Trade Commission
GPCI Geographic Practice Cost Index
GPRO Group Practice Reporting Option
HCC Hierarchal Condition Category
HCPCS Healthcare Common Procedure Coding System
HICN Health Insurance Claim Number
HIPAA Health Insurance Portability and Accountability Act of 1996 
(Pub. L. 104-191)
HVBP Hospital Value-based Purchasing
IPA Independent Practice Association
IPPS Inpatient Prospective Payment System
IRS Internal Revenue Service
MA Medicare Advantage
MedPAC Medicare Payment Advisory Commission
MLR Minimum Loss Rate
MSP Medicare Secondary Payer
MSR Minimum Savings Rate
MU Meaningful Use
NCQA National Committee for Quality Assurance

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NP Nurse Practitioner
NPI National Provider Identifier
NQF National Quality Forum
OIG Office of Inspector General
PA Physician Assistant
PACE Program of All Inclusive Care for the Elderly
PECOS Provider Enrollment, Chain, and Ownership System
PFS Physician Fee Schedule
PGP Physician Group Practice
PHI Protected Health Information
PPS Prospective Payment System
PQRS Physician Quality Reporting System
PRA Paperwork Reduction Act
PSA Primary Service Areas
PY Performance year
RHCs Rural Health Clinics
RIA Regulatory Impact Analysis
SNFs Skilled Nursing Facilities
SSA Social Security Act
SSN Social Security Number
TIN Taxpayer Identification Number
VM Value Modifier

CPT (Current Procedural Terminology) Copyright Notice

    Throughout this final rule, we use CPT codes and descriptions to 
refer to a variety of services. We note that CPT codes and descriptions 
are copyright 2013 American Medical Association. All Rights Reserved. 
CPT is a registered trademark of the American Medical Association 
(AMA). Applicable Federal Acquisition Regulations (FARs) and Defense 
Federal Acquisition Regulations (DFARs) apply.

I. Executive Summary and Background

A. Executive Summary

1. Purpose
    Section 1899 of the Social Security Act (the Act) established the 
Medicare Shared Savings Program (Shared Savings Program), which 
promotes accountability for a patient population, fosters coordination 
of items and services under parts A and B, and encourages investment in 
infrastructure and redesigned care processes for high quality and 
efficient health care service delivery. On December 8, 2014, a proposed 
rule entitled ``Medicare Shared Savings Program: Accountable Care 
Organization'' appeared in the Federal Register (79 FR 72760) (December 
2014 proposed rule). The final rule entitled ``Medicare Program; 
Medicare Shared Savings Program: Accountable Care Organizations,'' 
which appeared in the Federal Register on November 2, 2011 (76 FR 
67802) (November 2011 final rule) established the original regulations 
implementing Shared Savings Program. In the December 2014 proposed 
rule, we proposed to make revisions to some key policies adopted in the 
November 2011 final rule (76 FR 67802) to incorporate in our 
regulations certain guidance that we have issued since the Shared 
Savings Program was established, and to add new policies to support 
program compliance and growth.
    Our intent in this rulemaking is to make refinements to the Shared 
Savings Program, to encourage continued and enhanced stakeholder 
participation, to reduce administrative burden for ACOs while 
facilitating their efforts to improve care outcomes, and to maintain 
excellence in program operations while bolstering program integrity.
2. Summary of the Major Provisions
    The policies adopted in this final rule codify existing guidance, 
reduce administrative burden and improve program function and 
transparency in the following areas: (1) Data-sharing requirements; (2) 
eligibility and other requirements related to ACO participants and ACO 
providers/suppliers including clarification of definitions, ACO 
participant and ACO provider/supplier agreement requirements, 
identification and reporting of ACO participants and ACO providers/
suppliers, including managing changes to the list of ACO participants 
and ACO providers/suppliers; (3) clarifications and updates to 
application requirements; (4) eligibility requirements related to the 
ACO's number of beneficiaries, required processes for coordinating 
care, the ACO's legal structure and governing body, and its leadership 
and management structure; (5) the assignment methodology; (6) 
methodology for determining ACO financial performance; (7) issues 
related to program integrity and transparency such as public reporting, 
terminations, and reconsideration review. To achieve these goals, we 
proposed and are making the following major modifications to our 
current program rules:
     Clarifying and codifying current guidance related to ACO 
participant agreements and issues related to the ACO participant and 
ACO provider/supplier lists. For example, we are finalizing rules for 
modifying the ACO participant list and requirements related to specific 
language that must appear in the ACO participant agreements.
     Adding a process for an ACO to renew its 3-year 
participation agreement for an additional agreement period. 
Specifically, we articulate rules for renewing the 3 year agreement, 
including factors that CMS will use to determine whether an ACO may 
renew its 3-year agreement, such as the ACO's history of compliance 
with program rules.
     Adding, clarifying, and revising the beneficiary 
assignment algorithm, including the following:
    ++ Updating the CPT codes that will be considered to be primary 
care services. Specifically, we are finalizing a policy that includes 
TCM codes (CPT codes 99495 and 99496) and the CCM code (CPT code 99490) 
in the definition of primary care services.
    ++ Modifying the treatment of claims submitted by certain physician 
specialties, NP, PAs, and CNSs in the assignment algorithm. 
Specifically, we are finalizing a policy that would use primary care 
services furnished by primary care physicians, NPs, PAs, and CNSs under 
step 1 of the assignment process, after having identified beneficiaries 
who received at least one primary care service by a physician in the 
ACO. Additionally, we are finalizing a policy that would exclude 
certain services provided by certain physician specialties from step 2 
of the assignment process.
    ++ Clarifying how primary care services furnished in federally 
qualified health centers (FQHCs) and rural health clinics (RHCs) are 
considered in the assignment process.
     Expanding the kinds of beneficiary-identifiable data that 
will be made available to ACOs in various reports under the Shared 
Savings Program as well as simplifying the process for beneficiaries to 
decline claims data sharing to reduce burden and confusion.
     Adding or changing policies to encourage greater ACO 
participation in risk-based models by--
    ++ Offering the opportunity for ACOs to continue participating 
under a one-sided participation agreement after their first 3-year 
agreement. Specifically, we are finalizing a policy that would permit 
ACOs to participate in an additional agreement period under one-sided 
risk with the same sharing rate (50 percent) as was available to them 
under the first agreement period; and
    ++ Modifying the existing two-sided performance-based risk track 
(Track 2). Specifically, under Track 2, an ACO will have the choice of 
several symmetrical MSR/MLR options that will apply for the duration of 
its 3-year agreement period.
    ++ Offering an alternative performance-based risk model referred to 
as Track 3. Specifically, we are finalizing the option for ACOs to 
participate under a two-sided risk model that would incorporate a 
higher sharing rate (75 percent), prospective assignment of 
beneficiaries, and the opportunity to apply for a programmatic waiver 
of the 3-day SNF rule in order to permit payment for otherwise-

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covered SNF services when a prospectively assigned beneficiary is 
admitted to a SNF without a prior 3-day inpatient stay. ACOs in this 
track will also have the choice of several symmetrical MSR/MLR options 
that will apply for the duration of their 3-year agreement period.
    In addition, in the December 2014 proposed rule we sought comment 
on a number of options that we had been considering in order to 
encourage ACOs to take on two-sided performance-based risk under the 
Shared Savings Program. Based on public comments, we are finalizing the 
following:
     Resetting the benchmark in a second or subsequent 
agreement period by integrating previous financial performance and 
equally weighting benchmarks for subsequent agreement periods; and
     The use of programmatic waiver authority to improve 
participation in Track 3 by offering regulatory relief from 
requirements related to the SNF 3-day stay rule.
     We intend to address other modifications to program rules 
in future rulemaking in the near term to improve ACO willingness to 
take on performance-based risk including: Modifying the assignment 
methodology to hold ACOs accountable for beneficiaries that have 
designated ACO practitioners as being responsible for their care; 
waiving the geographic requirement for use of telehealth services; and 
modifying the methodology for resetting benchmarks by incorporating 
regional trends and costs.
3. Summary of Costs and Benefits
    As detailed in Table 10 in section IV. of this final rule, by 
including the changes detailed in this final rule, the total aggregate 
median impact would increase to $780 million in net federal savings for 
CYs 2016 through 2018. Such median estimated federal savings are $240 
million greater than the $540 million median net savings estimated at 
baseline absent the changes adopted in this final rule. A key driver of 
the anticipated increase in net savings is improved ACO participation 
levels in a second agreement period. We estimate that at least 90 
percent of eligible ACOs will renew their participation in the Shared 
Savings Program when presented with the new options, primarily under 
Track 1 and, to a lesser extent, under Track 3. This expansion in the 
number of ACOs willing to continue their participation in the program 
is estimated to result in additional improvements in care efficiency of 
a magnitude significantly greater than the reduced shared loss receipts 
estimated at baseline and the added shared savings payments flowing 
from a higher sharing rate in Track 3 and continued one-sided sharing 
available in Track 1, with all three tracks operating under generally 
more favorable rebasing parameters including equal base year weighting 
and adding a portion of savings from the prior agreement period to the 
baseline.
    In addition, at the anticipated mean participation rate of ACOs in 
the Shared Savings Program, participating ACOs may experience an 
estimated aggregate average start-up investment and ongoing operating 
cost of $822 million for CYs 2016 through 2018. Lastly, we estimate an 
aggregate median impact of $1,130 million in shared savings payments to 
participating ACOs in the Shared Savings Program for CYs 2016 through 
2018. The 10th and 90th percentiles of the estimate distribution, for 
the same time period, yield shared savings payments to ACOs of $960 
million and $1,310 million, respectively. Therefore, the total median 
ACO shared savings payments of $1,130 million during CYs 2016 through 
2018, net of a median $30 million shared losses, coupled with the 
aggregate average start-up investment and ongoing operating cost of 
$822 million yields a net private benefit of $278 million.

B. Background

1. General Background
    On March 23, 2010, the Patient Protection and Affordable Care Act 
(Pub. L. 111-148) was enacted, followed by enactment of the Health Care 
and Education Reconciliation Act of 2010 (Pub. L. 111-152) on March 30, 
2010, which amended certain provisions of Pub. L. 111-148. Collectively 
known as the Affordable Care Act, these public laws include a number of 
provisions designed to improve the quality of Medicare services, 
support innovation and the establishment of new payment models, better 
align Medicare payments with provider costs, strengthen Medicare 
program integrity, and put Medicare on a firmer financial footing.
2. Statutory Basis for the Medicare Shared Savings Program
    Section 3022 of the Affordable Care Act amended Title XVIII of the 
Act (42 U.S.C. 1395 et seq.) by adding new section 1899 to the Act to 
establish a Shared Savings Program. This program is a key component of 
the Medicare delivery system reform initiatives included in the 
Affordable Care Act and is a new approach to the delivery of health 
care.
3. Overview of the Medicare Shared Savings Program
    The purpose 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 promote higher value care. ACOs that 
successfully meet quality and savings requirements share a percentage 
of the achieved savings with Medicare. Under the Shared Savings 
Program, ACOs share in savings only if they meet both the quality 
performance standards and generate shareable savings. Consistent with 
the purpose of the Shared Savings Program, we focused on developing 
policies aimed at achieving the three-part aim consisting of: (1) 
Better care for individuals; (2) better health for populations; and (3) 
lower growth in expenditures.
    We viewed the November 2011 final rule as a starting point for the 
program, and because of the scope and scale of the program and our 
limited experience with shared savings initiatives under FFS Medicare, 
we built a great deal of flexibility into the program rules. We 
anticipated that subsequent rulemaking for the Shared Savings Program 
would be informed by lessons learned from our experience with the 
program as well as from testing through the Pioneer ACO Model and other 
initiatives conducted by the Center for Medicare and Medicaid 
Innovation (CMS Innovation Center) under section 1115A of the Act.
    Over 400 organizations are now participating in the Shared Savings 
Program. We are gratified by stakeholder interest in this program. As 
evidenced by the high degree of interest in participation in the Shared 
Savings Program, we believe that the policies adopted in the November 
2011 final rule are generally well-accepted. However, in light of 
additional experience we have gained during the first few years of the 
Shared Savings Program, we identified several policy areas for revision 
in the December 2014 proposed rule (79 FR 72760).

II. Provisions of the Proposed Rule and the Analysis of and Responses 
to Public Comments

    We received a total of 275 timely comments on the December 8, 2014 
proposed rule (79 FR 72760). Stakeholders offered comments that 
addressed both high level issues related to the goals of the Shared 
Savings Program as well as our specific proposals and request for 
comment. We

[[Page 32696]]

extend our deep appreciation to the public for their interest in the 
program and the many thoughtful comments that were made to our proposed 
policies. In some instances, the public comments offered were outside 
the scope of the proposed rule (for example, suggested revisions to the 
physician fee schedule or comments regarding the delivery of specific 
health care services under other Medicare payment systems). These 
comments will not be addressed in this final rule, but we have shared 
them with the appropriate subject matter experts in CMS. Summaries of 
the public comments that are within the scope of this rule and our 
responses to those comments are set forth in the various sections of 
this final rule under the appropriate headings. In the introduction to 
section II of this final rule, we address several global comments 
related to the Shared Savings Program. The remainder of this section of 
the final rule is organized to give an overview of each issue and the 
relevant proposals, to summarize and respond to public comments on the 
proposals, and to describe our final policy decisions based upon our 
review of the public comments received.
    Comment: Several commenters discussed the future of the Shared 
Savings Program and its sustainability over the long term. Some 
commenters requested that CMS articulate a clear plan for the future of 
the program. Others recommended that CMS engage stakeholders in a 
dialogue on how CMS intends to design a sustainable Accountable Care 
Organization (ACO) model that would permit continued participation by 
ACOs. While some commenters were supportive of and looked at the 
proposed rule as a good beginning in the dialogue on how to improve the 
sustainability of the program, other commenters suggested that the 
proposed rule did not go far enough to correct what they described as 
the program's misguided design elements.
    Several commenters offered opinions or suggestions about the 
interrelationship of the Shared Savings Program and other Medicare 
programs and models such as Medicare Advantage, the Pioneer ACO Model, 
the bundled payment model, and others. Some commenters advocated for 
speedy incorporation of alternative payment models under section 
1899(i) of the Act's authority while others suggested that CMS engage 
in additional discussion with stakeholders and testing before 
implementing such changes into the Shared Savings Program in order to 
ensure protection of the Trust Fund and beneficiaries.
    Commenters suggested that CMS continue to consider alignment with 
other Medicare initiatives and payment models, and to coordinate with 
commercial payers to align requirements for multi-payer ACOs. In 
particular, some commenters explained the need for CMS to ensure a 
level playing field and align the requirements that apply to ACOs and 
Medicare Advantage plans, particularly with respect to the following:
     Availability of programmatic waivers (and more generally 
regulatory flexibility).
     Benchmarks (particularly benchmarks based on regional 
costs).
     Risk adjustment.
     Financial reserve requirements
     Quality standards.
     Beneficiary satisfaction.
     Beneficiary choice.
    Commenters expressed concern that misalignment between the Shared 
Savings Program, other Medicare programs, and commercial programs could 
have unintended effects on healthcare market dynamics and for the care 
of beneficiaries.
    Response: In 2011, Medicare made almost no payments to providers 
through alternative payment models, but today such payments represent 
approximately 20 percent of Medicare payments. Earlier this year, the 
Secretary announced the ambitious goal of tying 30 percent of Medicare 
FFS payments to quality and value by 2016 and by 2018 making 50 percent 
of payments through alternative payment models, such as the Shared 
Savings Program, created by the Affordable Care Act (https://www.hhs.gov/news/press/2015pres/03/20150325b.html). With over 400 ACOs 
serving over 7 million beneficiaries, the Shared Savings Program plays 
an important role in meeting the Secretary's recently articulated goal.
    As stated during the 2011 rulemaking process, we continue to 
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. We are also interested in 
encouraging these organizations to progress to greater performance-
based risk to drive quality improvement and efficiency in care 
delivery. For this reason, we established both a shared savings only 
(one-sided) model and a shared savings/losses (two-sided) model. This 
structure provides a pathway for organizations to increasingly take on 
performance-based risk. In this final rule, we build on these 
principles and are finalizing a set of policies that we believe aligns 
with and will advance the Secretary's goals.
    Taken together, the comments illuminate overarching issues which 
require a balance of competing factors and the specific interests of 
many different stakeholders. We agree with stakeholders that the Shared 
Savings Program must be structured in a way that that balances various 
stakeholder interests in a way that both encourages new and continued 
provider participation in the program and protects beneficiaries with 
original FFS Medicare and the Medicare Trust Funds. We believe that 
many design elements discussed in the proposed rule hold promise and 
deserve continued consideration. We note that many of these suggestions 
raised by stakeholders are already in the planning stage or being 
tested in various CMS Innovation Center models, such as the Pioneer 
Model and the Next Generation ACO Model (announced on March 10, 2015). 
Testing these designs in various payment models through the CMS 
Innovation Center is important because it will permit us to make 
adjustments as needed to ensure that the models work for providers and 
protect beneficiaries and the Trust Funds. CMS Innovation Center 
testing will also permit a transparent and fulsome articulation of the 
design elements in future rulemaking that allows for sufficient public 
notice and comment prior to broader implementation in the Shared 
Savings Program. We fully intend to raise many of the design elements 
suggested by commenters in future rulemaking as the program matures.
    We also continue to believe in the importance of maintaining 
distinctions between the accountable care model in the Shared Savings 
Program and managed care, such as Medicare Advantage. In the November 
2011 final rule (76 FR 67805), we stated that the Shared Savings 
Program is not a managed care program like the Medicare Advantage 
program. Medicare FFS beneficiaries retain all rights and benefits 
under traditional Medicare. Medicare FFS beneficiaries retain the right 
to see any physician of their choosing, and they do not enroll in the 
Shared Savings Program. Unlike managed care settings, the assignment of 
beneficiaries to a Shared Savings Program ACO does not mean that 
beneficiaries must receive care only from ACO providers/suppliers, nor 
does it mean that beneficiaries must enroll in the ACO or the Shared 
Savings Program. The Shared Savings Program is also not a capitated 
model; providers and suppliers continue to bill and receive FFS 
payments rather than receiving

[[Page 32697]]

lump sum payments based upon the number of assigned beneficiaries. The 
Shared Savings Program is designed to enhance patient-centered care. 
For example, it encourages physicians, through the eligibility 
requirements (for example, the care processes required at Sec.  
425.112), to include their patients in decision-making about their 
health care. While we frequently relied on our experience in other 
Medicare programs, including Medicare Advantage, to help develop 
program requirements and design elements for the Shared Savings 
Program, many Shared Savings Program requirements deviate from those in 
the other programs precisely because the intent of this program is not 
to recreate or replace Medicare Advantage.
    Finally, we appreciate commenters' concerns that misalignment in 
incentives across Medicare initiatives has the potential to create 
unintended consequences for healthcare market dynamics (for example, 
between Medicare FFS and Medicare Advantage) and for the care of 
beneficiaries. We believe these concerns underscore the need to take a 
measured approach to implementing changes into the Shared Savings 
Program. We also appreciate commenters' enthusiasm for multipayer ACOs, 
including recommendations for greater alignment between Medicare and 
private sector initiatives. We are interested in engaging private 
sector leaders to build on the success of the Shared Savings Program 
and other alternative payment models to make value-driven care scalable 
outside of Medicare's purview. To accomplish this, the Secretary 
recently announced the creation of a Health Care Payment Learning and 
Action Network. Through the Learning and Action Network, HHS will work 
with private payers, employers, consumers, providers, states and state 
Medicaid programs, and other partners to expand alternative payment 
models through their own aligned work. As articulated by the Secretary, 
the public and private sectors have a common interest in building a 
health care system that delivers better care, spends health care 
dollars more wisely, and results in healthier people.\1\ Beginning with 
the November 2011 final rule, we have sought to align with other CMS 
and private sector initiatives, beginning with our selection of quality 
measures. As the program evolves, we look forward to learning from the 
Learning and Action Network as well as various CMS Innovation Center 
initiatives that are planning or already testing multipayer concepts 
and we intend to revisit this issue in future rulemaking.
---------------------------------------------------------------------------

    \1\ March 25, 2015 HHS press release. https://www.hhs.gov/news/press/2015pres/03/20150325b.html.
---------------------------------------------------------------------------

    Comment: Many commenters were supportive of both the Shared Savings 
Program and our proposals in the December 2014 proposed rule. However, 
many commenters expressed general concerns related to the financial 
model as currently designed, stating that the Shared Savings Program 
places too much risk and burden on providers with too little 
opportunity for reward in the form of shared savings. Commenters 
encouraged CMS to modify the Shared Savings Program rules, particularly 
in a manner that would increase the financial opportunities for ACOs 
and attract more participants, which would sustain and improve long 
term participation. A few commenters suggested that CMS act quickly in 
improving the program's financial models, absent which existing ACOs 
may decide that the financial risks outweigh the benefits and choose to 
withdraw from the program.
    Commenters offered a variety of specific suggestions for improving 
the financial sustainability of the program, many of which are related 
to our proposals and request for comment and are addressed in section 
II.F. of this final rule. Some commenters recommended that CMS combine 
various design elements, stating that such changes would be key to 
encouraging ongoing participation in the program and driving meaningful 
change by ACOs. Some commenters offered specific suggestions for 
improving provider or ACO participation. For example, some commenters 
recommended that CMS provide up-front funding, consider the effect of 
seasonal commuter beneficiaries (``snowbirds'') on an ACO's performance 
cost calculations, permit providers to participate in more than one 
Medicare initiative involving shared savings, or permit certain groups 
(such as rural ACOs) to participate in Track 1 indefinitely or create a 
special rural-only track.
    Several commenters suggested that the program incorporate more 
explicit financial incentives for higher quality performance (for 
example, modifying the ACO's Minimum Savings Rate (MSR), while others 
requested retention of the current approach but suggested that CMS 
offer an even higher sharing rate to ACOs demonstrating high quality. 
Others recommended rewarding high quality organizations regardless of 
their financial performance.
    Response: We believe the changes to the Shared Savings Program 
tracks and other design elements that recognize an ACO's efforts 
finalized in section II.F. of this final rule address commenters' 
requests for improvements to the program's tracks and program 
sustainability overall. As explained in detail in section II.F., this 
final rule creates additional opportunities for ACOs to be financially 
rewarded for their achievement of the three-part aim, including the 
following:
     A second agreement period under the one-sided model for 
eligible Track 1 ACOs, with the opportunity to achieve a maximum 
sharing rate of 50 percent.
     Greater flexibility in choice of MSR/Minimum Loss Rate 
(MLR) under a two-sided model; and the chance for greater reward (in 
relation to greater risk) under the newly established Track 3.
    Additionally, we are finalizing policies related to resetting ACO 
benchmarks, including equal weighting the benchmark years, and 
accounting for shared savings generated under the prior agreement 
period. The revisions to the methodology for resetting the benchmark 
are expected to slow the rate at which the benchmark decreases in 
comparison to rebasing under the program's current methodology. 
Finally, we note that many ACOs that are currently participating in the 
program have had access to up-front funding through the CMS Innovation 
Center Advance Payment Model. The CMS Innovation Center is currently 
offering additional qualified ACOs the opportunity to apply for up-
front funding through the ACO Investment Model. We believe these 
changes, taken together, will improve the opportunity for ACOs to 
realize rewards under the program.
    We intend to continue to update and revise the Shared Savings 
Program over time as we gain experience and gain insights from testing 
that is ongoing in the CMS Innovation Center. In particular, as 
discussed in more detail in section II.F. of this final rule, based on 
the comments we received in the proposed rule and our own continued 
analysis, we believe that in order to encourage ACOs to achieve and 
maintain savings, it is important to move quickly to a benchmarking 
methodology that sets and updates ACO benchmarks largely on the basis 
of trends in regional FFS costs, rather than ACO's historical costs. 
For this reason we intend to propose and seek comment on a new 
benchmarking methodology later this summer. We anticipate that the 
revised benchmark rebasing methodology incorporating the ACO's 
historical costs and regional FFS costs and trends would apply to ACOs 
beginning new agreement periods in 2017 or later. ACOs beginning a new

[[Page 32698]]

agreement period in 2016 would convert to the revised methodology at 
the start of their third agreement period in 2019.
    Comment: Several commenters expressed concern regarding the timing 
of the finalization of program rules in relation to the ability of an 
ACO or applicant to adjust to them, or the impact that may have on the 
willingness of organizations to take on greater performance-based risk. 
Commenters were particularly concerned that ACOs with agreement periods 
ending in 2015 would not have an adequate amount of time to understand 
the implications of the final regulations (particularly if moving to 
two-sided risk) before having to seek renewal of their agreements 
during the summer of 2015.
    Response: We are aware of the timing concerns expressed by 
stakeholders and strive to give ACOs ample time to make decisions that 
are in the best interest of their patients, providers and organization. 
Therefore, we intend to implement final policies with these timing 
considerations in mind. Most of the policies will take effect for the 
2016 performance year; for example, our assignment methodology changes. 
However, we will defer implementation of some policies, recognizing 
that ACOs may need more time to come into compliance with the 
requirements. For example, we believe that modifying agreements with 
ACO participants and ACO providers/suppliers to comply with the 
requirements of new Sec.  425.116 may take time. Accordingly, we will 
not require ACOs to comply with Sec.  425.116(a) and (b) until the 2017 
performance year in the case of ACO participants and ACO providers/
suppliers that have already agreed to participate in the Shared Savings 
Program. Similarly, we will not require organizations that are applying 
or renewing for a January 1, 2016 start date to submit agreements with 
the updated language as part of the 2016 application and renewal 
process which occurs the summer and fall of 2015. However, we will 
expect and require that ACO participant agreements submitted for our 
review for purposes of adding new ACO participants to the ACO's list of 
ACO participants for performance years 2017 and subsequent years will 
comply with the new rules. For example, if an ACO submits a request to 
add an ACO participant to its ACO participant List for the 2017 
performance year during 2016, the ACO participant agreement must meet 
the requirements established in this final rule. Similarly, because of 
the operational complexity of the SNF 3-day rule waiver, we will defer 
implementation of that policy to no earlier than the 2017 performance 
year. We intend to develop and update guidance and operational 
documents as the new policies become effective.
    Comment: Several commenters suggested ways for the Shared Savings 
Program to increase or ensure beneficiary engagement. For example, 
commenters suggested permitting ACOs to financially reward 
beneficiaries for choosing low cost options or healthy behaviors, 
allowing ACOs to remove non-engaged beneficiaries by permitting the ACO 
to dismiss ``non-compliant'' beneficiaries, allowing ACOs more 
flexibility to interact with their beneficiary population to generate a 
more patient-centric program, and excluding certain vulnerable patient 
populations from ACO costs until ACOs develop a better track record of 
treating these patients.
    Several commenters made comments related to Medicare beneficiaries 
and their interaction with the ACO. A commenter stated that one of the 
major challenges for ACOs is ``getting beneficiaries to understand that 
they are a part of an ACO'' and that they are encouraged to receive all 
of their health care from ACO participating professionals and 
suppliers. The commenter suggested that CMS develop educational 
documents/resources for assigned beneficiaries that clearly outline the 
advantages and benefits of obtaining health care from their assigned 
ACO. On the other hand, a few other commenters expressed concerns that 
the Shared Savings Program regulations do not reinforce the concept 
that beneficiaries can get care outside the ACO. A few commenters 
requested that CMS perform various forms of monitoring activities to 
ensure that ACOs are providing open access to all beneficiaries. 
Commenters requested that we strictly monitor both referral patterns 
and any avoidance activities in order that all beneficiaries have 
access to quality care.
    Response: We recognize that beneficiary engagement is an important 
element in the ACO's ability to meet its goal of improving quality and 
reducing costs. For this reason, the statute and our program rules 
require ACOs to develop a process to promote patient engagement. We 
believe patient engagement works best at the point of care and the 
development of the patient-doctor relationship. Several ACOs that 
achieved first year success in the program have observed that patient 
engagement improves when engaged providers improve patient care. 
However, we will continue to consider how CMS can best support ACO 
efforts while ensuring beneficiary and Trust Funds protections.
    Additionally, as noted in this section and by some commenters, the 
Shared Savings Program is not a managed care program. Medicare FFS 
beneficiaries in the Shared Savings Program retain all rights and 
benefits under traditional Medicare. Medicare FFS beneficiaries retain 
the right to see any physician of their choosing, and they do not 
enroll in the Shared Savings Program. Unlike a managed care program, 
the assignment of beneficiaries to a Shared Savings Program ACO does 
not mean that beneficiaries must receive care only from ACO providers/
suppliers, nor does it mean that beneficiaries must enroll in the ACO 
or the Shared Savings Program. Therefore, we develop patient materials 
with the assistance of the ombudsman's office (for example, the 
Medicare and You Handbook, required ACO notifications, fact sheets) 
that state the rights and freedoms of beneficiaries under traditional 
FFS Medicare. We do not agree that it is appropriate for ACOs or CMS to 
require beneficiaries to receive all of their care from ACO 
participating professionals and suppliers. Rather, it is a program 
requirement that the ACO develop a process to promote care coordination 
across and among providers and suppliers both inside and outside the 
ACO.
    Finally, although beneficiaries that receive services from ACO 
professionals continue to retain the freedom to choose their providers, 
CMS monitors ACOs for prohibited behaviors such as avoidance of at-risk 
beneficiaries. Several other protections are in place, including a 
prohibition on beneficiary inducements and on certain required 
referrals and cost shifting Sec.  425.304. Moreover, providers and 
suppliers that seek to participate in an ACO undergo screening for 
program integrity history and may be denied participation in the Shared 
Savings Program based on the results.
    Comment: Many commenters were concerned with what they identified 
as either a lack of communication from CMS on specific questions or an 
overall lack of information about the program. Comments requested that 
CMS provide both general and detailed programmatic information. Others 
commenters recommended that the best practices that have resulted in 
shared savings be shared with ACOs and that CMS provide a detailed 
account of best practices that have been observed by ACOs that 
generated savings.
    Response: We believe that program transparency is important. For 
this reason, many of the current and newly finalized policies in this 
rule are designed to promote transparency for

[[Page 32699]]

beneficiaries and providers. For example, we have updated our public 
reporting requirements, codified and updated our requirements for ACO 
participant agreements, clarified numerous policies, and posted quality 
and financial information about ACOs on our Web site and Physician 
Compare (https://www.medicare.gov/physiciancompare/aco/search.html). 
There are many other methods we use to answer questions and assist ACOs 
participating in the program, including the following:
     Each ACO has a designated CMS Coordinator that develops an 
ongoing relationship with the ACO and is a direct resource to help ACOs 
navigate program requirements and deadlines.
     Operational guidance documents and FAQs that are available 
to ACOs on the ACO portal.
     Weekly newsletters with important information including 
deadline reminders.
     A dedicated CMS Web page (https://www.cms.gov/sharedsavingsprogram/) with program information, timelines, FAQs.
     A dedicated email box for ACOs to submit questions for 
subject matter experts to address.
     Frequent webinars that provide detailed information on 
program operations and methodologies, the opportunity to speak with CMS 
staff, and peer-to-peer learning sessions. We recognize that in spite 
of these efforts, there may be additional opportunities to improve 
program transparency. Therefore, we thank the commenters for their 
suggestions and will continue to look for ways we can engage with ACOs.
    We also note that we invite all ACOs to participate in learning 
best practices through ACO Learning System activities. The ACO Learning 
System was developed to provide ACOs with peer-to-peer learning 
opportunities that are in the form of in-person learning sessions and 
regularly scheduled webinars. This forum provides a unique mechanism 
for ACOs to share their challenges and successes with other ACOs. 
Summaries and slides from past sessions are available to participating 
ACOs through the ACO portal.

A. Definitions

    In the November 2011 final rule (76 FR 67802), we adopted 
definitions of key terms for purposes of the Shared Savings Program at 
Sec.  425.20. These terms are used throughout this final rule. We 
encourage readers to review these definitions. Based on our experiences 
thus far with the Shared Savings Program and inquiries we received 
regarding the defined terms, we proposed some additions to the 
definitions and a few revisions to the existing definitions.
1. Proposed Definitions
    We proposed to add several new terms to the definitions in Sec.  
425.20. First, we proposed to add a definition of ``participation 
agreement.'' Specifically, we proposed to define the term to mean the 
written agreement required under Sec.  425.208(a) between the ACO and 
CMS that, along with the regulations at part 425, governs the ACO's 
participation in the Shared Savings Program. We further proposed to 
make conforming changes throughout part 425, replacing references to an 
ACO's agreement with CMS with the defined term ``participation 
agreement.'' In addition, we proposed to make a conforming change in 
Sec.  425.204(c)(1)(i) to remove the incorrect reference to 
``participation agreements'' and replace it with ``ACO participant 
agreements.''
    We proposed to add the related definition of ``ACO participant 
agreement.'' Specifically, we proposed to define ``ACO participant 
agreement'' to mean the written agreement between an ACO and an ACO 
participant required at Sec.  425.116 in which the ACO participant 
agrees to participate in, and comply with, the requirements of the 
Shared Savings Program.
    As discussed in section II.F. of the proposed rule, we proposed to 
add a definition for ``assignment window,'' to mean the 12-month period 
used to assign beneficiaries to an ACO. This definition was added to 
accommodate the 12 month period used to assign beneficiaries to Track 1 
and 2 ACOs based on a calendar year as well as the off-set 12 month 
period used to assign beneficiaries prospectively to an ACO in Track 3.
    Comment: Many commenters were supportive of the addition of 
definitions for ``participation agreement'' and ``ACO participant 
agreement.'' Several commenters explicitly stated support for the 
proposal to define an ``assignment window''.
    Response: We appreciate stakeholder support for incorporating new 
definitions in to the Shared Savings Program.
    FINAL ACTION: We are finalizing the new definitions of 
``participation agreement'', ``ACO participant agreement'', and 
``assignment window'' as proposed in Sec.  425.20. We believe these 
definitions will facilitate transparency and a better understanding of 
the program rules.
2. Proposed Revisions to Existing Definitions
    We proposed several revisions to existing definitions. First, we 
proposed to revise the definition of ``ACO participant'' to clarify 
that an ACO participant is an ``entity'' identified by a Medicare-
enrolled TIN. Additionally, we proposed to correct a grammatical error 
by revising the definition to indicate that one or more ACO 
participants ``compose,'' rather than ``comprise'' an ACO. We noted 
that a related grammatical error would be corrected at Sec.  
425.204(c)(1)(iv). These proposed changes to the definition of ``ACO 
participant'' were not intended to alter the way the Shared Savings 
Program currently operates.
    We proposed to revise the definition of ``ACO professional'' to 
remove the requirement that an ACO professional be an ACO provider/
supplier. We also proposed to revise the definition of ``ACO 
professional'' to indicate that an ACO professional is an individual 
who bills for items or services he or she furnishes to Medicare fee-
for-service beneficiaries under a Medicare billing number assigned to 
the TIN of an ACO participant in accordance with Medicare regulations. 
We proposed these modifications because there may be ACO professionals 
who furnished services billed through an ACO participant's TIN in the 
benchmarking years but are no longer affiliated with the ACO 
participant and therefore are not furnishing services billed through 
the TIN of the ACO participant during the performance years. These 
proposed changes to the definition of ``ACO professional'' are not 
intended to alter the way the Shared Savings Program currently 
operates.
    We proposed to modify the definition of ``ACO provider/supplier'' 
to clarify that an individual or entity is an ACO provider/supplier 
only when it is enrolled in the Medicare program, bills for items and 
services furnished to Medicare FFS beneficiaries during the agreement 
period under a Medicare billing number assigned to the TIN of an ACO 
participant, and is included on the list of ACO providers/suppliers 
that is required under the proposed regulation at Sec.  425.118. We 
stated our belief that an individual or entity should be considered an 
ACO provider/supplier if he or she previously (for example, during the 
benchmarking years) reassigned the right to receive Medicare payment to 
a prospective ACO participant, but is not participating in the 
activities of the ACO during the ACO's agreement period by furnishing 
care to Medicare FFS beneficiaries that

[[Page 32700]]

is billed through the TIN of an ACO participant. The proposed 
modification was intended to clarify that a provider or supplier must 
bill for items or services furnished to Medicare FFS beneficiaries 
through the TIN of an ACO participant during the ACO's agreement period 
in order to be an ACO provider/supplier.
    We proposed to modify the definition of ``assignment'' to mean the 
operational process by which CMS determines whether a beneficiary has 
chosen to receive a sufficient level of the requisite primary care 
services from ``ACO professionals.'' In the proposed rule, we explained 
that that for purposes of defining assignment, we stated our belief 
that it is more appropriate to use the term ``ACO professional,'' 
rather than the term ``ACO provider/supplier,'' because a physician or 
other practitioner can only be an ACO provider/supplier if he or she 
bills for items and services through the TIN of an ACO participant 
during the ACO's agreement period and is included on the list of ACO 
providers/suppliers required under our regulations. However, there may 
be an ACO professional who furnishes services billed through an ACO 
participant's TIN in the performance or benchmarking years but is 
either not listed on the ACO providers/suppliers list or is no longer 
billing through the ACO participant's TIN during the performance years 
and therefore cannot be considered an ACO provider/supplier.
    In the interests of clarity, we therefore proposed to modify the 
definition of assignment to reflect that our assignment methodology 
takes into account claims for primary care services furnished by ACO 
professionals, not solely claims for primary care services furnished by 
physicians in the ACO. This revision would ensure consistency with 
program operations and alignment with the definition of ``ACO 
professional'' since it is the aggregation of the ACO professionals' 
claims that impacts assignment. We stated that the proposed 
modification to the definition of ``assignment'' would more accurately 
reflect the use of claims for primary care services furnished by ACO 
professionals that are submitted through an ACO participant's TIN in 
determining beneficiary assignment in the ACO's benchmark and 
performance years. Additionally, we proposed to make conforming changes 
as necessary to the regulations governing the assignment methodology in 
part 425 subpart E, to revise the references to ``ACO provider/
supplier'' to read ``ACO professional.''
    We proposed a technical revision to the definition of ``hospital'' 
for purposes of the Shared Savings Program. Section 1899(h)(2) of the 
Act provides that, for purposes of the Shared Savings Program, the term 
``hospital'' means a subsection (d) hospital as defined in section 
1886(d)(1)(B) of the Act. In the November 2011 final rule (76 FR 
67812), we finalized a definition of ``hospital'' that included only 
acute care hospitals paid under the hospital inpatient prospective 
payment system (IPPS). Under this definition, Maryland acute care 
hospitals would not be considered to be ``hospitals'' for purposes of 
the Shared Savings Program because they are subject to a waiver from 
the Medicare payment methodologies under which they would otherwise be 
paid. We proposed to clarify that a Maryland acute care hospital is a 
``hospital'' for purposes of the Shared Savings Program. Specifically, 
we proposed to revise the definition of ``hospital'' for purposes of 
the Shared Savings Program to mean a hospital as defined in section 
1886(d)(1)(B) of the Act. The proposed regulation is consistent with 
both the statutory definition of ``hospital'' for purposes of the 
Shared Savings Program in section 1899(h)(2) of the Act and the 
position we have taken in other contexts in referring to subsection (d) 
hospitals.
    We proposed to modify the definition of ``primary care services.'' 
We refer the reader to section II.E.3. of this final rule for a more 
detailed discussion of the proposed revision to this definition, which 
is relevant to the assignment of a Medicare beneficiary to an ACO, as 
well as responses to comments received on this proposal.
    As discussed in greater detail in section II.F. of the proposed 
rule, we proposed revisions to the definitions of ``continuously 
assigned beneficiary'' and ``newly assigned beneficiary.'' These 
definitions relate to risk adjustment for the assigned population and 
required minor modification to accommodate the newly proposed Track 3. 
Specifically, we proposed to replace the reference in these definitions 
to ``most recent prior calendar year'' with a reference to ``the 
assignment window for the most recent prior benchmark or performance 
year.'' Thus, for Track 3 the reference period for determining whether 
a beneficiary is newly or continuously assigned would be the most 
recent prior prospective assignment window (the off-set 12 months) 
before the assignment window for the current performance year and the 
reference period for determining whether a Track 1 or 2 beneficiary is 
newly or continuously assigned would continue to be the most recent 
prior assignment window (the most recent calendar year).
    Finally, in connection with our discussion of the applicability of 
certain changes that are made to program requirements during the 
agreement period, we proposed revisions to the definition of 
``agreement period.'' Readers should refer to section II.C.4. of this 
final rule for a discussion of the proposed changes to the definition 
as well as the responses to comments received on the proposal.
    Comment: Many commenters expressed general support for 
modifications to the definitions. Several commenters expressed support 
for our proposed revision to the definition of ``ACO participant'' but 
suggested that CMS clarify that some ACO participants could be 
individual providers billing under his or her own Social Security 
Number, rather than the TIN of an ACO participant. A few commenters 
expressed support for our proposal to modify the definition of 
``hospital,'' stating that this modification will result in clarity for 
Maryland acute care facility participation in the Shared Savings 
Program and provide an equal opportunity for all hospitals to form 
ACOs. A commenter expressed concern that the definitions of ``ACO 
professional, ACO participant and ACO provider/supplier'' would 
``restructure the intended roles of providers within ACOs'' and 
encouraged CMS to develop definitions that would be inclusive rather 
than exclusive to ``protect the inclusive intent of the legislation 
which recognizes NPs as ACO professionals.''
    Response: We appreciate the comments we received in favor of our 
proposals to modify certain definitions. We believe these modifications 
will improve program transparency and understanding of program rules 
and respond to stakeholder inquiries. We believe the definitions 
support and lend transparency to the program rules, are consistent with 
statutory language, and inclusive of Medicare enrolled providers and 
suppliers that furnish services to Medicare FFS beneficiaries. We are 
unclear what the commenter is referring to regarding the ``inclusive 
intent'' of the statute and believe we have developed definitions that 
are consistent with the statutory language. Our definition of an ACO 
participant includes Medicare enrolled billing TINs through which one 
or more ACO providers/suppliers bill Medicare. As such, ACOs may 
include the TIN of solo practitioners on its list of ACO participants 
because Social Security Numbers (SSNs) and Employer Identification 
Numbers (EINs) are types of Taxpayer Identification Numbers. 
Furthermore, we agree with commenters that aligning the program 
definition of

[[Page 32701]]

hospital with the statutory definition will permit Maryland hospitals 
to form an ACO under our program rules, although we note that current 
program rules permit such hospitals to be an ACO participant along with 
other ACO participants that have joined to form an ACO.
    FINAL ACTION: We are finalizing the proposed modifications to the 
definitions of ACO participant, ACO professional, ACO provider/
supplier, assignment, hospital, and newly assigned beneficiary and 
continuously assigned beneficiary, along with necessary conforming 
changes. We refer the reader to sections II.C. and II.E. of this final 
rule for a review of comments, responses, and final actions regarding 
the definitions of ``agreement period'' and ``primary care services.''

B. ACO Eligibility Requirements

1. Agreement Requirements
a. Overview
    Section 1899(b)(2)(B) of the Act requires participating ACOs to 
``enter into an agreement with the Secretary to participate in the 
program for not less than a 3-year period.'' If the ACO is approved for 
participation in the Shared Savings Program, an executive who has the 
ability to legally bind the ACO must sign and submit a participation 
agreement to CMS (Sec.  425.208(a)(1)). Under the participation 
agreement with CMS, the ACO agrees to comply with the regulations 
governing the Shared Savings Program (Sec.  425.208(a)(2)). In 
addition, the ACO must require its ACO participants, ACO providers/
suppliers, and other individuals or entities performing functions or 
services related to the ACO's activities agree to comply with the 
Shared Savings Program regulations and all other applicable laws and 
regulations (Sec.  425.208(b) and Sec.  425.210(b)) and to commit to 
the participation agreement (Sec.  425.306(a)). The ACO must provide a 
copy of its participation agreement with CMS to all ACO participants, 
ACO providers/suppliers, and other individuals and entities involved in 
ACO governance (Sec.  425.210(a)). As part of its application, we 
currently require each ACO to submit a sample of the agreement it 
executes with each of its ACO participants (the ``ACO participant 
agreement''). Also, as part of its application and when requesting the 
addition of new ACO participants, we require an ACO to submit evidence 
that it has a signed written agreement with each of its ACO 
participants. (See guidance on our Web site at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/sharedsavingsprogram/Downloads/Memo_Additional_Guidance_on_ACO_Participants.pdf ). An ACO's 
application to participate in the Shared Savings Program and any 
subsequent request to add new ACO participants will not be approved if 
the ACO does not have an agreement in place with each of its ACO 
participants in which each ACO participant agrees to participate in the 
Shared Savings Program and to comply with the requirements of the 
Shared Savings Program.
    In our review of applications to participate in the Shared Savings 
Program, we received many ACO participant agreements that were not 
properly executed, were not between the correct parties, lacked the 
required provisions, contained incorrect information, or failed to 
comply with Sec.  425.304(c) relating to the prohibition on certain 
required referrals and cost shifting. When we identified such 
agreements, ACOs experienced processing delays, and in some cases, we 
were unable to approve the ACO applicant and its ACO participant or 
both to participate in the Shared Savings Program. Consequently, we 
issued guidance for ACO applicants in which we stated the required 
elements for ACO participant agreements and strongly recommended that 
ACOs employ good contracting practices to ensure that each of their ACO 
participant agreements met our requirements (see https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/sharedsavingsprogram/Downloads/Tips-ACO-Developing-Participant-Agreements.pdf).
    The ACO participant agreements are necessary for purposes of 
program transparency and to ensure an ACO's compliance with program 
requirements. Moreover, many important program operations (including 
calculation of shared savings, assignment of beneficiaries, and 
financial benchmarking) use claims and other information that are 
submitted to CMS by the ACO participant. Our guidance clarifies that 
ACO participant agreements and any agreements with ACO providers/
suppliers must contain the following:
     An explicit requirement that the ACO participant or the 
ACO provider/supplier will comply with the requirements and conditions 
of the Shared Savings Program (part 425), including, but not limited 
to, those specified in the participation agreement with CMS.
     A description of the ACO participants' and ACO providers'/
suppliers' rights and obligations in and representation by the ACO.
     A description of how the opportunity to get shared savings 
or other financial arrangements will encourage ACO participants and ACO 
providers/suppliers to follow the quality assurance and improvement 
program and evidence-based clinical guidelines.
     Remedial measures that will apply to ACO participants and 
ACO providers/suppliers who do not comply with the requirements of 
their agreements with the ACO.
    Our guidance also requires that the ACO participant agreements be 
made directly between the ACO and the ACO participant. We believe it is 
important that the parties entering into the agreement have a direct 
legal relationship to ensure that the requirements of the agreement are 
fully and directly enforceable by the ACO, including the ability of the 
ACO to terminate an agreement with an ACO participant that is not 
complying with the requirements of the Shared Savings Program. 
Therefore, we believe a direct contractual relationship is important. 
Additionally, a direct contractual relationship ensures that the ACO 
participant may, if necessary, terminate the agreement with the ACO 
according to the terms of the agreement without interrupting other 
contracts or agreements with third parties. Therefore, the ACO and the 
ACO participant must be the only parties to an ACO participant 
agreement; the agreements may not include a third party to the 
agreement. For example, the agreement may not be between the ACO and 
another entity, such as an independent practice association (IPA) or 
management company that in turn has an agreement with one or more ACO 
participants. Similarly, ACOs should not use existing contracts between 
ACOs and ACO participants that include third parties.
    We recognize that contractual agreements do exist between entities 
(for example, contracts that permit organizations like IPAs to 
negotiate contracts with health care payers on behalf of individual 
practitioners). However, because it is important to ensure that there 
is a direct contractual relationship between the ACO and the ACO 
participant evidenced by a written agreement, and because ACO 
participants continue to bill and receive payments as usual under the 
Medicare FFS rules (that is, there is no negotiation for payment under 
the program) we believe that typical IPA contracts are inappropriate 
and unnecessary for purposes of participation in the Shared Savings 
Program. An ACO and ACO participant may use a contract unrelated to the 
Shared Savings Program as an

[[Page 32702]]

ACO participant agreement only when it is between the two parties and 
is amended to satisfy the requirements for ACO participant agreements 
under the Shared Savings Program.
    It is the ACO's responsibility to make sure that each ACO 
participant agreement identifies the parties entering into the 
agreement using their correct legal names, specifies the term of the 
agreement, and is signed by both parties to the agreement. We validate 
the legal names of the parties based on information the ACO submitted 
in its application and the legal name of the entity associated with the 
ACO participant's TIN in the Provider Enrollment Chain & Ownership 
System (PECOS). We reject an ACO participant agreement if the party 
names do not match our records. It may be necessary for the ACO to 
execute a new or amended ACO participant agreement.
    Although the ACO participant must ensure that each of its ACO 
providers/suppliers (as identified by a National Provider Identifier 
(NPI)) has agreed to participate in the ACO and will comply with 
program rules, the ACO has the ultimate responsibility for ensuring 
that all the ACO providers/suppliers that bill through the TIN of the 
ACO participant have also agreed to participate in the Shared Savings 
Program and comply with our program regulations. The ACO may ensure 
this by directly contracting with each ACO provider/supplier (NPI) or 
by contractually requiring the ACO participant to ensure that all ACO 
providers/suppliers that bill through its TIN have agreed to 
participate in, and comply with the requirements of, the Shared Saving 
Program. If the ACO chooses to contract directly with the ACO 
providers/suppliers, the agreements must meet the same requirements as 
the agreements with ACO participants. We emphasize that even if an ACO 
chooses to contract directly with the ACO providers/suppliers (NPIs), 
it must still have the required ACO participant agreement. In other 
words, the ACO must be able to produce valid written agreements for 
each ACO participant and each ACO provider/supplier. Furthermore, since 
we use TINs (and not merely some of the NPIs that make up the entity 
identified by a TIN) as the basis for identifying ACO participants, and 
we use all claims submitted under an ACO participant's TIN for 
financial calculations and beneficiary assignment, an ACO may not 
include an entity as an ACO participant unless all Medicare enrolled 
providers and suppliers billing under that entity's TIN have agreed to 
participate in the ACO as ACO providers/suppliers.
    We proposed to codify much of our guidance regarding the content of 
the ACO participant and ACO provider/supplier agreements.
b. Proposed Revisions
    First, we proposed to add new Sec.  425.116 to set forth the 
requirements for agreements between an ACO and an ACO participant or 
ACO provider/supplier. We stated our belief that the new provision 
would promote a better general understanding of the Shared Savings 
Program and transparency for ACO participants and ACO providers/
suppliers. It was our intent to provide requirements that would 
facilitate and enhance the relationships between ACOs and ACO 
participants, and reduce uncertainties and misunderstandings leading to 
rejection of ACO participant agreements during application review. 
Specifically, we proposed to require that ACO participant agreements 
satisfy the following criteria:
     The ACO and the ACO participant are the only parties to 
the agreement.
     The agreement must be signed on behalf of the ACO and the 
ACO participant by individuals who are authorized to bind the ACO and 
the ACO participant, respectively.
     The agreement must expressly require the ACO participant 
to agree, and to ensure that each ACO provider/supplier billing through 
the TIN of the ACO participant agrees, to participate in the Shared 
Savings Program and to comply with the requirements of the Shared 
Savings Program and all other applicable laws and regulations 
(including, but not limited to, those specified at Sec.  425.208(b)).
     The agreement must set forth the ACO participant's rights 
and obligations in, and representation by, the ACO, including without 
limitation, the quality reporting requirements set forth in Subpart F, 
the beneficiary notification requirements set forth at Sec.  425.312, 
and how participation in the Shared Savings Program affects the ability 
of the ACO participant and its ACO providers/suppliers to participate 
in other Medicare demonstration projects or programs that involve 
shared savings.
     The agreement must describe how the opportunity to receive 
shared savings or other financial arrangements will encourage the ACO 
participant to adhere to the quality assurance and improvement program 
and evidence-based medicine guidelines established by the ACO.
     The agreement must require the ACO participant to update 
enrollment information with its Medicare Administrative Contractor 
using the PECOS, including the addition and deletion of ACO 
professionals billing through the TIN of the ACO participant, on a 
timely basis in accordance with Medicare program requirements. The 
agreement must also require ACO participants to notify the ACO within 
30 days after any addition or deletion of an ACO provider/supplier.
     The agreement must permit the ACO to take remedial action 
against the ACO participant, and must require the ACO participant to 
take remedial action against its ACO providers/suppliers, including 
imposition of a corrective action plan, denial of shared savings 
payments (that is, the ability of the ACO participant or ACO provider/
supplier to receive a distribution of the ACO's shared savings) and 
termination of the ACO participant agreement, to address non-compliance 
with the requirements of the Shared Savings Program and other program 
integrity issues, including those identified by CMS.
     The term of the agreement must be for at least 1 
performance year and must articulate potential consequences for early 
termination from the ACO.
     The agreement must require completion of a close-out 
process upon the termination or expiration of the ACO's participation 
agreement that requires the ACO participant to furnish data necessary 
to complete the annual assessment of the ACO's quality of care and 
addresses other relevant matters.
    Although we proposed that the term of an ACO participant agreement 
be for at least 1 performance year, we stated that we did not intend to 
prohibit early termination of the agreement. We recognized that there 
may be legitimate reasons to terminate an ACO participant agreement. 
However, because care coordination and quality improvement requires 
commitment from ACO participants, we stated our belief that a minimum 
requirement of 1 year would improve the likelihood of success in the 
Shared Savings Program. We also stated that we were considering whether 
and how ACO participant agreements should encourage participation to 
continue for subsequent performance years. We sought comment on this 
issue.
    In the case of an ACO that chooses to contract directly with its 
ACO providers/suppliers, we proposed virtually identical requirements 
for its agreements with ACO providers/suppliers. We noted that, unlike 
agreements between the ACO and an ACO participant, agreements with ACO 
providers/suppliers would not be required to be for a term of at least 
1 year, because we did not want to impede individual practitioners from 
activities such as retirement, reassignment of billing rights, or

[[Page 32703]]

changing employers. In the case of ACO providers/suppliers that do not 
contract directly with the ACO, we considered requiring each ACO to 
ensure that its ACO participants contract with or otherwise arrange for 
the services of its ACO providers/suppliers on the same or similar 
terms as those required for contracts made directly between the ACO and 
ACO providers/suppliers.
    In addition, we proposed to add at Sec.  425.204(c)(6) a 
requirement that, as part of the application process and upon request 
thereafter, the ACO must submit documents demonstrating that its ACO 
participants, ACO providers/suppliers, and other individuals or 
entities performing functions or services related to ACO activities are 
required to comply with the requirements of the Shared Savings Program. 
In the case of ACO participants, we proposed that the evidence to be 
submitted must, consistent with our past guidance, include sample form 
agreements together with the first and last (signature) page of each 
form agreement that has been fully executed by the parties to the 
agreement. However, we proposed to reserve the right to request all 
pages of an executed ACO participant agreement to confirm that it 
conforms to the sample form agreement submitted by the ACO. In 
addition, we proposed at Sec.  425.116(c) that executed ACO participant 
agreements would also be submitted when an ACO seeks approval to add 
new ACO participants. The agreements would be submitted in the same 
form and manner as set forth in Sec.  425.204(c)(6). Finally, although 
we would not routinely request an ACO to submit copies of executed 
agreements the ACO or ACO participants have with the ACO providers/
suppliers or other individuals or entities performing functions or 
services related to ACO activities as part of the ACO's application or 
continued participation in each performance year, we proposed to 
reserve our right to request this information during the application or 
renewal process and at any other time for audit or monitoring purposes 
in accordance with Sec.  425.314 and Sec.  425.316.
    We stated our belief that the proposed requirements regarding 
agreements between ACOs and ACO participants, together with our earlier 
guidance regarding good contracting practices, would enhance 
transparency between the ACO, ACO participants, and ACO professionals, 
reduce turnover among ACO participants, prevent misunderstandings 
related to participation in the Shared Savings Program, and assist 
prospective ACOs in submitting complete applications and requests for 
adding ACO participants. We stated our belief that codifying these 
requirements would assist the ACO, ACO participants, and ACO providers/
suppliers in better understanding the program and their rights and 
responsibilities while participating in the program. We solicited 
comment on the proposed requirements and on whether we should consider 
additional elements to include in the agreements the ACO has with its 
ACO participants and ACO providers/suppliers.
    Comment: Most commenters agreed with the CMS proposed criteria for 
ACO participant agreements stating that it is important for each ACO 
participant to understand its obligations and rights. Additionally, 
commenters stated that it is ``crucial'' for all practitioners 
participating in the ACO to agree to both program participation and 
compliance with all relevant laws and regulations, and that 
transparency in the opportunity to receive shared savings is essential 
for expectations. Some commenters agreed with our proposal for ACO 
participant agreements to require that ACO participants update 
enrollment information with their Medicare Administrative Contractor 
using PECOS within 30 days of any addition/deletion of an ACO provider/
supplier. However, several commenters expressed concerns with the 
general requirement discussed later in this section that ACOs be held 
responsible for ensuring that ACO participants and ACO providers/
suppliers appropriately update PECOS.
    Response: We appreciate the general support for our proposals 
related to ACO participant agreements. We agree with commenters that 
transparency between ACOs and ACO participants is important. We agree 
with commenters that it is important for all practitioners 
participating in the ACO to explicitly agree to both participation and 
compliance with all relevant laws and regulations. We believe it is 
important for ACOs to encourage and enforce compliance with all 
Medicare laws and regulations, including the requirement that Medicare 
enrolled entities keep Medicare enrollment records updated. Since 
Medicare already requires enrollment information to be updated within 
30 days of a change, we do not believe the 30 day requirement for 
Medicare enrolled entities to alert PECOS of any additions/deletions is 
overly burdensome. Moreover, including this requirement in the ACO 
participant agreement will assist the ACO in reinforcing this 
requirement as a condition of participation in the ACO and enable the 
ACO to comply with program rules.
    Comment: A commenter stated CMS to include a requirement for ACO 
participant agreements to specify that a portion of shared savings be 
shared with ACO providers/suppliers, especially specialists.
    Response: We believe maintaining transparency regarding the 
opportunity to receive shared savings is essential in order to set 
appropriate expectations for all parties. For this reason, we strongly 
urge ACOs to be transparent in the agreements that are developed for 
ACO participants, for example, by clearly articulating expectations for 
how shared savings will be distributed to ACO participants and ACO 
providers/suppliers. However, we do not require ACOs to distribute 
shared savings in a particular manner. We believe it is important to 
permit ACOs the flexibility to use and distribute shared savings, as 
long as the methodology complies with applicable law. As explained in 
the November 2011 final rule, we do not believe we have the legal 
authority to dictate how shared savings are distributed; however, we 
believe it is consistent with the purpose and intent of the statute to 
require the ACO to indicate how it plans to use potential shared 
savings to meet the goals of the program. We encourage ACOs to be 
transparent about this plan in its agreements with ACO participants.
    Comment: A commenter stated that forcing an entity to remain in an 
ACO for the duration of the performance year would compromise the goals 
of the ACO and contribute to administrative burden. Another commenter 
suggested that CMS finalize an additional requirement for ACO 
participants to notify the ACO if they wish to terminate prior to the 
CMS deadlines for subsequent year changes.
    Response: We believe it is important for each ACO participant to 
understand its obligations and rights in detail. We also note that 
program rules currently require each ACO participant to commit to the 
3-year participation agreement that the ACO makes with CMS (Sec.  
425.306(a)). As we stated in the proposed rule, because care 
coordination and quality improvement requires commitment from ACO 
participants, we believe that a minimum 1-year term requirement would 
improve the likelihood of success of the ACO and its ACO participants. 
For these reasons, we believe it is important to require ACO 
participant agreements to include the requirement that the agreement 
must be for at least 1 performance year and address potential 
consequences for early termination. Rather than compromising the goals 
of the ACO, we believe this enhances the ACO's ability to achieve its 
goals. We

[[Page 32704]]

may consider in future rulemaking the suggestion to require ACO 
participants and ACO providers/suppliers to provide some prior notice 
of termination to the ACO. However, even in the absence of such a 
requirement, we believe that ACOs will, as a matter of prudent business 
contracting, incorporate a requirement that ACO participants and ACO 
providers/suppliers must provide some prior notice of termination to 
the ACO.
    Comment: A commenter requested that CMS more thoroughly consider 
the required close-out procedures so ACOs could incorporate specific 
details into the ACO participant agreements.
    Response: We will not prescribe additional close-out requirements 
at this time. However, ACOs may choose to incorporate additional 
requirements into their ACO participant agreements regarding timing of 
agreement termination. Additionally, we are pleased that ACOs wish to 
incorporate additional details related to close-out procedures and 
intend to make details available through guidance and other operational 
documents. We encourage, but will not require, ACOs to incorporate 
these details into their ACO participant agreements once the guidance 
becomes available.
    Comment: A commenter requested that CMS not incorporate proposed 
language regarding ``other individuals or entities performing functions 
or services related to ACO activities are required to comply with the 
requirements of the Shared Savings Program'' into program rules at 
Sec.  425.204(c)(6) because they believe it would add unnecessary 
burden.
    Response: Under Sec.  425.210(b) of the Shared Savings Program 
rules, we currently require that contracts or arrangements between or 
among the ACO, ACO participants, ACO providers/suppliers, and other 
individuals or entities performing functions or services related to ACO 
activities must require compliance with the requirements and conditions 
of the Shared Savings Program. This is not a new proposal; however, we 
have proposed to incorporate this requirement in Sec.  425.204(c)(6). 
Because this is not a new requirement, and we do not anticipate 
routinely requesting executed documents, we do not believe it imposes 
any additional burden on ACOs.
    Comment: Some commenters expressed concern that our proposals for 
ACO participant agreement requirements may lead some readers to 
conclude that CMS is prohibiting ACO participants from participating in 
an IPA and in an ACO concurrently. Others requested reconsideration of 
the proposed ACO participant agreement requirements and instead permit 
`typical contracts' between providers and IPAs to qualify. These 
commenters stated that the proposed regulation would erect a barrier 
for ACO participation by independent practices that would have to spend 
time and money reviewing new contracts when they may already have a 
contract in place that binds them to ``all the terms necessary'' for 
ACO participation.
    Response: Our example of the requirement for ACOs to have a direct 
contractual relationship with ACO participants was not intended to 
suggest that ACO participants may not also have contractual 
relationships with other entities such as IPAs. We also emphasize that 
existing IPA contracts we have seen during the application process are 
insufficient to satisfy the requirements necessary for an ACO 
participant agreement. For example, typical existing contracts permit 
IPAs to negotiate with payers on behalf of the independent practice, 
make no mention of the Shared Savings Program, and do not require 
independent practices or their practitioners to agree to participate 
and comply with program rules. Under the Shared Savings Program, 
payments for services rendered by the independent practices for FFS 
beneficiaries are not negotiated because such practices continue to 
bill Medicare for the services the furnish to FFS beneficiaries as they 
normally would in the absence of the ACO. Additionally, based on 
previous experience, we believe it is extremely important that each ACO 
participant and each ACO provider/supplier explicitly understand and 
acknowledge their participation in the program, how their participation 
may result in shared savings, their obligations regarding quality 
reporting, their obligation to comply with all program rules, and other 
important details of the program. Based on our experience, if ACO 
participants who are also part of an IPA wish to form an ACO, it is 
likely that they will have to develop an ACO participant agreement that 
satisfies the requirements of the Shared Savings Program, and not rely 
on agreements that have already been executed between the IPA and 
Medicare-enrolled providers or suppliers for purposes of participating 
in the IPA.
    FINAL ACTION: We will finalize our proposals at Sec.  425.116 for 
ACO participant and ACO provider/supplier agreement criteria with 
slight modifications regarding the applicability date. We believe the 
new regulation will promote a better general understanding of the 
Shared Savings Program and transparency for ACO participants and ACO 
providers/suppliers. We believe that the new requirements regarding 
agreements between ACOs and ACO participants, together with our earlier 
guidance regarding good contracting practices, will enhance 
transparency between the ACO, ACO participants, and ACO professionals, 
reduce turnover among ACO participants, prevent misunderstandings 
related to participation in the Shared Savings Program, and assist 
prospective ACOs in submitting complete applications and requests for 
adding ACO participants. We believe that codifying these requirements 
will assist the ACO, ACO participants, and ACO providers/suppliers in 
better understanding the program and their rights and responsibilities 
while participating in the program.
    In addition, we will finalize our proposal to add at Sec.  
425.204(c)(6) a requirement that, as part of the application process 
and upon request thereafter, the ACO must submit documents 
demonstrating that its ACO participants, ACO providers/suppliers, and 
other individuals or entities performing functions or services related 
to ACO activities are required to comply with the requirements of the 
Shared Savings Program, including executed agreements for all ACO 
participants. Although we will not routinely request an ACO to submit 
copies of executed agreements the ACO or its ACO participants have with 
ACO providers/suppliers or other individuals or entities performing 
functions or services related to ACO activities as part of the ACO's 
application or continued participation in each performance year, we 
reserve our right to request this information during the application or 
renewal process and at any other time for audit or monitoring purposes 
in accordance with Sec. Sec.  425.314 and 425.316. Specifically, The 
ACO is ultimately responsible for ensuring that each ACO provider/
supplier billing through the TIN of an ACO participant has agreed to 
participate in and comply with the Shared Savings Program rules. The 
ACO can fulfill this obligation either by direction contracting with 
each ACO provider/supplier (NPI) or contractually requiring the ACO 
participant to ensure that all ACO providers/suppliers that bill 
through its TIN have agreed to participate in, and comply with the 
requirements of, the Shared Saving Program. If the ACO chooses to 
contract directly with the ACO providers/suppliers, the agreements must 
meet

[[Page 32705]]

virtually the same requirements as the agreements with ACO 
participants, and the ACO must still have an ACO participant agreement 
in place with the TIN through which the ACO providers/suppliers bill.
    Because of the timing of publication of this final rule, we 
recognize that ACOs may struggle to incorporate these requirements in 
time to submit 2016 applications or requests for renewal by the 
applicable deadlines which will occur during the summer and fall of 
2015. While we encourage ACOs to incorporate these requirements into 
their ACO participant agreements as soon as possible, we will not 
require these changes to be incorporated into any ACO participant 
agreements that are submitted to CMS for the 2016 performance year. 
ACOs that submit requests to add ACO participants for inclusion on the 
2017 performance year list of ACO participants will be required to have 
a corresponding ACO participant agreement that meets the new 
requirements.
2. Sufficient Number of Primary Care Providers and Beneficiaries
a. Overview
    Section 1899(b)(2)(D) of the Act requires participating ACOs to 
``include primary care ACO professionals that are sufficient for the 
number of Medicare fee-for-service beneficiaries assigned to the ACO . 
. .'' and that at a minimum, ``the ACO must have at least 5,000 such 
beneficiaries assigned to it. . . .'' Under Sec.  425.110(a)(2), an ACO 
is deemed to have initially satisfied the requirement to have at least 
5,000 assigned beneficiaries if the number of Medicare beneficiaries 
historically assigned to the ACO participants in each of the 3 years 
before the start of the agreement period is 5,000 or more.
    Under the beneficiary assignment methodology set forth in the 
regulations at part 425, subpart E, the assignment of beneficiaries to 
a particular ACO for a calendar year is dependent upon a number of 
factors, including where the beneficiary elected to receive primary 
care services and whether the beneficiary received primary care 
services from ACO professionals participating in one or more Shared 
Savings Program ACOs. We note that to ensure no duplication in shared 
savings payments for care provided to the same beneficiaries, 
assignment of a beneficiary may also be dependent on whether the 
beneficiary has been assigned to another initiative involving shared 
savings, such as the Pioneer ACO Model (Sec.  425.114(c)). While a 
final assignment determination can be made for the first 2 benchmark 
years (BY1 and BY2, respectively) for an ACO applying to participate in 
the Shared Savings Program, it is not possible to determine the final 
assignment for the third benchmark year (BY3) (that is, the calendar 
year immediately prior to the start of the agreement period) because 
application review and determination of whether the ACO has met the 
required 5,000 assignment must take place during BY3 before all claims 
are submitted for the calendar year. Furthermore, there is a lag period 
after the end of a calendar year during which additional claims for the 
year are billed and processed. Therefore, the final historical 
benchmark for the 3-year period and the preliminary prospective 
assignment for PY1 must be determined after the ACO's agreement period 
has already started. We note that we currently estimate the number of 
historically assigned beneficiaries for the third benchmark year for 
Tracks 1 and 2 by using claims with dates of service for the last 3 
months of benchmark year 2 (October through December) and the first 9 
months of benchmark year 3 (January through September, with up to 3 
months claims run out, as available). We use this approach to calculate 
the number of assigned beneficiaries for BY3 in order to be as 
consistent as possible with the timeframes (that is, 12 month period) 
and claims run out used for the BY1 and BY2 calculations.
    Section 425.110(b) provides that an ACO that falls below 5,000 
assigned beneficiaries at any time during the agreement period will be 
allowed to continue in the program, but CMS must issue a warning letter 
and place the ACO on a corrective action plan (CAP). The purpose of 
this provision is to ensure that the ACO is aware that its number of 
assigned beneficiaries is below 5,000, is notified of the consequences 
of remaining under 5,000, and that the ACO is taking appropriate steps 
to correct the deficiency.
    Section 425.110(b)(1) provides that, while under the CAP, the ACO 
will remain eligible to share in savings for the performance year in 
which it fell below the 5,000, and the MSR will be adjusted according 
to the number of assigned beneficiaries determined at the time of 
reconciliation. For example, according to Table 6 in the November 2011 
final rule (42 FR 67928), a Track 1 ACO with an assigned population of 
5,000 would have an MSR of 3.9. If the ACO's number of assigned 
beneficiaries falls below 5,000, we would work with the CMS Office of 
the Actuary to determine the MSR for the number of beneficiaries below 
5,000, set at the same 90 percent confidence interval that is used to 
determine an ACO's MSR when the ACO has a smaller assigned beneficiary 
population. If the number of beneficiaries assigned to the ACO remains 
less than 5,000 by the end of the next performance year, the ACO is 
terminated and is not be permitted to share in savings for that 
performance year (Sec.  425.110(b)(2)).
b. Proposed Revisions
    We proposed to revise Sec.  425.110(a)(2) to clarify the data used 
during the application review process to estimate the number of 
beneficiaries historically assigned in each of the 3 years of the 
benchmarking period. Specifically, we proposed that the number of 
assigned beneficiaries would be calculated for each benchmark year 
using the assignment methodology set forth in part 425 subpart E, and 
in the case of BY3, we would use the most recent data available with up 
to a 3-month claims run out to estimate the number of assigned 
beneficiaries. This proposed revision would reflect current operational 
processes under which we assign beneficiaries to ACOs using complete 
claims data for BY1 and BY2 but must rely on incomplete claims data for 
BY3. We would continue to estimate the number of historically assigned 
beneficiaries for the third benchmark year by using claims with dates 
of service for the last 3 months of BY2 and the first 9 months of BY3, 
with up to 3 months claims run out. However, that could vary from year 
to year depending on data availability during the application review 
process. As discussed previously, we stated our belief that using this 
approach to calculate the number of assigned beneficiaries for BY3 
would be consistent with the timeframes and claims run out used for BY1 
and BY2 calculations because we would be using a full 12 months of 
claims, rather than only the available claims for the calendar year, 
which would be less than 12 months.
    The estimates of the number of assigned beneficiaries would be used 
during the ACO application review process to determine whether the ACO 
exceeds the 5,000-assigned beneficiary threshold for each year of the 
historical benchmark period. We stated that if based upon these 
estimates, we determined that an ACO had at least 5,000 assigned 
beneficiaries in each of the benchmark years, it would be deemed to 
have initially satisfied the eligibility requirement that the ACO have 
at least 5,000 assigned beneficiaries. The specific data to be used for 
computing these initial

[[Page 32706]]

estimates during the ACO application review process would be designated 
through program instructions and guidance. Although unlikely, it is 
possible that when final benchmark year assignment numbers are 
generated after the ACO has been accepted into the program, the number 
of assigned beneficiaries could be below 5,000. In this event, we 
stated that the ACO would be allowed to continue in the program, but 
may be subject to the actions set forth in Sec.  425.110(b).
    Given our experience with the program and the timing of performance 
year determinations regarding beneficiary assignment provided during 
reconciliation, we wish to modify our rules to provide greater 
flexibility to address situations in which an ACO's assigned 
beneficiary population falls below 5,000 assigned beneficiaries. 
Specifically, we stated we had concerns that in some cases it may be 
very difficult for an ACO to increase its number of assigned 
beneficiaries by the end of the next performance year, as currently 
required by Sec.  425.110(b)(2). We noted that increasing the number of 
assigned beneficiaries involves adding new ACO participants and ACO 
providers/suppliers or both. However, in certain circumstances, by the 
time the ACO had been notified that its assigned beneficiary population 
had fallen below 5,000 beneficiaries, it would have been too late for 
the ACO to add new ACO participants for PY2, leaving the ACO with more 
limited options for timely correction of the deficit. We stated our 
belief that Sec.  425.110(b) should be modified to provide ACOs with 
adequate time to successfully complete a CAP. Therefore, we proposed to 
revise Sec.  425.110(b)(2) to state that CMS will specify in its 
request for a CAP the performance year during which the ACO's assigned 
population must meet or exceed 5,000 beneficiaries. This modification 
would permit some flexibility for ACOs whose assigned populations fall 
below 5,000 late in a performance year to take appropriate actions to 
address the deficit.
    Additionally, we stated that we did not believe it would be 
necessary to request a CAP from every ACO whose assigned beneficiary 
population falls below 5,000. For example, we stated our belief that we 
should have the discretion not to impose a CAP when the ACO has already 
submitted a request to add ACO participants effective at the beginning 
of the next performance year and CMS has a reasonable expectation that 
the addition of these new ACO participants would increase the assigned 
beneficiary population above the 5,000 minimum beneficiary thresholds. 
Therefore, we proposed to revise Sec.  425.110(b) to indicate that we 
have the discretion whether to impose any remedial measures or to 
terminate an ACO for failure to satisfy the minimum assigned 
beneficiary threshold. Specifically, we proposed to revise Sec.  
425.110(b) to state that the ACO ``may'' be subject to any of the 
actions described in Sec.  425.216 (actions prior to termination, 
including a warning letter or request for CAP) and Sec.  425.218 
(termination). However, we noted that although we proposed to retain 
discretion as to whether to impose remedial measures or terminate an 
ACO whose assigned beneficiary population falls below 5,000, we 
recognized that the requirement that an ACO have at least 5,000 
assigned beneficiaries is a condition of eligibility to participate in 
the Shared Savings Program under section 1899(b)(2)(D) of the Act, and 
would exercise our discretion accordingly and consistently.
    Comment: Several commenters commented on our proposal allowing 
greater flexibility for ACOs who fall below the 5,000 threshold and the 
CAP. Most commenters supported our proposed modifications, and were 
supportive of our proposal for CMS to determine the timeframe within 
which the CAP must be completed when an ACO drops below the 5,000 
beneficiary threshold. A commenter supported the proposal but suggested 
that the calculation of the number of assigned beneficiaries fall 
``after reconciliation so prospective new members could see actual 
results.'' Another commenter supported the proposal for an ACO to avoid 
a CAP when an ACO has already submitted a request to add ACO 
participants effective at the beginning of the next performance year 
and CMS has a reasonable expectation that such addition would increase 
the assigned beneficiary population above the 5,000 thresholds.
    Response: We agree with the comments received in support of a more 
reasonable timeframe for ACOs to correct a situation whereby the 
assigned beneficiary population falls below the 5,000 beneficiary 
threshold. We also agree with the comments received regarding CMS using 
discretion in issuing a CAP when an ACO has already submitted a request 
to add ACO participants and CMS has a reasonable expectation that the 
additional ACO participants will increase the number of beneficiaries 
above the 5,000 thresholds. We believe that the ACO should be given 
notification when it falls below 5,000 as soon as possible so that the 
ACO can take immediate steps to correct the deficit. Therefore, we do 
not agree that it would be better to wait until after reconciliation to 
determine the number of beneficiaries assigned to an ACO or to notify 
an ACO if it fell below the 5,000 threshold.
    Comment: A number of commenters suggested that CMS ensure that ACOs 
include sufficient number or types of providers, such as pediatricians 
and geriatricians, to care for the number and the needs of children and 
elderly managed by the ACO.
    Response: As stated in the November 2011 final rule, we do not 
believe we should be prescriptive in setting any requirements for the 
number, type, and location of the ACO providers/suppliers that are 
included in the ACO. Unlike managed care models that require 
beneficiaries to receive care from a network of providers, 
beneficiaries assigned to an ACO may receive care from providers and 
suppliers both inside and outside the ACO. Therefore, we believe that 
ACOs should have the flexibility to create an organization and design 
their models in a manner they believe will achieve the three-part aim, 
and we do not believe it would be useful to announce specific 
requirements regarding the number, type, and location of ACO providers/
suppliers that are included in the ACO.
    FINAL ACTION: We are finalizing our proposed policies as proposed 
related to the requirement that the ACO have at least 5,000 assigned 
beneficiaries.
    We received no comments on our proposed revisions to Sec.  
425.110(a)(2) that the number of assigned beneficiaries would be 
calculated for each benchmark year using the assignment methodology set 
forth in part 425 subpart E, and in the case of BY3, we will use the 
most recent data available with up to a 3 month claims run out to 
estimate the number of assigned beneficiaries. We are finalizing these 
provisions as proposed.
    Given our experience with the program and the timing of performance 
year determinations regarding beneficiary assignment provided during 
reconciliation, we are modifying our rules to provide greater 
flexibility to address situations in which an ACO's assigned 
beneficiary population falls below 5,000 assigned beneficiaries. 
Therefore, we are finalizing our proposed revision at Sec.  
425.110(b)(2) to state that CMS will specify in its request for a CAP 
the performance year during which the ACO's assigned population must 
meet or exceed 5,000 beneficiaries.
    Additionally, we are also finalizing our proposed revisions to 
Sec.  425.110(b) which give CMS discretion regarding whether to impose 
any remedial measures or to terminate an ACO for

[[Page 32707]]

failure to satisfy the minimum assigned beneficiary threshold. However, 
it is important to note that ACOs must have at least 5,000 assigned 
beneficiaries as a condition of eligibility to participate in the 
Shared Savings Program under section 1899(b)(2)(D) of the Act. 
Therefore we will exercise its discretion accordingly and consistently.
3. Identification and Required Reporting of ACO Participants and ACO 
Providers/Suppliers
a. Overview
    For purposes of the Shared Savings Program, an ACO is an entity 
that is identified by a TIN and composed of one or more Medicare-
enrolled TINs associated with ACO participants (see Sec.  425.20). The 
Medicare-enrolled TINs of ACO participants, in turn, are associated 
with Medicare enrolled individuals and entities that bill through the 
TIN of the ACO participant. (For example, in the case of a physician, 
the physician has reassigned to the TIN of the ACO participant his or 
her right to receive Medicare payments, and their services to Medicare 
beneficiaries are billed by the ACO participant under a billing number 
assigned to the TIN of the ACO participant).
    As part of the application process and annually thereafter, the ACO 
must submit a certified list identifying all of its ACO participants 
and their Medicare-enrolled TINs (the ``ACO participant list'') (Sec.  
425.204(c)(5)(i)). Additionally, for each ACO participant, the ACO must 
submit a list identifying all ACO providers/suppliers (including their 
NPIs or other provider identifiers) that bill Medicare during the 
agreement period under a billing number assigned to the TIN of an ACO 
participant (the ``ACO provider/supplier list'') (Sec.  
425.204(c)(5)(i)(A)). Our regulations require the ACO to indicate on 
the ACO provider/supplier list whether an individual is a primary care 
physician as defined at Sec.  425.20. All Medicare enrolled individuals 
and entities that bill through an ACO participant's TIN during the 
agreement period must be on the certified ACO provider/supplier list 
and agree to participate in the ACO. ACOs are required to maintain, 
update, and annually furnish the ACO participant and ACO provider/
supplier lists to CMS at the beginning of each performance year and at 
such other times as may be specified by CMS (Sec.  425.304(d)).
    We use TINs identified on the ACO participant list to identify 
claims billed to Medicare in order to support the assignment of 
Medicare fee-for-service beneficiaries to the ACO, the implementation 
of quality and other reporting requirements, and the determination of 
shared savings and losses (see section 1899(b)(2)(E) of the Act). We 
also use the ACO's initial (and annually updated) ACO participant list 
to: Identify parties subject to the screenings under Sec.  425.304(b); 
determine whether the ACO satisfies the requirement to have a minimum 
of 5,000 assigned beneficiaries; establish the historical benchmark; 
perform financial calculations associated with quarterly and annual 
reports; determine preliminary prospective assignment for and during 
the performance year; determine a sample of beneficiaries for quality 
reporting; and coordinate participation in the Physician Quality 
Reporting System (PQRS) under the Shared Savings Program. Both the ACO 
participant and ACO provider/supplier lists are used to ensure 
compliance with program requirements. We refer readers to our guidance 
at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/sharedsavingsprogram/Updating-ACO-Participant-List.html for more 
information.
    In this section, we discuss current policy and procedures regarding 
the identification and required reporting of ACO participants and ACO 
providers/suppliers. In addition, we proposed revisions to our 
regulations to improve program transparency by ensuring that all ACO 
participants and ACO providers/suppliers are accurately identified.
b. Proposed Revisions
    In the proposed rule, we stated that in order to administer the 
Shared Savings Program, we need to accurately identify the ACO 
participants and ACO providers/suppliers associated with each ACO that 
participates in the program. An accurate understanding of the ACO 
participants is critical for assignment of beneficiaries to the ACO as 
well as assessing the quality of care provided by the ACO to its 
assigned beneficiaries. An accurate understanding of the ACO providers/
suppliers is also critical for ensuring compliance with program rules. 
We explained our belief that this information is equally critical to 
the ACO for its own operational and compliance purposes. Thus, both CMS 
and the ACO need to have a common understanding of the individuals and 
entities that comprise the ACO participants and ACO providers/
suppliers. We obtain this common understanding by requiring the ACO to 
certify the accuracy of its ACO participant and ACO provider/supplier 
lists prior to the start of each performance year and to update the 
lists as changes occur during the performance year. Because we rely on 
these lists for both operational and program integrity purposes, we 
must have a transparent process that results in the accurate 
identification of all ACO participants and ACO providers/suppliers that 
compose each ACO in the Shared Savings Program.
    We proposed to add a new Sec.  425.118 to reflect with more 
specificity the requirements for submitting ACO participant and ACO 
provider/supplier lists and the reporting of changes to those lists. In 
addition, we proposed to revise Sec.  425.204(c)(5) and to remove Sec.  
425.214(a) and Sec.  425.304(d) because these provisions are addressed 
in new Sec.  425.118.
(1) Certified Lists of ACO Participants and ACO Providers/Suppliers
    In the proposed rule, we stated that we intended to continue to 
require ACOs to maintain, update and submit to CMS accurate and 
complete ACO participant and ACO provider/supplier lists, but we 
proposed to establish new Sec.  425.118 to set forth the requirements 
and processes for maintaining, updating, and submitting the required 
ACO participant and ACO provider/supplier lists. New Sec.  425.118 
would consolidate and revise provisions at Sec.  425.204(c)(5), Sec.  
425.214(a) and Sec.  425.304(d) regarding the ACO participant and ACO 
provider/supplier lists. Specifically, we proposed at Sec.  425.118(a) 
that prior to the start of the agreement period and before each 
performance year thereafter, the ACO must provide CMS with a complete 
and certified list of its ACO participants and their Medicare-enrolled 
TINs. We would use this ACO participant list to identify the Medicare-
enrolled individuals and entities that are affiliated with the ACO 
participant's TIN in PECOS, the CMS enrollment system. We proposed that 
all individuals and entities currently billing through the Medicare 
enrolled TIN identified by the ACO as an ACO participant, must be 
included on the ACO provider/supplier list. We would provide the ACO 
with a list of all ACO providers/suppliers (NPIs) that we have 
identified in PECOS as associated with each ACO participant's Medicare-
enrolled TIN. In accordance with Sec.  425.118(a), the ACO would be 
required to review the list, make any necessary corrections, and 
certify the lists of all of its ACO participants and ACO providers/
suppliers (including their TINs and NPIs) as true, accurate, and 
complete. In addition, we proposed that an ACO must submit certified 
ACO participant and ACO provider/supplier

[[Page 32708]]

lists at any time upon CMS request. We noted that all NPIs that 
reassign their right to receive Medicare payment to an ACO participant 
must be on the certified list of ACO providers/suppliers and must agree 
to be ACO providers/suppliers. We proposed to clarify this point in 
regulations text at Sec.  425.118(a)(4).
    Finally, in accordance with developing and certifying the ACO 
participant and provider/supplier lists, we proposed at Sec.  
425.118(d) to require the ACO to report changes in ACO participant and 
ACO provider/supplier enrollment status in PECOS within 30 days after 
such changes have occurred (for example, to report changes in an ACO 
provider's/supplier's reassignment of the right to receive Medicare 
payment or revocation of billing rights). This requirement would 
correspond with our longstanding policy that requires enrolled 
providers and suppliers to notify their Medicare Administrative 
Contractors through PECOS within specified timeframes for certain 
reportable events. We recognized that PECOS is generally not accessible 
to ACOs to make these changes directly because most ACOs are not 
enrolled in Medicare. Therefore, we stated that an ACO may satisfy the 
requirement to update PECOS throughout the performance year by 
requiring its ACO participants to submit the required information 
directly in PECOS within 30 days after the change, provided that the 
ACO participant actually submits the required information within 30 
days. We proposed to require ACOs to include language in their ACO 
participant agreements (discussed in section II.B.1. of this final 
rule) to ensure compliance with this requirement. We did not propose to 
change the current 30-day timeframe required for such reporting in 
PECOS. These changes would be consistent with the current requirements 
regarding ACO participant and ACO provider/supplier list updates under 
Sec.  425.304(d), and we explained our belief that they would enhance 
transparency and accuracy within the Shared Savings Program. We further 
proposed to remove Sec.  425.304(d) because the requirements, although 
not modified, would be incorporated into new Sec.  425.118(d).
    In the proposed rule, we stated this revised process should afford 
the ACO the opportunity to work with its ACO participants to identify 
its ACO providers/suppliers and to ensure compliance with Shared 
Savings Program requirements. We also noted that currently, we also 
require the ACO to indicate whether the ACO provider/supplier is a 
primary care physician as defined in Sec.  425.20. Because this 
information is derived from the claims submitted under the ACO 
participant's TINs (FQHCs and RHCs being the exception), we stated we 
found this rule unnecessary to implement the program, so we proposed to 
remove this requirement, which currently appears in Sec.  
425.204(c)(5)(i)(A).
    Comment: A few commenters commented on our proposals to establish 
new Sec.  425.118 to set forth requirements and processes for 
maintaining, updating, and submitting the required ACO participant and 
ACO provider/supplier lists. Several commenters agreed with our 
proposals. A commenter specifically agreed with the proposal but 
encouraged CMS to consider an extension or transition of the period in 
which ACOs are required to update their lists, noting that many 
commercial arrangements permit up to 6 months for ACOs to report 
relevant changes. A commenter supported the proposal that ACOs must 
comply with a CMS request for these certified lists contingent that CMS 
provides a reasonable timeframe in which to comply with such a request. 
A commenter specifically encouraged CMS to consider an extension or 
transition of the period in which ACOs are required to update their 
provider lists. Another commenter stated that CMS should provide ACOs 
with specific guidance on the process to submit, update, and maintain 
lists of ACO participants and ACO providers/suppliers as soon as 
possible to minimize the burden of notification.
    Response: The certification of a complete list of ACO participants 
and their Medicare-enrolled TINs is imperative to ensuring appropriate 
assignment and ultimately reconciliation for all ACOs. It is important 
that ACOs take responsibility for maintaining and have the ability to 
produce these certified ACO participant and ACO provider/supplier lists 
at any time upon CMS request. We continue to refine the ACO Participant 
list change process and will inform ACOs about changes to the 
submission and review process during each performance year. Detailed 
guidance on this process can be found at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/sharedsavingsprogram/Updating-ACO-Participant-List.html. As noted in the guidance, ACOs have several 
opportunities during the year to make changes that become effective for 
the next performance year. We therefore believe the timeframe is 
reasonable for notifying CMS of changes to the list. Furthermore, it is 
important that ACOs make such changes by the deadline specified by CMS 
so that operations such as beneficiary assignment and benchmarking can 
be completed and communicated to ACOs prior to the next performance 
year. Therefore, it is not possible to grant an ``extension'' or 
``transition'' for this due date, unless ACOs are willing to receive 
benchmarking and assignment information well after the performance year 
has begun. It is our experience that ACOs prefer to have as much 
information in advance of a performance year as possible, and so for 
this reason, we must strictly enforce the due date for changes to the 
ACO provider list. We believe the deadlines for final notification of 
changes and certification of the ACO participant list are reasonable 
because they balance stakeholder desire to notify us as late as 
possible in the year with stakeholder desire to have beneficiary 
assignment and benchmarks calculated prior to the next performance 
year. A longer time period would require either earlier notification of 
changes or delay information for the next performance year.
    Comment: Many commenters supported our proposal to remove the 
requirement (except for FQHCs and RHCs) to indicate whether an ACO 
provider/supplier is a primary care physician as defined at Sec.  
425.20. Several commenters agreed with our proposal to require the ACO 
to report changes in ACO participant and ACO provider/suppliers 
enrollment status in PECOS within 30 days after changes have occurred 
and to include this requirement in their ACO participant agreements to 
ensure compliance. A few commenters suggested that CMS incorporate a 
more reasonable timeframe by which the ACO participants and providers/
suppliers must be submitted into PECOS. A commenter requested that CMS 
provide ACOs with specific guidance on this process as soon as possible 
and seek to minimize the burden associated with this notification 
requirement while another comment suggested that an ACO may not be 
notified and be able to in turn notify CMS of these changes within this 
same 30-day time period. The time period for the separate notification 
by the ACO of changes made in the PECOS system by ACO participants and 
ACO provider/suppliers should be modified to be ``within 30 days of ACO 
learning of such changes from an ACO Participant. Comments received 
agreed with our proposal that requires ACOs to include language in 
their ACO participant agreements (discussed in section II.B.1.

[[Page 32709]]

of this final rule) to ensure compliance with this requirement.
    Response: Transparency and accuracy of the list of ACO participants 
and ACO providers/suppliers is of the highest importance to the success 
and integrity of the program. As previously described, it is our 
longstanding policy to require any changes to an ACO's participants or 
providers/suppliers be updated in PECOS within 30 days of such 
addition. This aligns with the Medicare requirement that requires 
enrolled providers and suppliers to notify their Medicare 
Administrative Contractors through PECOS within specified timeframes 
for certain reportable events. ACO participants and ACO providers/
suppliers must make these changes; the ACO cannot make the changes 
directly in PECOS. However, the proposal to require ACOs to include 
language in their ACO participant agreements (discussed in section 
II.B.1. of this final rule) to comply with this requirement will 
strengthen the ACO's ability to educate and direct their ACO 
participants and ACO providers/suppliers to adhere to this Medicare 
requirement.
    FINAL ACTION: We are finalizing policies as proposed at Sec.  
425.118 to set forth the requirements and processes for maintaining, 
updating, and submitting the required ACO participant and ACO provider/
supplier lists.
    Specifically, we are finalizing Sec.  425.118(a) that prior to the 
start of the agreement period and before each performance year 
thereafter, the ACO must provide CMS with a complete and certified list 
of its ACO participants and their Medicare-enrolled TINs. All 
individuals and entities currently billing through the Medicare 
enrolled TIN identified by the ACO as an ACO participant, must be 
included on the ACO provider/supplier list. We would provide the ACO 
with a list of all ACO providers/suppliers (NPIs) that we have 
identified in PECOS as associated with each ACO participant's Medicare-
enrolled TIN. In accordance with Sec.  425.118(a), the ACO would be 
required to review the list, make any necessary corrections, and 
certify the lists of all of its ACO participants and ACO providers/
suppliers (including their TINs and NPIs) as true, accurate, and 
complete. In addition, we are also finalizing our proposal at Sec.  
425.118 that an ACO must submit certified ACO participant and ACO 
provider/supplier lists at any time upon CMS request. These changes are 
consistent with the current requirements regarding ACO participant and 
ACO provider/supplier list updates under Sec.  425.304(d) which will be 
incorporated into new Sec.  425.118(d).
    We are also finalizing our proposals at Sec.  425.118(d) to require 
the ACO to report changes in ACO participant and ACO provider/supplier 
enrollment status in PECOS within 30 days after such changes have 
occurred (for example, to report changes in an ACO provider's/
supplier's reassignment of the right to receive Medicare payment or 
revocation of billing rights). This requirement aligns with our 
longstanding policy that requires enrolled providers and suppliers to 
notify their Medicare Administrative Contractors through PECOS within 
specified timeframes for certain reportable events. Therefore, the ACO 
participant and ACO providers/suppliers must make this change within 30 
days, not the ACO itself. However, the ACO is responsible for ensuring 
the ACO participant or ACO providers/suppliers make the change within 
the required 30 day time period. We are finalizing our policy to 
require ACOs to include language in their ACO participant agreements 
(discussed in section II.B.1. of this final rule) to improve the 
ability of the ACO to ensure compliance with this requirement.
    Finally, we are finalizing the proposal to remove the requirement 
which currently appears in Sec.  425.204(c)(5)(i)(A) that the ACO 
indicate primary care physicians on its application to the program.
(2) Managing Changes to ACO Participants
    Except for rare instances, such as the cessation of ACO participant 
operations or exclusion from the Medicare program, we expect ACO 
participants to remain in the ACO for the entire 3-year agreement 
period. We believe that care coordination and quality improvement 
require the commitment of ACO participants. Moreover, as noted 
previously, we utilize the ACO participant list, among other things, 
for assigning beneficiaries to the ACO, determining the ACO's benchmark 
and performance year expenditures, and drawing the sample for ACO 
quality reporting. We understand that there are legitimate reasons why 
an ACO may need to update its list of ACO participants during the 3-
year agreement period. Thus, under current Sec.  425.214(a), an ACO may 
add or remove ACO participants (identified by TINs) throughout a 
performance year, provided that it notifies CMS within 30 days of such 
addition or removal.
    If such changes occur, we may, at our discretion, adjust the ACO's 
benchmark, risk scores, and preliminary prospective assignment (Sec.  
425.214(a)(3)). We articulated the timing of these changes in our 
guidance (https://cms.gov/Medicare/Medicare-Fee-for-Service-Payment/sharedsavingsprogram/Updating-ACO-Participant-List.html), which states 
that we adjust the ACO's historical benchmark at the start of a 
performance year if the ACO participant list that the ACO certified at 
the start of that performance year differs from the one it certified at 
the start of the prior performance year. We use the updated certified 
ACO participant list to assign beneficiaries to the ACO in the 
benchmark period (the 3 years prior to the start of the ACO's agreement 
period) in order to determine the ACO's adjusted historical benchmark. 
Our guidance provides that, as a result of changes to the ACO's 
certified ACO participant list, we may adjust the historical benchmark 
upward or downward. We use the new annually certified list of ACO 
participants and the adjusted benchmark for the following program 
operations: The new performance year's assignment; quality measurement 
and sampling; reports for the new performance year; and financial 
reconciliation. We provide ACOs with the adjusted Historical Benchmark 
Report reflecting these changes.
    However, our guidance stated that absent unusual circumstances, 
changes in ACO participants that occur in the middle of a performance 
year will not result in midyear changes to assignment, sampling for 
quality reporting, financial reconciliation, or other matters.
    As indicated in our guidance, the midyear removal of an entity from 
the ACO participant list due to program integrity issues is one unusual 
circumstance that could result in midyear changes to assignment and 
other matters. Finally, our guidance states that we do not make 
adjustments upon Medicare payment changes such as wage-index 
adjustments, or the addition or deletion of ACO participants during the 
course of the performance year made by the ACO and ACO participants.
    We proposed to add new provisions at Sec.  425.118(b) to address 
the procedures for adding and removing ACO participants during the 
agreement period. These proposals would revise the regulations to 
incorporate some of the important policies that we have implemented 
through our operational guidance as well as some additional proposals 
to ease the administrative burden generated by the magnitude of changes 
made to ACO participant lists to date.

[[Page 32710]]

    We proposed under Sec.  425.118(b)(1) that an ACO must submit a 
request to add a new entity to its ACO participant list in the form and 
manner specified by CMS and that CMS must approve additions to the ACO 
participant list before they can become effective. We stated our belief 
that ACO participants should be admitted into the program if, for 
example, the screening conducted under Sec.  425.304(b) reveals that 
the entity has a history of program integrity issues, or if the ACO 
participant agreement with the entity does not comply with program 
requirements, or if the entity is participating in another Medicare 
shared savings initiative (Sec.  425.114). If CMS denies the request to 
add an entity to the ACO participant list, then the entity would not be 
eligible to participate in the ACO for the upcoming performance year.
    We proposed that, if CMS approves the request, the entity would be 
added to the ACO participant list at the beginning of the following 
performance year. That is, entities that are approved for addition to 
the ACO participant list would not become ACO participants, and their 
claims would not be considered for purposes of benchmarking, assignment 
and other operational purposes, until the beginning of the next 
performance year. For example, if an ACO notifies CMS of the addition 
of an entity in June of the second performance year (PY2), the entity 
would not become an ACO participant and its claims would not be 
included in program operations until January 1 of PY3 if CMS approves 
the entity's addition.
    We proposed that an ACO must notify CMS no later than 30 days after 
the date of termination of the entity's ACO participant agreement, 
although the ACO may notify CMS in advance of such termination. We 
proposed that the ACO must submit the notice of removal, which must 
include the date of termination, in the form and manner specified by 
CMS. We proposed that the removal of the ACO participant from the ACO 
participant list would be effective on the date of termination of the 
ACO participant agreement.
    We proposed at Sec.  425.118(b)(3)(i) that changes made by an ACO 
to its annually certified ACO participant list would result in 
adjustments to its historical benchmark, assignment, quality reporting 
sample, and the obligation of the ACO to report on behalf of eligible 
professionals for certain CMS quality initiatives. We would annually 
adjust the ACO's benchmark calculations to include (or exclude) the 
claims submitted during the benchmark years by the newly added (or 
removed) ACO participants. In other words, the annually certified ACO 
participant list would be used for purposes of subparts E (assignment 
of beneficiaries), F (quality performance assessment), and G 
(calculation of shared savings/losses) for the performance year. For 
example, if an ACO began program participation in 2013, the PY1 
certified list would be used to generate an historical benchmark 
calculated from claims submitted by the TINs on the PY1 certified list 
during CY 2010, 2011, and 2012. If the ACO adds ACO participants during 
2013 and certifies an updated list for PY2 reflecting those additions, 
we would adjust the historical benchmark to accommodate those changes 
by recalculating the benchmark using the claims submitted by the PY2 
list of certified ACO participants during the ACO's same benchmark 
years (CYs 2010, 2011, and 2012). In this way, the ACO's benchmark 
would continue to be based on the same 3 years prior to the start of 
the ACO's agreement, but our proposal would ensure that the changes in 
ACO composition and performance year calculations retain a consistent 
comparison between benchmark and performance during the agreement 
period.
    As noted previously, adjustment to the ACO's historical benchmark 
as a result of changes to the ACO's certified ACO participant list may 
move the benchmark upward or downward. We would use the annual 
certified ACO participant list and the adjusted benchmark for the new 
performance year's beneficiary assignment, quality measurement and 
other operations that are dependent on the ACO participant list as 
outlined in our guidance. We would provide ACOs with an adjusted 
Historical Benchmark Report that reflects the new certified ACO 
participant list. We proposed to add this requirement at Sec.  
425.118(b)(3).
    We proposed at Sec.  425.118(b)(3)(ii) to codify the policy we 
established in guidance that, absent unusual circumstances, the removal 
of an ACO participant from the ACO participant list during the 
performance year must not affect certain program calculations for the 
remainder of the performance year in which the removal becomes 
effective. Namely, the removal of an entity from the ACO participant 
list during the performance year would not affect the ACO's beneficiary 
assignment or, by extension, such program operations as the calculation 
of the ACO's historical benchmark, financial calculations for quarterly 
and annual reporting, the sample of beneficiaries for quality 
reporting, or the obligation of the ACO to report on behalf of eligible 
professionals for certain quality initiatives. In other words, absent 
unusual circumstances, CMS would use only the ACO participant list that 
is certified at the beginning of a performance year to assign 
beneficiaries to the ACO under subpart E and to determine the ACO's 
quality and financial performance for that performance year under 
subparts F and G. We gave examples of unusual circumstances that might 
justify midyear changes, including the midyear removal of an ACO 
participant due to evidence of avoidance of at-risk beneficiaries or 
other program integrity issues.
    For example, if an ACO participant is on the ACO's certified list 
of ACO participants for the second performance year, and the ACO timely 
notifies CMS of the termination of the entity's ACO participant 
agreement effective June 30th of PY2, the ACO participant would be 
removed from the ACO participant list effective June 30th of PY2. 
However, the former ACO participant's TIN would still be used for 
purposes of calculating the quality reporting requirements, financial 
reports, benchmarking, assignment and reporting of PQRS, meaningful use 
of EHR, and the value-based modifier. The ACO participant list that was 
certified at the start of the performance year governs the assessment 
of the ACO's financial and quality performance for that year, 
regardless of changes to the list during the performance year. We 
explained our belief that this is necessary to help create some 
stability in the assessment of the ACO's quality and financial 
performance for each performance year. If CMS had to modify underlying 
program operations each time an ACO added or removed a TIN from its 
list of ACO participants, the ACO would not be able to rely on 
information (such as the calculation of the historical benchmark) that 
we provide before the beginning of the performance year.
    We stated our belief that it is important for ACOs to communicate 
effectively with ACO participants that seek to join an ACO so that they 
understand the potential impact to the ACO, the ACO participant, and 
the ACO providers/suppliers affiliated with the ACO participant when an 
ACO participant leaves during a performance year. For example, it is 
likely that the ACO would be required to report quality data for 
beneficiaries that were seen by the former ACO participant in the 
previous 12 months. The ACO must work with the former ACO participant 
to obtain the necessary quality reporting data. Additionally, the ACO 
participant would not be able to qualify for PQRS

[[Page 32711]]

incentive payment or avoid the PQRS payment adjustment separately from 
the ACO for that performance year. Therefore, we stated that it is in 
the best interest of both parties to understand this in advance and to 
commit to working together to fulfill the obligations for the 
performance year. To assist ACO and ACO participants, we proposed 
criteria for ACO participant agreements addressing this issue (see 
section II.B.1. of this final rule).
    Comment: Many commenters supported our proposals related to adding 
and removing an ACO participant TIN midyear and having these added TINs 
become effective for the benchmark, assignment, and other operational 
processes on January 1 of the following year of the agreement period. A 
few commenters encouraged CMS to allow participant TINs to be added at 
any point in the agreement period and to be automatically reflected in 
a ACOs benchmarking and assignment. A few commenters recommended that 
CMS only alter the ACO's benchmark, risk score, and assignment if there 
is a substantial change to the ACO participant list. Others commenters 
supported the proposal to limit removal of ACO participants to once a 
year, except in the event of a compliance issue or business failure.
    Response: As noted, these proposals are consistent with current 
operational guidance. Given the high number of requests for 
modification to ACO participant lists, we believe these policies are 
necessary to create stability in the assessment of ACOs. It is not 
feasible to modify underlying program operations each time an ACO adds 
or removes a TIN from its list of ACO participants. If we were to do 
this, the ACO would have unwanted midyear fluctuations in the 
preliminary prospectively assigned beneficiary population, benchmark, 
and quality sample. Given that we are finalizing other proposed changes 
in other sections of this rule in response to ACO requests for 
stability in operations, permitting midyear changes in TINs that affect 
operations during the performance year would be counterproductive. 
However, not making such modifications at the beginning of each 
performance year to account for changes to the ACO participant list 
could create disparities between the benchmark and performance year 
financial calculations, either disproportionately advantaging or 
disadvantaging the ACO. Additionally, because there is no uniformity in 
the number of ACO providers/suppliers that bill through the TIN of an 
ACO participant, we will not adjust benchmarks to account only for 
substantial changes to the ACO participant list. Therefore, we are 
finalizing our proposal to update the ACO's assignment and benchmark at 
the start of each new performance year to reflect modifications that 
the ACO makes to its certified list of ACO participants. We believe 
this policy is both fair and reduces the opportunity for gaming.
    Comment: A commenter noted that the requirement for ACO 
participants that are removed during a performance year to continue to 
assist the ACO with quality reporting, sometimes months after leaving 
the ACO, can create problems for ACO quality data collection.
    Response: As previously discussed, we believe it is important for 
ACOs to transparently communicate expectations to prospective ACO 
participants and that both the ACO and its ACO participants make a 
commitment to the 3-year agreement. In this way, there will be no 
misunderstandings regarding required close-out procedures, including 
required quality reporting. To assist the ACO in this regard, we are 
finalizing certain requirements for ACO participant agreements as 
discussed in section II.B.1 of this final rule, including the 
obligation of the ACO participant and ACO to complete close-out 
procedures which include quality reporting requirements.
    Comment: Some commenters requested that ACOs be allowed to add 
participants any time during a performance year up until November 30th 
while others objected to having to certify ACO participant lists prior 
to January 1 of the next performance year. Another commenter, disagreed 
with the requirement that an ACO participant TIN be screened and 
approved for participation by CMS before being added to the ACO 
participant list, stating this adds burden for the ACO.
    Response: Timelines for final submission of changes to the ACO 
participant list at the end of a performance year are established in 
order to properly screen, obtain certified lists for the new 
performance year, and determine new benchmarks and assignments for the 
new performance year. Delaying these timelines would result in delays 
of issuance of new performance year information for the ACO. We will 
continue to evaluate this issue and our timelines to ensure the best 
balance between the timing of end of year changes and creation of 
information for the ACO's next performance year. Finally, to protect 
the integrity of the Shared Savings Program, we must screen all ACO 
participant TINs that are added during a performance year without 
exception. Such screening takes time, although it is done as quickly as 
possible, but we do not agree that this necessity imposes undue burden 
for ACOs.
    FINAL ACTION: We are finalizing our proposals at Sec.  425.118(b) 
related to changes in the ACO participant list. Specifically, we are 
finalizing our proposal under Sec.  425.118(b)(1) that an ACO must 
submit a request to add a new entity to its ACO participant list in the 
form and manner specified by CMS and that CMS must approve additions to 
the ACO participant list before they can become effective on January 1 
of the following performance year. We are also finalizing our proposal 
at Sec.  425.118(b)(2) that an ACO must notify CMS no later than 30 
days after the termination of an ACO participant agreement and that the 
notice must be submitted in the form and manner specified by CMS and 
must include the date of the termination date of the ACO participant 
agreement. The entity will be deleted from the ACO participant list as 
of the termination date of the ACO participant agreement. Finally, we 
are finalizing our proposal at Sec.  425.118(b)(3)(i) that any changes 
made by an ACO to its annually certified ACO participant list would 
result in adjustments to its historical benchmark, assignment, quality 
reporting sample, and the obligation of the ACO to report on behalf of 
eligible professionals for certain CMS quality initiatives. 
Additionally, absent any public comment and for the reasons noted in 
the proposed rule, we are finalizing our proposal at Sec.  
425.118(b)(3)(ii) to codify the policy we established in guidance that, 
absent unusual circumstances, the removal of an ACO participant from 
the ACO participant list during the performance year must not affect 
certain program calculations for the remainder of the performance year 
in which the removal becomes effective. However, we are making a minor 
revision to the text of the provisions at both Sec.  425.118(b)(3)(i) 
and Sec.  425.118(b)(3)(ii) to replace the references to ACO providers/
suppliers with a reference to ``eligible professionals that bill under 
the TIN of an ACO participant.'' We believe this change is necessary to 
clarify that the requirement that the ACO report on behalf of these 
eligible professionals applies even if they are not included on the ACO 
provider/supplier list. For example, an ACO must still report quality 
data for services billed under the TIN of an ACO participant by an 
eligible professional that was an ACO provider/

[[Page 32712]]

supplier for a portion of the performance year but was removed from the 
ACO provider/supplier list midyear when he or she started a new job and 
ceased billing under the TIN of the ACO participant.
(3) Managing Changes to ACO Providers/Suppliers
    We recognize that ACO providers/suppliers may terminate their 
affiliation with an ACO participant or affiliate with new or additional 
Medicare-enrolled TINs (which may or may not be ACO participants) on a 
frequent basis. Thus, the annual certified ACO provider/supplier list 
may quickly become outdated. In order to ensure that CMS and the ACO 
have a common understanding of which NPIs are part of the ACO at any 
particular point in time, our regulations at Sec.  425.214 set forth 
requirements for managing changes to the ACO during the term of the 
participation agreement. Specifically, Sec. Sec.  425.214(a)(2) and 
425.304(d)(2) require an ACO to notify CMS within 30 days of the 
addition or removal of an ACO provider/supplier from the ACO provider/
supplier list.
    We proposed new Sec.  425.118(c) on how to report changes to the 
ACO provider/supplier list that occur during the performance year. 
Under proposed Sec.  425.118(c), ACOs would continue to be required to 
report these changes within 30 days. As discussed later in this 
section, we would require the ACO to ensure that changes in ACO 
participant and ACO provider/supplier enrollment status are reported in 
PECOS. However, because the lists of ACO providers/suppliers cannot be 
maintained in PECOS, we proposed to require ACOs to notify CMS' Shared 
Savings Program separately, in the form and manner specified by CMS, of 
the addition or removal of an ACO provider/supplier. In the proposed 
rule, we stated our expectation that ACOs would be required to send 
such notifications via electronic mail and that specific guidance 
regarding this notification process would be provided by the Secretary 
on the CMS Web site and through the ACO intranet portal or both.
    We proposed that an ACO may add an individual or entity to the ACO 
provider/supplier list if it notifies CMS within 30 days after the 
individual or entity became a Medicare-enrolled provider or supplier 
that bills for items and services it furnishes to Medicare fee-for-
service beneficiaries under a billing number assigned to the TIN of an 
ACO participant. We proposed that if the ACO provided such notice by 
the 30-day deadline, the addition of an ACO provider/supplier would be 
effective on the date specified in the notice furnished to CMS but no 
earlier than 30 days before the date of notice. If the ACO failed to 
provide timely notice to CMS regarding the addition of an individual or 
entity to the ACO provider/supplier list, then the addition would 
become effective on the date CMS receives notice from the ACO. However, 
we noted that when an individual has begun billing through the TIN of 
an ACO participant but is not on the ACO provider/supplier list, the 
individual would satisfy the definition of ``ACO professional,'' in 
which case his or her claims for services furnished to Medicare fee-
for-service beneficiaries would be considered for assignment and other 
operational purposes previously described.
    Each potential ACO provider/supplier that reassigns his or her 
billing rights under the TIN of an ACO participant is screened by CMS 
through the enrollment process and PECOS system. Additionally, the 
Shared Savings Program conducts additional screening on a biannual 
basis for each ACO provider/supplier through the CMS Fraud Prevention 
System. In spite of this, we stated our concern that the proposed 
effective date for the addition of an individual or entity to the ACO 
provider/supplier list would prevent us from conducting a robust 
program integrity screening of such individuals and entities. 
Therefore, we considered whether to delay the effective date of any 
additions to the ACO provider/supplier list until after we have 
completed a program integrity screening of the individuals or entities 
that the ACO wishes to add to the list. For example, we considered 
whether to delay the effective date of additions to the ACO provider/
supplier list until the start of the next performance year, similar to 
the timing for adding TINs of ACO participants to the list of ACO 
participants. In this way, a complete yearly screening, including 
screening for program integrity issues, could occur at one time for 
both the ACO participant list and the ACO provider/supplier list. As 
previously noted, until the individual or entity has been officially 
designated as an ACO provider/supplier, that individual or entity would 
be an ACO professional because of its billing relationship with the ACO 
participant. Thus, any claims billed by the ACO professional through 
the TIN of the ACO participant would be used for assignment and related 
activities during the performance year in which the change takes place, 
regardless of whether the individual or entity subsequently becomes an 
ACO provider/supplier. We sought comment on this proposal.
    We proposed to remove an ACO provider/supplier from the ACO 
provider/supplier list, an ACO must notify CMS no later than 30 days 
after the individual or entity ceases to be a Medicare-enrolled 
provider or supplier that bills for items and services it furnishes to 
Medicare fee-for-service beneficiaries under a billing number assigned 
to the TIN of an ACO participant. The individual or entity would be 
removed from the ACO provider/supplier list effective as of the date 
the individual or entity terminates its affiliation with the ACO 
participant.
    Comment: A few commenters commented on our proposed addition at 
Sec.  425.118(c) regarding requirements for changes to the ACO 
provider/supplier list and were in agreement with our proposals. A 
commenter expressed concern about the time frames, specifically having 
to receive notification from the ACO provider/supplier and then 
notifying CMS within the required 30 days of such a change. In 
addition, this commenter suggested the regulations be modified to 
require notification to CMS within 30 days of notification to the ACO 
by the ACO participant.
    Response: We appreciate the support for these proposals and will 
finalize them as proposed. We believe the requirement for an ACO to 
notify CMS within 30 days of a change is appropriate because it is 
consistent with PECOS enrollment requirements and current program 
rules. We note that if the ACO provider/supplier is not formally added 
to the ACO's list of ACO providers/suppliers, the individual billing 
through the TIN of an ACO participant would be an ACO professional and 
as such, his or her claims would be included in operations related to 
such things as beneficiary assignment during the performance year in 
which the entity begins billing. However, the ACO must develop internal 
processes to identify such entities to comply with program rules.
    FINAL ACTION: We are finalizing our proposals at Sec.  425.118(c) 
as proposed for managing changes to ACO providers/suppliers.
    Specifically, we are finalizing our proposal that an ACO must 
notify CMS within 30 days after the individual or entity becomes a 
Medicare-enrolled provider or supplier that bills for items and 
services it furnishes to Medicare fee-for-service beneficiaries under a 
billing number assigned to the TIN of an ACO participant. The addition 
of an ACO provider/supplier would be

[[Page 32713]]

effective on the date specified in the notice furnished to CMS but no 
earlier than 30 days before the date of notice. Additionally, we are 
finalizing our proposal that an ACO must notify CMS no later than 30 
days after the individual or entity ceases to be a Medicare-enrolled 
provider or supplier that bills for items and services it furnishes to 
Medicare fee-for-service beneficiaries under a billing number assigned 
to the TIN of an ACO participant. The removal of an individual or 
entity from the ACO provider/supplier list is effective as of the date 
the individual or entity ceases to be a Medicare-enrolled provider or 
supplier that bills for items and services furnished to Medicare fee-
for-service beneficiaries under a billing number assigned to the TIN of 
the an ACO participant. Notices must be submitted in the form and 
manner specified by CMS.
(4) Update of Medicare Enrollment Information
    We proposed at Sec.  425.118(d) to require the ACO to ensure that 
changes in ACO participant and ACO provider/supplier enrollment status 
are reported in PECOS consistent with Sec.  424.516 (for example, 
changes in an ACO provider's/supplier's reassignment of the right to 
receive Medicare payment or revocation of billing rights). As 
previously discussed in detail, this proposed requirement would 
correspond with our longstanding policy that requires enrolled 
providers and suppliers to notify their Medicare Administrative 
Contractors through PECOS within specified timeframes for certain 
reportable events.
    Comment: A commenter requested that we not finalize the proposed 
requirement because ACOs cannot ensure that third parties will report 
changes in PECOS and ACOs do not have the legal authority to enforce 
this requirement. Another commenter suggested that CMS provide ACOs 
with specific guidance on this process as soon as possible to minimize 
burden associated with the notification requirement.
    Response: We believe it is important that the ACO ensure that 
changes in ACO participant and ACO provider/supplier enrollment status 
are reported in PECOS consistent with current Medicare rules at Sec.  
424.516. This requirement ensures that both the ACO and CMS have a 
complete and accurate understanding of precisely which individuals and 
entities are treating Medicare beneficiaries in the Shared Savings 
Program and are therefore subject to the requirements of part 425. 
Under new Sec.  425.116, ACO participant and ACO provider/supplier 
agreements must require the ACO participant and ACO provider/supplier 
to update enrollment information in a timely manner and to notify the 
ACO of such changes within 30 days. Thus, through its agreements with 
ACO participants and ACO providers/suppliers, ACOs will have the 
ability to require timely reporting of enrollment changes and to 
enforce this requirement.
    FINAL ACTION: We are finalizing our proposal at Sec.  425.118(d) to 
require the ACO to ensure that changes in ACO participant and ACO 
provider/supplier enrollment status are reported in PECOS consistent 
with Sec.  424.516 (for example, changes in an ACO provider's/
supplier's reassignment of the right to receive Medicare payment or 
revocation of billing rights).
4. Significant Changes to an ACO
a. Overview
    Section 425.214(b) requires an ACO to notify CMS within 30 days of 
any significant change. A significant change occurs when an ACO is no 
longer able to meet the Shared Savings Program eligibility or program 
requirements (Sec.  425.214(b)). Upon receiving an ACO's notice of a 
significant change, CMS reviews the ACO's eligibility to continue 
participating in the Shared Savings Program and, if necessary, may 
terminate the ACO's participation agreement (Sec.  425.214 (c)). In 
addition, Sec.  425.214(c)(2) provides that CMS may determine that a 
significant change has caused the ACO's structure to be so different 
from what was approved in the ACO's initial application that it is no 
longer able to meet the eligibility or program requirements. Under such 
circumstances, CMS would terminate the ACO's participation agreement, 
and permit the ACO to submit a new application for program 
participation. In the November 2011 final rule (76 FR 67840), we noted 
that changes to an ACO participant list could constitute a significant 
change to an ACO if, for example, the removal of a large primary care 
practice from the list of ACO participants caused the number of 
assigned beneficiaries to fall below 5,000.
b. Proposed Revisions
    In light of changes proposed in the section II.B.3. of this final 
rule, we proposed to redesignate Sec.  425.214(b) and (c) as Sec.  
425.214(a) and (b). Second, we proposed to describe when certain 
changes to the ACO constitute a significant change to the ACO. We 
believe that a change in ownership of an ACO or the addition or 
deletion of ACO participants could affect an ACO's compliance with the 
governance requirements in Sec.  425.106 or other eligibility 
requirements. We noted that some changes to the ACO participant list 
may be of such a magnitude that the ACO is no longer the same entity as 
when it was originally approved for program participation. In addition, 
depending on the nature of the change in ownership, the ACO would need 
to execute a new participation agreement with CMS if the existing 
participation agreement is no longer with the correct legal entity. We 
stated that such changes would constitute significant changes and 
should be subject to the actions outlined under Sec.  425.214(b). 
Therefore, we proposed to specify at Sec.  425.214(a) that a 
significant change occurs when the ACO is no longer able to meet the 
eligibility or other requirements of the Shared Savings Program, or 
when the number or identity of ACO participants included on the ACO 
participant list, as updated in accordance with Sec.  425.118, changes 
by 50 percent or more during an agreement period. For example, in the 
case of an ACO whose initial certified ACO participant list contained 
10 ACO participants, five of which gradually left the ACO and either 
were not replaced or were replaced with five different ACO 
participants, the ACO would have undergone a significant change because 
the number or identity of its ACO participants changed by 50 percent. 
Similarly, if an ACO's initial certified ACO participant list contains 
20 ACO participants, and the ACO incrementally adds 10 new ACO 
participants for a total of 30 ACO participants, it would have 
undergone a significant change with the addition of the 10th new ACO 
participant.
    Upon notice from an ACO that experienced a significant change, we 
would evaluate the ACO's eligibility to continue participating in the 
Shared Savings Program and make one of the determinations listed in the 
provision we proposed to redesignate as Sec.  425.214(b). We may 
request additional information to determine whether and under what 
terms the ACO may continue in the program. We noted that a 
determination that a significant change has occurred would not 
necessarily result in the termination of the ACO's participation 
agreement. We proposed to modify Sec.  425.214 to provide that an ACO's 
failure to notify CMS of a significant change must not preclude CMS 
from determining that the ACO has experienced a significant change.
    In addition, we sought comment on whether we should consider 
amending our regulations to clarify that the ACO

[[Page 32714]]

must provide notice of a significant change prior to the occurrence of 
the significant change. We believe some significant changes could 
require a longer notice period, particularly in the case of a change of 
ownership that causes the ACO to be unable to comply with program 
requirements. Therefore, we sought comment on whether ACOs should be 
required to provide 45 or 60 days' advance notice of a significant 
change. We also sought comment on what changes in the ACO participant 
list should constitute a significant change.
    Comment: Many commenters agreed with our proposals which specify at 
Sec.  425.214(a) that a significant change occurs when the ACO is no 
longer able to meet the eligibility or other requirements of the Shared 
Savings Program, or when the number or identity of ACO participants 
included on the ACO participant list, as updated in accordance with 
Sec.  425.118, changes by 50 percent or more during an agreement 
period. However, we received several comments from stakeholders that 
opposed or questioned how a change in ACO participant TINs might 
represent a significant change. Several commenters stated that a simple 
50 percent threshold does not necessarily identify a major change and 
recommended that CMS take into consideration that a 50 percent change 
for a small ACO could be the turnover a very small number of TINs. 
Commenters suggested an alternative approach that looks at a percentage 
change in ACO providers/suppliers or assigned beneficiaries as opposed 
to changes in ACO participant TINs. A commenter noted that changes in 
ACO participant TINs should not be confused with the ability of the ACO 
to meet eligibility requirements.
    Response: At the inception of the program, we did not anticipate 
that ACOs would make changes to ACO participant TINs to the extent they 
have because program rules require the ACO and its ACO participants to 
make a commitment to the 3-year participation agreement according to 
Sec.  425.306(a). Such changes raise concerns that are unrelated to the 
ability of an ACO to meet eligibility requirements, such as gaming or 
the ability of the ACO participants to develop and adhere to the care 
coordination processes established by the ACO that are necessary to 
succeed in the ACO's goals of improving quality and reducing growth in 
costs for its assigned population. However, although we still have 
reservations about ACOs that have dramatic ACO participant list 
changes, we understand that the use of the 50 percent measure may not 
be the best mechanism for determining whether an ACO has undergone a 
significant change. Therefore at this time we will not finalize the 
proposed change that would designate an ACO as undergoing a significant 
change if its ACO participant list changes by 50 percent or more during 
an agreement period. However, we intend to monitor such changes and may 
audit and request additional information from ACOs that undergo changes 
in their list of ACO participant TINs over the course of the agreement 
period in order to better understand the implications and impacts of 
such changes. We may revisit this issue in future rulemaking, pending 
additional experience with the program.
    Comment: A number of commenters noted it is not always possible for 
an ACO to provide advance notice of a significant change because some 
changes may not actually come to fruition or may happen on a tight 
schedule. These commenters suggested that, if finalized, advanced 
notice of a significant change should only be required when possible or 
on a case-by-case basis. A commenter stated that CMS should give ACOs a 
minimum of 45 days advance notice when the ACO has undergone a 
significant change to permit sufficient time for the ACO to make 
appropriate modifications.
    Response: We thank stakeholders for responding to our request for 
comment on whether we should consider amending our regulations to 
clarify that the ACO must provide notice of a significant change prior 
to the occurrence of the significant change. At this time, we will 
continue to require ACOs to notify us within 30 days after the 
occurrence of a significant change. Because it may not be possible to 
provide sufficient advance notice of a significant change, we will not 
require ACOs to give us advanced notice of such events, but we strongly 
encourage ACOs to alert us in advance when, for example, significant 
organizational changes occur or are likely to occur that may impact the 
ability of the ACO to continue to meet eligibility requirements. 
Notifying us in advance of such changes gives us the opportunity to 
work with the ACO to ensure compliance and avoid unanticipated 
operational pitfalls for the ACO. Similarly, if we become aware of a 
significant change that has occurred to an ACO, we will alert the ACO 
as soon as possible and indicate the timeframe in which it is necessary 
for the ACO to comply.
    FINAL ACTION: We are finalizing our proposal to redesignate Sec.  
425.214(b) and (c) as Sec.  425.214(a) and (b). We are also finalizing 
our proposal to modify Sec.  425.214 to continue to require an ACO to 
alert us when a significant change occurs and to provide that an ACO's 
failure to notify CMS of a significant change does not preclude CMS 
from determining that the ACO has experienced a significant change. 
Finally, based on comments, we are not finalizing our proposal to 
specify at Sec.  425.214(a) that a significant change occurs when the 
number or identity of ACO participants included on the ACO participant 
list, as updated in accordance with Sec.  425.118, changes by 50 
percent or more during an agreement period. However, we will continue 
to monitor this issue and may audit or otherwise request information 
from ACOs with changes to the ACO participant list during the agreement 
period. Although we are not at this time requiring advanced notice of 
significant changes, we believe that it is in the best interest of the 
ACO to contact us in advance if it believes that an organizational 
change, such as a change in ownership, may occur so that we can work 
with the ACO to ensure continued compliance and avoid operational 
pitfalls.
5. Consideration of Claims Billed by Merged/Acquired Medicare-Enrolled 
Entities
a. Overview
    As discussed in the November 2011 final rule (76 FR 67843), we do 
not believe that mergers and acquisitions by ACO providers and 
suppliers are the only way for an entity to become an ACO. The statute 
and our regulations permit ACO participants that form an ACO to use a 
variety of collaborative organizational structures, including 
collaborations other than merger. We reject the proposition that an 
entity under single control, that is, an entity formed through a 
merger, would be more likely to meet the goals of improved health at a 
lower cost. However, we have received questions from industry 
stakeholders regarding how previous mergers and acquisitions of 
entities with Medicare enrolled billing TINs will be treated for 
purposes of the Shared Savings Program. In particular, some applicants 
have inquired whether the claims billed to Medicare in previous years 
by an entity that has since been merged with, or acquired by, a 
different entity could be used to determine whether an applicant meets 
the requirement to have at least 5,000 beneficiaries assigned to it in 
each of the benchmark years (Sec.  425.110) and to establish the ACO's 
historical benchmark and preliminary prospective

[[Page 32715]]

assignment. To illustrate, suppose a large group practice that is a 
prospective ACO participant recently purchased two small primary care 
practices, and the primary care practitioners from those small 
practices have reassigned the right to receive Medicare payment to the 
larger group practice Medicare-enrolled TIN. In this instance, it is 
likely that the primary care providers will continue to serve the same 
patient population they served before the practices were purchased, and 
that their patients may appear on the ACO's list of assigned 
beneficiaries at the end of the performance year. Therefore, applicants 
and established ACOs have inquired whether there is a way to take into 
account the claims billed by the Medicare-enrolled TINs of practices 
acquired by sale or merger for purposes of meeting the minimum assigned 
beneficiary threshold and creating a more accurate benchmark and 
preliminary prospective list of assigned beneficiaries for the upcoming 
performance year. Similarly, an established ACO may request 
consideration of the claims billed by the Medicare-enrolled TINs of 
entities acquired during the course of a performance year for the same 
purposes.
    In response to questions from industry stakeholders, we provided 
additional guidance on our Web site to all Shared Savings Program 
applicants about the requirements related to mergers and acquisitions 
(see https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/sharedsavingsprogram/Downloads/Merger-Acquisitions-FAQ.pdf ). In this 
guidance, we indicated that under the following circumstances, we may 
take the claims billed under TINs of entities acquired through purchase 
or merger into account for purposes of beneficiary assignment and the 
ACO's historical benchmark:
     The ACO participant must have subsumed the acquired 
entity's TIN in its entirety, including all the providers and suppliers 
that reassigned the right to receive Medicare payment to that acquired 
entity's TIN.
     All the providers and suppliers that previously reassigned 
the right to receive Medicare payment to the acquired entity's TIN must 
reassign that right to the TIN of the acquiring ACO participant.
     The acquired entity's TIN must no longer be used to bill 
Medicare.
    In order to attribute the billings of merged or acquired TINs to 
the ACO's benchmark, the ACO applicant must--
     Submit the acquired entity's TIN on the ACO participant 
list, along with an attestation stating that all providers and 
suppliers that previously billed under the acquired entity's TIN have 
reassigned their right to receive Medicare payment to an ACO 
participant's TIN;
     Indicate the acquired entity's TIN and which ACO 
participant acquired it; and
     Submit supporting documentation demonstrating that the 
entity's TIN was acquired by an ACO participant through a sale or 
merger and submit a letter attesting that the acquired entity's TIN 
will no longer be used to bill Medicare.
    We noted in the proposed rule that we require an applicant's list 
of ACO providers/suppliers to include all individuals who previously 
billed under the acquired entity's TIN to have reassigned their right 
to receive Medicare payment to an ACO participant's TIN.
    We stated that the policies set forth in our guidance were 
necessary to ensure that these entities have actually been completely 
merged or acquired and that it would be likely that the primary care 
providers will continue to serve the same patient population. In this 
way, the beneficiary assignments and the benchmarks would be more 
accurate for ACOs that include merged or acquired Medicare-enrolled 
TINs under which their ACO professionals billed during application or 
updates to the ACO participant list.
b. Proposed Changes
    In the proposed rule, we stated that current guidance and processes 
are working well and benefit both CMS (for example, by providing 
assurance that an entity's Medicare-enrolled billing TIN have actually 
been acquired through sale or merger) and the affected ACOs (for 
example, by allowing for an increase in the ACO's number of 
appropriately assigned beneficiaries and providing for a more accurate 
financial benchmark). To avoid uncertainty and to establish a clear and 
consistent process for the recognition of the claims previously billed 
by the TINs of acquired entities, we proposed to codify the current 
operational guidance on this topic at Sec.  425.204(g) with some minor 
revisions to more precisely and accurately describe our proposed 
policy. Proposed Sec.  425.204(g) would add the option for ACOs to 
request consideration of claims submitted by the Medicare-enrolled TINs 
of acquired entities as part of their application, and would address 
the documentation requirements for such requests. We noted that 
although this provision is added in Sec.  425.204 regarding the content 
of the initial application, we proposed to permit ACOs to annually 
request consideration of claims submitted by the TINs of entities 
acquired through sale or merger upon submission of the ACO's updated 
list of ACO participants.
    Comment: All commenters supported our proposal to allow ACOs to 
request consideration of claims submitted by the Medicare-enrolled TINs 
of acquired entities as part of their application and to permit ACOs to 
annually request consideration of claims submitted by the TINs of 
entities acquired through sale or merger upon submission of the ACO's 
updated list of ACO participants. A commenter encouraged CMS to provide 
as much flexibility as possible to take the billings of merged or 
acquired TINs into account because the ACO marketplace may undergo 
significant changes in the future (for example, mergers and 
acquisitions of ACOs).
    Response: We appreciate the comments supporting our proposals. We 
agree that finalizing these proposals will establish a clear and 
consistent process for the recognition of the claims previously billed 
by the TINs of acquired entities. We believe we are providing as much 
flexibility as possible at this time, although we are open to 
considering additional flexibilities in future rulemaking. We invite 
stakeholders to let us know what specific additional flexibilities may 
be warranted in the future.
    FINAL ACTION: We are finalizing our proposal to codify the current 
operational guidance on consideration of claims billed by merged or 
acquired TINs at Sec.  425.204(g), including our proposals for minor 
revisions to more precisely and accurately describe our policy. 
Specifically, we are finalizing the proposal at Sec.  425.204(g) to add 
the option for ACOs to request consideration of claims submitted by the 
Medicare-enrolled TINs of acquired entities as part of their 
application, and address the documentation requirements for such 
requests. We are finalizing at Sec.  425.118(a)(2) our proposal to 
permit ACOs to annually request consideration of claims submitted by 
the TINs of entities acquired through sale or merger upon submission of 
the ACO's updated list of ACO participants. Specifically, Sec.  
425.118(a)(2) provides that such requests may be made in accordance 
with the process set forth at Sec.  425.204(g). More detailed 
information on the manner, format, and timelines for ACOs to submit 
such requests will be found in operational documents and guidance.

[[Page 32716]]

6. Legal Structure and Governance
    Section 1899(b)(1) of the Act requires ACO participants to have 
established a ``mechanism for shared governance'' in order to be 
eligible to participate as ACOs in the Shared Savings Program. In 
addition, section 1899(b)(2)(C) of the Act requires the ACO to have a 
formal legal structure that allows the organization to receive and 
distribute shared savings payments to ACO participants and ACO 
providers/suppliers. We believe the formal legal structure should be 
designed and implemented to protect against conflicts of interest or 
other improper influence that may otherwise arise from the receipt and 
distribution of payments or other ACO activities. We proposed 
clarifications to our rules related to the ACO's legal entity and 
governing body. The purpose of these proposed changes was to clarify 
our regulations and to ensure that ACO decision-making is governed by 
individuals who have a fiduciary duty, including a duty of loyalty, to 
the ACO alone and not to any other individuals or entities. We believe 
the proposed changes are relatively minor and would not significantly 
impact the program as currently implemented.
a. Legal Entity and Governing Body
(1) Overview
    As specified in the November 2011 final rule (76 FR 67816) and at 
Sec.  425.104(a), an ACO must be a legal entity, formed under 
applicable state, federal, or tribal law, and authorized to conduct 
business in each state in which it operates for the following purposes:
     Receiving and distributing shared savings.
     Repaying shared losses or other monies determined to be 
owed to CMS.
     Establishing, reporting, and ensuring provider compliance 
with health care quality criteria, including quality performance 
standards.
     Fulfilling other ACO functions identified in this part.
    Additionally, under Sec.  425.104(b), an ACO formed by two or more 
``otherwise independent'' ACO participants must be a legal entity 
separate from any of its ACO participants. Our regulations at Sec.  
425.106(b)(4) further specify that when an ACO comprises ``multiple, 
otherwise independent ACO participants,'' the governing body of the ACO 
must be ``separate and unique to the ACO.'' In contrast, if the ACO is 
an ``existing legal entity,'' the ACO governing body may be the same as 
the governing body of that existing legal entity, provided it satisfies 
all other requirements of Sec.  425.106, including provisions regarding 
the fiduciary duties of governing body members, the composition of the 
governing body, and conflict of interest policies (Sec.  
425.106(b)(5)).
    We noted in the proposed rule that some applicants questioned when 
an ACO needs to be formed as a separate legal entity, particularly the 
meaning in Sec.  425.104(b) of ``otherwise independent'' ACO 
participants. Specifically, applicants questioned whether multiple 
prospective ACO participants are ``otherwise independent'' when they 
have a prior relationship through, for example, an integrated health 
system. In addition, we received some questions regarding compliance 
with the governing body requirements set forth in Sec.  425.106(b)(4) 
and (5). For example, we received questions from some IPAs, each of 
which wanted to apply to the Shared Savings Program as an ACO using its 
existing legal structure and governing body. In some cases, the IPA 
represented many group practices, but not every group practice 
represented by an IPA had agreed to be an ACO participant. In the 
proposed rule, we stated that that such an IPA would need to organize 
its ACO as a separate legal entity with its own governing body to 
ensure that the governing body members would have a fiduciary duty to 
the ACO alone, as required by Sec.  425.106(b)(3), and not to an entity 
comprised in part by entities that are not ACO participants.
(2) Proposed Revisions
    We proposed to clarify our regulation text regarding when an ACO 
must be formed as a separate legal entity. Specifically, we proposed to 
remove the reference to ``otherwise independent ACO participants'' in 
Sec.  425.104(b). The revised regulation would provide that an ACO 
formed by ``two or more ACO participants, each of which is identified 
by a unique TIN,'' must be a legal entity separate from any of its ACO 
participants. For example, if an ACO is composed of three ACO 
participants, each of whom belongs to the same health system or IPA, 
the ACO must be a legal entity separate and distinct from any one of 
the three ACO participants.
    In addition, we proposed to clarify Sec.  425.106(a), which sets 
forth the general requirement that an ACO have an identifiable 
governing body with the ultimate authority to execute the functions of 
an ACO. Specifically, we proposed that the governing body must satisfy 
three criteria. First, the governing body of the ACO must be the same 
as the governing body of the legal entity that is the ACO. Second, in 
the case of an ACO that comprises multiple ACO participants, the 
governing body must be separate and unique to the ACO and must not be 
the same as the governing body of any ACO participant. Third, the 
governing body must satisfy all other requirements set forth in Sec.  
425.106, including the fiduciary duty requirement. We noted that the 
second criterion incorporates the requirement that currently appears at 
Sec.  425.106(b)(4), which provides that the governing body of the ACO 
must be separate and unique to the ACO in cases where there are 
multiple ACO participants. Accordingly, we proposed to remove Sec.  
425.106(b)(4). We further proposed to remove Sec.  425.106(b)(5), which 
provides that if an ACO is an existing legal entity, its governing body 
may be the same as the governing body of that existing entity, provided 
that it satisfies the other requirements of Sec.  425.106. In light of 
our proposed revision to Sec.  425.106(a), we believe this provision is 
unnecessary and should be removed to avoid confusion. In proposing that 
the governing body be the same as the governing body of the ACO legal 
entity and that the governing body has ultimate authority to execute 
the function of the ACO we intended to preclude:
     Delegation of all ACO decision-making authority to a 
committee of the governing body. We recognize that the governing body 
of the legal entity that is the ACO may wish to organize committees 
that address certain matters pertaining to the ACO, but we do not 
believe that such committees can constitute the governing body of the 
ACO.
     Retention of ACO decision-making authority by a parent 
company. We recognize that a parent organization may wish to retain 
certain authorities to protect the parent company and ensure the 
subsidiary's success. However, the ACO's governing body must retain the 
ultimate authority to execute the functions of an ACO. As stated in the 
regulations, we believe such functions include such things as 
developing and implementing the required processes under Sec.  425.112 
and holding leadership and management accountable for the ACO's 
activities. We also believe this authority extends to such activities 
including the appointment and removal of members of the governing body, 
leadership, and management, and determining how shared savings are used 
and distributed among ACO participants and ACO providers/suppliers.
    The purpose of the new provision precluding the governing body of 
the ACO from being the same as the governing body of an ACO participant 
is

[[Page 32717]]

to ensure that the interests of individuals and entities other than the 
ACO do not improperly influence decisions made on behalf of the ACO. In 
order to comply with the requirement that the governing body be 
separate and unique to the ACO, it must not be responsible for 
representing the interests of any entity participating in the ACO or 
any entity that is not participating in the ACO. Thus, we proposed the 
requirement that an ACO's governing body must not be the same as the 
governing body of any of the ACO participants.
    Comment: Several commenters noted that an ACO formed by ``two or 
more ACO participants, each of which is identified by a unique TIN,'' 
must be a legal entity separate from any of its ACO participants. A 
commenter indicated that requirement for a separate legal entity with a 
governing body unaffiliated with the ACO participants creates 
unnecessary administrative burdens and leads to inconsistencies in the 
application of policies and procedures that are necessary to manage 
population health, coordinate care, and control costs.
    Some commenters were supportive of the three criteria. A commenter 
stated that the governance requirements are overly intrusive and that 
CMS should moderate the proposed requirements to allow providers to use 
their current structures, rather than requiring them to develop a 
separate entity and governing body. Some commenters disagreed with the 
requirement that the ACO governing body retain ultimate authority to 
care out ACO activities in cases where the ACO has a parent company 
because they believe this requirement would erode the parent company's 
ability to protect its own interests.
    Response: Section 1899(b)(2)(C) of the Act requires the ACO to have 
a formal legal structure that allows the organization to receive and 
distribute shared savings payments to ACO participants and ACO 
providers/suppliers. As stated in the November 2011 final rule, we 
continue to believe that the requirement for an ACO to have a legal 
entity and governing body that is separate from any of the ACO 
participants that have joined to form the ACO is essential to promote 
program integrity broadly, including protecting against fraud and 
abuse, and to ensure the ACO is accountable for its responsibilities 
under the Shared Savings Program. We do not believe that the formation 
of a separate legal entity is overly burdensome. The proposal would 
codify current policy which all participating ACOs have satisfied. 
Rather than trying to integrate the policies and procedures from 
multiple participants, the ACO and its governing body (made up and 
directed by the ACO participants that joined to form the ACO) is in the 
best position to determine what uniform policies and procedures to 
apply across the ACO. We note that the legal entities of many ACOs and 
their governing bodies oversee operations for participation in private 
payer ACOs in addition to participation in the Shared Savings Program. 
Shared Savings Program ACOs may do this, so long as their governing 
bodies meet the fiduciary duty requirements as discussed later. Our 
proposal was not intended to repudiate our existing policy (and the 
corollary of proposed Sec.  425.104(b)) that an ACO formed by a single 
ACO participant need not form a separate legal entity to operate the 
ACO and is permitted to use its existing governing body, as long as it 
can meet the other eligibility and governance requirements of the 
program. We will add a new paragraph (c) at Sec.  425.104 to clarify 
this point.
    As stated in the November 2011 final rule, we believe it is 
important for the ACO to establish an identifiable governing body that 
that retains ultimate authority because the ACO is ultimately 
responsible for its success or failure. The criteria are also important 
to help insulate against conflicts of interest that could potentially 
put the interest of an ACO participant or parent company before the 
interests of the ACO. We note that many ACOs have been developed with 
the assistance of parent organizations that desire to protect their own 
interests. However, the parent company's own interests must not 
interfere with the ACO's ultimate authority and obligation to comply 
with the requirements of the Shared Savings Program. Nor must those 
interests interfere with the fiduciary duty of the ACO's governing body 
as discussed later in this section. Therefore, we will finalize the 
proposed criteria. However, in response to the commenters, we will 
clarify the regulation text at Sec.  425.106(a)(2)(ii) to provide that, 
the governing body of an ACO formed by a single ACO participant would 
be the governing body of the ACO participant.
    FINAL ACTION: We are finalizing our proposal to remove the 
reference to ``otherwise independent ACO participants'' in Sec.  
425.104(b). The revised regulation would provide that an ACO formed by 
``two or more ACO participants, each of which is identified by a unique 
TIN,'' must be a legal entity separate from any of its ACO 
participants. In response to the commenters, we are adding new Sec.  
425.104(c) to clarify that an ACO formed by a single ACO participant 
may use its existing legal entity and governing body, provided it 
satisfies the other requirements in Sec. Sec.  425.104 and 425.106. 
Additionally, we are finalizing at Sec.  425.106(a)(2) our proposal 
that the governing body must satisfy three criteria: First, the 
governing body of the ACO must be the same as the governing body of the 
legal entity that is the ACO. Second, in the case of an ACO that 
comprises multiple ACO participants the governing body must be separate 
and unique to the ACO, except as provided in Sec.  425.104(c). Third, 
the governing body must satisfy all other requirements set forth in 
Sec.  425.106, including the fiduciary duty requirement. We are 
finalizing our proposal to remove Sec. Sec.  425.106(b)(4) and (5).
b. Fiduciary Duties of Governing Body Members
(1) Overview
    Our current regulations at Sec.  425.106(b)(3) require that the 
governing body members have a fiduciary duty to the ACO and must act 
consistent with that duty. We have clarified in guidance that the 
governing body members cannot meet the fiduciary duty requirement if 
the governing body is also responsible for governing the activities of 
individuals or entities that are not part of the ACO (See ``Additional 
Guidance for Medicare Shared Savings Program Accountable Care 
Organization (ACO) Applicants'' located online at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/sharedsavingsprogram/Downloads/Memo_Additional_Guidance_on_ACO_Participants.pdf ). For 
example, in the case of an IPA that applies as an ACO to the Shared 
Savings Program, we believe it would be difficult for the members of 
the IPA's governing body to make decisions in the best interests of the 
ACO if only some of the group practices that compose the IPA are ACO 
participants; decisions affecting the ACO may be improperly influenced 
by the interests of group practices that are part of the IPA but are 
not ACO participants. For this reason, our regulations require the IPA 
to establish the ACO as a separate legal entity. This new legal entity 
must have a governing body whose members have a fiduciary 
responsibility to the ACO alone and not to any other individual or 
entity.
(2) Proposed Revisions
    We proposed to clarify in Sec.  425.106(b)(3) that the fiduciary 
duty owed to an ACO by its governing body

[[Page 32718]]

members includes the duty of loyalty. The purpose of the proposal was 
to emphasize that the ACO's governing body decisions must be free from 
the influence of interests that may conflict with the ACO's interests. 
This proposal does not represent a change in policy and is simply 
intended to underscore that members of an ACO governing body must not 
have divided loyalties; they must act only in the best interests of the 
ACO and not another individual or entity, including the individual 
interests of ACO participants, ACO professionals, ACO providers/
suppliers, or other individuals or entities.
    Comment: Several commenters expressed specific support for the 
concept that the fiduciary duty owed to an ACO by its governing body 
members includes the duty of loyalty. A commenter recommended 
clarification that the requirement would not preclude members of the 
governing body from participating either on governing bodies or in 
senior management roles of other organizations.
    Response: We appreciate the comments received on our proposal to 
include the duty of loyalty as one of the fiduciary duties owed to the 
ACO by the members of its governing body. We believe that it is 
possible for members of the ACO's governing body to hold similar 
leadership positions in other organizations. However, when acting on 
behalf of the ACO, each governing body member must act in the best 
interests of the ACO. We note that the ACO governing body is required 
under Sec.  425.106(d) to have a conflict of interest policy that 
requires each member of the governing body to disclose relevant 
financial interests, provide a procedure for determining whether a 
conflict of interest exists and set forth a process to address any 
conflicts that arise. Additionally, the conflict of interest policy 
must address remedial action for members of the governing body that 
fail to comply with the policy. We believe this safeguard can ensure 
that governing body members act with a duty of loyalty.
    FINAL ACTION: We will finalize our proposal to clarify at Sec.  
425.106(b)(3) that the fiduciary duty owed to an ACO by its governing 
body members includes the duty of loyalty.
c. Composition of the Governing Body
(1) Overview
    Section 1899(b)(1) of the Act requires an ACO to have a ``mechanism 
for shared governance'' among ACO participants. Section 425.106(c)(1) 
of the regulations requires an ACO to provide for meaningful 
participation in the composition and control of the ACO's governing 
body for ACO participants or their designated representatives. As we 
explained in the November 2011 final rule (76 FR 67819), we believe 
that an ACO should be operated and directed by Medicare-enrolled 
entities that directly provide health care services to beneficiaries. 
However, we acknowledged that small groups of providers often lack both 
the capital and infrastructure necessary to form an ACO and to 
administer the programmatic requirements of the Shared Savings Program 
and could benefit from partnerships with non-Medicare enrolled 
entities. For this reason, we proposed (76 FR 19541) that to be 
eligible for participation in the Shared Savings Program, the ACO 
participants must have at least 75 percent control of the ACO's 
governing body. In the November 2011 final rule, we explained that this 
requirement would ensure that ACOs remain provider-driven, but also 
leave room for non-providers to participate in the program.
    In addition, to provide for patient involvement in the ACO 
governing process, we specified at Sec.  425.106(c)(2) that an ACO's 
governing body must include a Medicare beneficiary served by the ACO 
who does not have a conflict of interest with the ACO. We acknowledged 
in the November 2011 final rule that beneficiary representation on an 
ACO's governing body might not always be feasible. For example, 
commenters raised concerns that requiring a beneficiary on the 
governing body could conflict with state corporate practice of medicine 
laws or other local laws regarding governing body requirements for 
public health or higher education institutions (76 FR 67821). As a 
result, we believe it was appropriate to provide some flexibility for 
us to permit an ACO to adopt an alternative structure for its governing 
body, while still ensuring that ACO participants and Medicare FFS 
beneficiaries are involved in ACO governance.
    Accordingly, our existing regulations offer some flexibility to 
permit an ACO to participate in the Shared Savings Program even if its 
governing body fails to include a beneficiary or satisfy the 
requirement that 75 percent of the governing body be controlled by ACO 
participants. Specifically, Sec.  425.106(c)(5) provides that if an 
ACO's governing body does not meet either the 75 percent threshold or 
the requirement regarding beneficiary representation, it must describe 
in its application how the proposed structure of its governing body 
would involve ACO participants in innovative ways in ACO governance or 
provide a meaningful opportunity for beneficiaries to participate in 
the governance of the ACO. For example, under this provision, we 
anticipated that exceptions might be needed for ACOs that operate in 
states with Corporate Practice of Medicine restrictions to structure 
beneficiary representation accordingly. We contemplated that this 
provision could also be used by an existing entity to explain why it 
should not be required to reconfigure its board if it had other means 
of addressing the requirement to include a consumer perspective in 
governance (see 76 FR 67821).
(2) Proposed Revisions
    We proposed to revise Sec.  425.106(c)(1) to state the statutory 
standard in section 1899(b)(1) of the Act requiring an ACO to have a 
``mechanism for shared governance'' among ACO participants. Although in 
the November 2011 final rule we did not announce a requirement that 
each ACO participant be a member of the ACO's governing body (76 FR 
67818), the governing body must represent a mechanism for shared 
governance among ACO participants. Therefore, the governing body of an 
ACO that is composed of more than one ACO participant should not, for 
example, include representatives from only one ACO participant. For 
ACOs that have extensive ACO participant lists, we would expect to see 
representatives from many different ACO participants on the governing 
body. Our proposal to state the statutory standard for shared 
governance in our regulations at Sec.  425.106(c)(1) does not 
constitute a substantive change to the program.
    We also proposed to revise Sec.  425.106(c)(2) to explicitly 
prohibit an ACO provider/supplier from being the beneficiary 
representative on the governing body. Some ACO applicants have proposed 
that one of their ACO providers/suppliers would serve as the 
beneficiary representative on the governing body. We believe it would 
be very difficult for an ACO provider/supplier who is a Medicare 
beneficiary to represent only the interests of beneficiaries, rather 
than his or her own interests as an ACO provider/supplier, the 
interests of other ACO providers/suppliers, or the interests of the ACO 
participant through which he or she bills Medicare.
    We proposed to revise Sec.  425.106(c)(5) to remove the flexibility 
for ACOs to deviate from the requirement that at least 75 percent 
control of an ACO's governing body must be held by ACO participants. 
Based on our experience to date with implementing the program,

[[Page 32719]]

we have learned that ACO applicants do not have difficulty meeting the 
requirement under Sec.  425.106(c)(3) that ACO participants maintain 75 
percent control of the governing body. We have not denied participation 
to any ACO applicants solely on the basis of failure to comply with 
this requirement, and it has not been necessary to grant any exceptions 
to this rule under Sec.  425.106(c)(5). To the contrary, we have found 
the 75 percent control requirement to be necessary and protective of 
the ACO participant's interests. Accordingly, we believe there is no 
reason to continue to offer an exception to the rule.
    We believe that it is important to maintain the flexibility for 
ACOs to request innovative ways to provide meaningful representation of 
Medicare beneficiaries on ACO governing bodies. Based on our 
experience, some ACOs have been unable to include a beneficiary on 
their governing body, and these entities have used the process under 
Sec.  425.106(c)(5) to establish that they satisfy the requirement for 
meaningful beneficiary representation through the use of patient 
advisory bodies that report to the governing body of the ACO.
    Comment: We received a few comments in support of our proposal to 
revise Sec.  425.106(c)(5) to remove the flexibility for ACOs to 
deviate from the requirement that at least 75 percent control of an 
ACO's governing body must be held by ACO participants. However, several 
commenters recommended retention of this flexibility. The commenters 
opposed to its removal stated that such flexibility, although not 
currently used or required, could be necessary for future applicants. A 
commenter noted that true decision-making by an ACO governing body that 
broadly represents ACO participants could be achieved in a number of 
ways.
    Response: As stated in the November 2011 final rule, we believe the 
75-percent control requirement is necessary to ensure that ACOs are 
provider driven. Therefore, we finalized this requirement but permitted 
an exception in case there were state laws or other impediments that 
would limit an ACO's ability to comply with it. However, our experience 
over several application cycles has demonstrated that stakeholder 
concern over conflicts with laws governing the composition of tax-
exempt or state-licensed entities does not appear to have been a factor 
in the ability of ACOs to comply with this requirement. Moreover, our 
experience to date leads us to conclude that this requirement ensures 
that the ACO participants who have joined to form the ACO have direct 
and primary influence and input on the required functions of the ACO, 
rather than external third parties. However, given that the program is 
still in the early stages of implementation and our relatively limited 
experience with ACOs in two-sided risk tracks, we will retain the 
flexibility for an ACO to request an exception to the 75-percent 
control requirement. We anticipate permitting such exceptions only in 
very limited circumstances (for example, when the ACO demonstrates that 
it is unable to comply because of a conflict with other laws).
    Comment: Several commenters agreed with our proposed revision to 
Sec.  425.106(c)(2) to explicitly prohibit an ACO provider/supplier 
from being the beneficiary representative on the governing body. A 
commenter stated that CMS to strengthen the requirements for meaningful 
involvement of consumer/beneficiary representatives increase the number 
of beneficiaries on the governing body and to exercise greater 
oversight to ensure the success of beneficiary engagement efforts. 
Several commenters offered additional suggestions for members of the 
governing body, including requiring the ACO to involve patient/family 
representatives on ACO quality and safety improvement committees or 
considering a requirement that consumer advocates, employers, labor 
organizations and other community organizations or ``other entities'' 
(such as post-acute care providers) be represented on the governing 
body. A commenter opposed the flexibility afforded under Sec.  
425.106(c)(5) for the ACO to differ from the requirement to have a 
beneficiary on the governing body stating that this section creates a 
loophole for ACOs to avoid the requirement. In addition, this commenter 
further suggested that all ACO applications should be required to 
include details regarding how the ACO intends to involve Medicare 
beneficiaries in innovative and meaningful ways that enhance patient 
engagement and coordination of care.
    Response: We appreciate the comments received on this proposal. As 
stated in the November 2011 final rule (FR 76 67821), we believe that a 
focus on the beneficiary in all facets of ACO governance are critical 
for ACOs to achieve the three-part aim and believe that beneficiary 
representation is important. Therefore, we continue to encourage ACOs 
to consider seriously how to provide opportunities for beneficiaries 
and others to be involved in ACO governance through both governing body 
representation and other appropriate mechanisms. However, as 
articulated in the November 2011 final rule, we believe our current 
regulations balance our overall objectives for the program while 
permitting ACOs flexibility to structure their governing bodies 
appropriately; therefore, we are unable to incorporate suggestions to 
increase the beneficiary representation requirement and suggestions for 
governing body representation of other consumer or provider entities.
    As we noted in the November 2011 final rule, we recognize there may 
be state corporate practice of medicine laws or other reasons why it 
may not be feasible for a beneficiary to be represented on the ACO's 
governing body and therefore finalized a policy that permits an ACO to 
apply for an exception to the rule that an ACO must have a beneficiary 
on the governing body. Very few of these exceptions have been granted 
to date. In these few cases, ACOs have developed patient advisory 
committees that report directly to the ACO's governing body. ACOs have 
reported that such a committee can have a very strong influence on 
governing body decisions and involve more beneficiary voices than would 
have otherwise been able by having a single beneficiary on the 
governing body. Therefore, we believe it is important to continue to 
permit flexibility for ACOs to deviate from this requirement.
    FINAL ACTION: Because we received no comments on our proposed 
revision to Sec.  425.106(c)(1), we are finalizing our proposal to 
modify that provision to state the statutory standard in section 
1899(b)(1) of the Act, which requires an ACO to have a ``mechanism for 
shared governance'' among ACO participants. We are also finalizing our 
proposed revision at Sec.  425.106(c)(2) to explicitly prohibit an ACO 
provider/supplier from being the beneficiary representative on the 
governing body.
    We are not finalizing our proposal to remove Sec.  425.106(c)(5), 
which offers flexibility for ACOs to deviate from the requirement that 
ACO participants must hold at least 75 percent control of an ACO's 
governing body. However, we note that we anticipate permitting such 
exceptions only in very limited circumstances. We may revisit this 
issue in future rulemaking.
7. Leadership and Management Structure
a. Overview
    Section 1899(b)(2)(F) of the Act requires an eligible ACO to ``have 
in place a leadership and management structure that includes clinical 
and administrative systems.'' Under this

[[Page 32720]]

authority, we incorporated certain leadership and management 
requirements into the Shared Savings Program, as part of the 
eligibility requirements for program participation. In the November 
2011 final rule (76 FR 67822), we stated that an ACO's leadership and 
management structure should align with and support the goals of the 
Shared Savings Program and the three-part aim of better care for 
individuals, better health for populations, and lower growth in 
expenditures.
    In the November 2011 final rule (76 FR 67825), we established the 
requirement that the ACO's operations be managed by an executive, 
officer, manager, general partner, or similar party whose appointment 
and removal are under the control of the ACO's governing body and whose 
leadership team has demonstrated the ability to influence or direct 
clinical practice to improve efficiency, processes, and outcomes (see 
Sec.  425.108(b)). In addition, under Sec.  425.108(c), clinical 
management and oversight must be managed by a senior-level medical 
director who is one of the ACO providers/suppliers, who is physically 
present on a regular basis in an established ACO location (clinic, 
office or other location participating in the ACO), and who is a board-
certified physician licensed in a state in which the ACO operates. In 
Sec.  425.204(c)(1)(iii), we require ACO applicants to submit materials 
documenting the ACO's organization and management structure, including 
senior administrative and clinical leaders specified in Sec.  425.108.
    In the November 2011 final rule (76 FR 67825), we provided 
flexibility for ACOs to request an exception to the leadership and 
management requirements set forth under Sec.  425.108(b) and (c). We 
believe that affording this flexibility was appropriate in order to 
encourage innovation in ACO leadership and management structures. In 
accordance with Sec.  425.108(e), we may give consideration to an 
innovative ACO leadership and management structure that does not comply 
with the requirements of Sec.  425.108(b) and (c).
    We stated in the proposed rule that we continued to believe that 
having these key leaders (operational manager and clinical medical 
director) is necessary for a well-functioning and clinically integrated 
ACO. We noted that after four application cycles, it appeared that ACO 
applicants do not have difficulty in meeting the operational manager 
and clinical medical director requirements. Only one ACO had requested 
an exception to the medical director requirements. In that case, the 
ACO sought the exception in order to allow a physician, who had retired 
after a long tenure with the organization to serve as the medical 
director of the ACO. We approved this request because, although the 
retired physician was not an ACO provider/supplier because the retired 
physician was no longer billing for physician services furnished during 
the agreement period, he was closely associated with the clinical 
operations of the ACO, familiar with the ACO's organizational culture, 
and dedicated to this one ACO.
    In addition, we noted that we had received a number of questions 
from ACO applicants regarding the other types of roles for which CMS 
requires documentation under Sec.  425.204(c)(1)(iii) to evaluate 
whether an applicant has a ``. . . leadership and management structure 
that includes clinical and administrative systems'' that support the 
purposes of the Shared Savings Program and the aims of better care for 
individuals, better health for populations, and lower growth in 
expenditures, as articulated at Sec.  425.108(a)). We stated that in 
response to such inquiries we considered an ACO's ``. . . leadership 
and management structure that includes clinical and administrative 
systems'' to be composed of the operational manager and clinical 
medical director (referenced under Sec.  425.108(b) and (c)) as well as 
the qualified healthcare professional that is required under Sec.  
425.112(a) to be responsible for the ACO's quality assurance and 
improvement program.
b. Proposed Revisions
    We proposed to amend Sec.  425.108 to provide some additional 
flexibility regarding the qualifications of the ACO medical director 
and to eliminate the provision permitting some ACOs to enter the 
program without satisfying the requirements at Sec.  425.108(b) and (c) 
for operations and clinical management. In addition, we proposed to 
amend Sec.  425.204(c)(iii) to clarify that applicants must submit 
materials regarding the qualified health care professional responsible 
for the ACO's quality assurance and improvement program.
    We stated our belief that it was appropriate to amend the medical 
director requirement at Sec.  425.108(c) to allow some additional 
flexibility. Specifically, we proposed to remove the requirement that 
the medical director be an ACO provider/supplier. This change would 
permit an ACO to have a medical director who was, for example, 
previously closely associated with an ACO participant but who is not an 
ACO provider/supplier because he or she does not bill through the TIN 
of an ACO participant and is not on the list of ACO providers/
suppliers. Alternatively, we considered retaining the requirement that 
an ACO's medical director be an ACO provider/supplier, but permitting 
ACOs to request CMS approval to designate as its medical director a 
physician who is not an ACO provider/supplier but who is closely 
associated with the ACO and satisfies all of the other medical director 
requirements. We sought comment on whether an ACO medical director who 
is not an ACO provider/supplier must have been closely associated with 
the ACO or an ACO participant in the recent past. In addition, we 
proposed to clarify that the medical director must be physically 
present on a regular basis ``at any clinic, office, or other location 
of the ACO, an ACO participant or an ACO provider/supplier.'' 
Currently, the provision incorrectly refers only to locations 
``participating in the ACO.''
    However, we stated we continued to believe that the medical 
director of the ACO should be directly associated with the ACO's 
clinical operations and familiar with the ACO's organizational culture. 
We noted that this is one purpose of the provision requiring medical 
directors to be physically present on a regular basis at any clinic, 
office, or other ACO location. A close working relationship with the 
ACO and its clinical operations is necessary in order for the medical 
director to lead the ACO's efforts to achieve quality improvement and 
cost efficiencies.
    Additionally, we proposed to eliminate Sec.  425.108(e), which 
permits us to approve applications from innovative ACOs that do not 
satisfy the leadership and management requirements related to 
operations management and clinical management and oversight set forth 
at Sec.  425.108(b) and (c). Based on our experience with the program 
and the proposed change to the medical director requirement, we stated 
our belief that it was unnecessary to continue to allow ACOs the 
flexibility to request an exception to the leadership and management 
requirements related to operations management and clinical management 
and oversight (Sec.  425.108(b) and (c)). We noted that these 
requirements are broad and flexible and have not posed a barrier to 
participation in the Shared Savings Program; in fact, in only one 
instance has an ACO requested an exception to the operations management 
criterion (Sec.  425.108(b)). We were unaware of any alternative 
operations management structure that might be considered acceptable, 
and we proposed to modify Sec.  425.108(c) to accommodate the one 
exception we

[[Page 32721]]

have granted to date. Accordingly, we proposed to revise the 
regulations by striking Sec.  425.108(e) to eliminate the flexibility 
for ACOs to request an exception to the leadership and management 
requirements at Sec.  425.108(b) and (c).
    Finally, to clarify questions that have been raised by ACO 
applicants and to reduce the need for application corrections, we 
proposed to modify Sec.  425.204(c)(1)(iii) to require a Shared Savings 
Program applicant to submit documentation regarding the qualified 
healthcare professional responsible for the ACO's quality assurance and 
improvement program (as required by Sec.  425.112(a)).
    We sought comment on these changes to the requirements for ACO 
leadership and management.
    Comment: Many commenters supported our proposal revision to Sec.  
425.108(c) to permit more flexibility for the medical director of an 
ACO. These commenters stated that a medical director should not be 
limited to being a current ACO provider/supplier because the ACO should 
have flexibility to conduct a nationwide search for the best candidate. 
Moreover, these commenters noted that many potentially qualified 
physicians have navigated away from patient care toward more 
administrative activities, thereby developing expertise in areas 
desirable in a medical director and necessary for ACO success. However, 
several commenters opposed the proposal to introduce flexibility. These 
commenters believe that a successful ACO medical director is one who is 
directly associated with the clinical operations of the ACO and 
familiar with its organizational culture, or should otherwise be able 
to provide direct patient care.
    A few commenters urged CMS to allow even more flexibility than what 
was proposed. These commenters suggested alternative criteria for 
qualifications of the medical director. For example, some commenters 
suggested that we permit the medical director position to be filled by 
individuals other than physicians, such as an advance practice nurse or 
other qualified health professional.
    Response: As stated in the November 2011 final rule, we believe 
physician leadership of clinical management and oversight is important 
to the ACO's ability to achieve the three-part aim. We agree with 
commenters who indicate that flexibility may be necessary for the ACO 
to select the best qualified physician for this role. We also agree 
with commenters that the best physician for the role of medical 
director may be one who has an intimate knowledge of the ACO's 
organizational culture or who is actively implementing (through direct 
patient care activities) the clinical processes established by the ACO. 
We believe it is important to ensure that the medical director is 
familiar with the day-to-day operations of the ACO. We believe our 
proposals balanced these perspectives by eliminating the requirement 
that the medical director be an ACO provider/supplier while also 
clarifying the requirement that the medical director be physically 
present on a regular basis ``at any clinic, office, or other location 
of the ACO, ACO participant or ACO provider/supplier.'' We will 
therefore finalize the modifications as proposed and permit ACOs to 
choose a medical director who best suits the ACO's goals and needs.
    We appreciate additional suggestions for modifications in the 
criteria for the ACO's medical director and will keep them in mind in 
future rulemaking. Specifically, we appreciate the comments suggesting 
that the medical director could be any qualified health professional. 
We will not modify our requirements for the medical director in this 
manner because ACOs report that physician leadership is an important 
key to the success of the ACO. Additionally, the ACO is required to 
have a qualified healthcare professional responsible for the ACO's 
quality assurance and improvement program, in addition to the medical 
director and may choose to appoint non-physician clinical leaders to 
this role. We discuss modifications to this requirement later in this 
section.
    Comment: A number of commenters provided feedback on the proposed 
elimination of Sec.  425.108(e), which permits CMS to approve 
applications from innovative ACOs that do not satisfy the leadership 
and management requirements related to operations management and 
clinical management and oversight set forth at Sec.  425.108(b) and 
(c). A commenter supported the removal of this provision, although 
other commenters suggested this flexibility could be necessary for 
future applicants for the program.
    Response: In the November 2011 final rule, we finalized a policy in 
which CMS retained the right to give consideration to innovative ACOs 
that did not include: (1) operations managed by an executive, officer, 
manager, general partner, or similar party; and (2) clinical management 
and oversight by a senior-level medical director. Given our experience 
with the program, the additional flexibility provided in this final 
rule regarding the medical director qualifications, and the fact that 
these requirements are already so broad and flexible, we do not believe 
that any additional flexibility is necessary or even possible. 
Therefore, we are finalizing our proposal to eliminate Sec.  
425.108(e). As noted previously, we clarified that we consider the 
qualified health professional referenced in Sec.  425.112(a) to be part 
of the ACO's leadership and management team and as such, we proposed to 
modify Sec.  425.204(c)(1)(iii) to require a Shared Savings Program 
applicant to submit documentation regarding this person, if the role is 
not filled by the medical director.
    Comment: Some commenters agreed with CMS' proposal and requested 
that CMS consider providing more guidance that would describe suitable 
training, experience, and knowledge for how to run an effective quality 
assurance and improvement program. Other commenters disagreed with our 
proposal, stating that CMS should not require documentation of the 
qualifications of such a professional.
    Response: We believe it is important for the ACO to include a 
person within its clinical leadership team that is directly responsible 
for the ACO's quality assurance and improvement program. This person, 
as discussed in the November 2011 final rule, may be a physician or any 
other qualified health professional. We clarify that this role may be 
filled by the ACO's medical director. Currently, in the ACO's 
application to the Shared Savings Program, we request certain 
information about the ACO's organization and management structure. 
Because the quality assurance and improvement program is integral to 
the ACO's ability to meet participation requirements, we also believe 
the healthcare professional responsible for it must be considered a 
part of the ACO's clinical leadership. Therefore, we are finalizing our 
proposal that the ACO submit information about this person as part of 
its application to the program.
    FINAL ACTION: We are finalizing, as proposed, our policies related 
to the ACO's leadership and management. Specifically, we are amending 
Sec.  425.108 to provide some additional flexibility regarding the 
qualifications of the ACO medical director and to eliminate the 
provision permitting ACOs to request consideration to enter the program 
without satisfying the requirements at Sec.  425.108(b) and (c) for 
operations and clinical management. In addition, we are amending Sec.  
425.204(c)(iii) to require that applicants must submit materials at the 
time of application regarding the ACO's leadership and management team, 
including the qualified health care

[[Page 32722]]

professional responsible for the ACO's quality assurance and 
improvement program.
8. Required Process To Coordinate Care
a. Overview
    Section 1899(b)(2)(G) of the Act requires an ACO to ``define 
processes to . . . coordinate care, such as through the use of 
telehealth, remote patient monitoring, and other such enabling 
technologies.'' In the November 2011 final rule (76 FR 67829 through 
67830), we established requirements under Sec.  425.112(b)(4) that ACOs 
define their care coordination processes across and among primary care 
physicians, specialists, and acute and post-acute providers. As part of 
this requirement, an ACO must define its methods and processes to 
coordinate care throughout an episode of care and during its 
transitions. In its application to participate in the Shared Savings 
Program, the ACO must submit a description of its individualized care 
program, along with a sample care plan, and explain how this program is 
used to promote improved outcomes for, at a minimum, its high-risk and 
multiple chronic condition patients. In addition, an ACO's application 
must describe target populations that would benefit from individualized 
care plans.
    In developing these policies for the November 2011 final rule (76 
FR 67819), we received comments acknowledging that requiring ACOs to 
define processes to promote coordination of care is vital to the 
success of the Shared Savings Program. Commenters stressed the 
importance of health information exchanges in coordination of care 
activities and recommended that CMS allow ACOs the flexibility to use 
any standards-based electronic care coordination tools that meet their 
needs. Other commenters suggested that the proposed rule anticipated a 
level of functional health information exchange and technology adoption 
that may be too aggressive.
    As stated in Sec.  425.204(c)(1)(ii), applicants to the Shared 
Savings Program must provide a description, or documents sufficient to 
describe, how the ACO will implement the required processes and 
patient-centeredness criteria under Sec.  425.112, including 
descriptions of the remedial processes and penalties (including the 
potential for expulsion) that will apply if an ACO participant or an 
ACO provider/supplier fails to comply with and implement these 
processes. Under Sec.  425.112(b), an ACO must establish processes to 
accomplish the following:
     Promote evidence-based medicine.
     Promote patient engagement.
     Develop an infrastructure to internally report on quality 
and cost metrics required for monitoring and feedback.
     Coordinate care across and among primary care physicians, 
specialists and acute and post-acute providers and suppliers.
    In addition to the processes described previously, we believe it is 
important for applicants to explain how they will develop the health 
information technology tools and infrastructure to accomplish care 
coordination across and among physicians and providers Adoption of 
health information technology is important for supporting care 
coordination by ACO participants and other providers outside the ACO in 
the following ways:
     Secure, private sharing of patient information.
     Reporting on quality data and aggregating data across 
providers and sites to track quality measures.
     Deploying clinical decision support tools that provide 
access to alerts and evidence based-guidelines.
    As ACOs establish more mature processes for risk management, 
information technology infrastructure allows ACOs and providers to 
conduct robust financial management of beneficiary populations, deliver 
cost and quality feedback reporting to individual providers, and 
streamline the administration of risk based contracts across multiple 
payers. We believe that requiring ACOs to address health information 
technology infrastructure in their application to the Shared Savings 
program would support more careful planning and increased focus on this 
issue.
b. Accelerating Health Information Exchange
    We believe all patients, their families, and their healthcare 
providers should have consistent and timely access to their health 
information in a standardized format that can be securely exchanged 
between the patient, providers, and others involved in the patient's 
care. (HHS August 2013 Statement, ``Principles and Strategies for 
Accelerating Health Information Exchange'') HHS is committed to 
accelerating health information exchange (HIE) through the use of EHRs 
and other types of health information technology (HIT) across the 
broader care continuum through a number of initiatives including--
     Establishing a coordinated governance framework and 
process for nationwide health IT interoperability;
     Improving technical standards and implementation guidance 
for sharing and using a common clinical data set;
     Enhancing incentives for sharing electronic health 
information according to common technical standards, starting with a 
common clinical data set; and
     Clarifying privacy and security requirements that enable 
interoperability. These initiatives are designed to encourage HIE among 
health care providers, including professionals and hospitals eligible 
for the Medicare and Medicaid EHR Incentive Programs and those 
ineligible for such programs to improve care delivery and coordination 
across the entire care continuum.
    For example, the Transition of Care Measure #2 in Stage 2 of the 
Medicare and Medicaid EHR Incentive Programs requires HIE to share 
summary records for at least 10 percent of care transitions. Most 
recently, the Office of the National Coordinator for Health Information 
Technology (ONC) released a document entitled ``Connecting Health and 
Care for the Nation: A Shared Nationwide Interoperability Roadmap'' 
(available at https://www.healthit.gov/sites/default/files/nationwide-interoperability-roadmap-draft-version-1.0.pdf) which further describes 
a shared agenda for achieving interoperability across the current 
health IT landscape. In the near term, the Roadmap focuses on actions 
that will enable a majority of individuals and providers across the 
care continuum to send, receive, find and use a common set of 
electronic clinical information at the nationwide level by the end of 
2017.
    We believe that HIE and the use of certified EHRs can effectively 
and efficiently help ACOs and participating providers improve internal 
care delivery practices, support management of patient care across the 
continuum, and support the reporting of electronically specified 
clinical quality measures (eCQMs).
c. Proposed Revisions
    In the proposed rule, we continue to believe that ACOs should 
coordinate care between all types of providers and across all services, 
and that the secure, electronic exchange of health information across 
all providers and suppliers is of the utmost importance for both 
effective care coordination activities and the success of the Shared 
Savings Program. We clarify that such care coordination could include 
coordination with community-based organizations that provide services 
that address social determinants of health. We understand that ACOs 
will differ in their ability to adopt the appropriate

[[Page 32723]]

health information exchange technologies, but we continued to 
underscore the importance of robust health information exchange tools 
in effective care coordination.
    In the proposed rule, ACOs have reported how important access to 
real time data is for providers to improve care coordination across all 
sites of care, including outpatient, acute, and post-acute sites of 
care. We believe that providers across the continuum of care are 
essential partners to primary care physicians in the management of 
patient care. ACOs participating in the program indicate that they are 
actively developing the necessary infrastructure and have been 
encouraging the use of technologies that enable real time data sharing 
among and between sites of care. We believe having a process and plan 
in place to coordinate a beneficiary's care by electronically sharing 
health information improves care, and that this helps all clinicians 
involved in the care of a patient to securely access the necessary 
health information in a timely manner. It also can also be used to 
engage beneficiaries in their own care. We further believe that Shared 
Savings Program applicants should provide, as part of the application, 
their plans for improving care coordination by developing, encouraging, 
and using enabling technologies and electronic health records to make 
health information electronically available to all practitioners 
involved in a beneficiary's care.
    Therefore, we proposed to add a new requirement to the eligibility 
requirements under Sec.  425.112(b)(4)(ii)(C) which would require an 
ACO to describe in its application how it will encourage and promote 
the use of enabling technologies for improving care coordination for 
beneficiaries. Such enabling technologies and services may include 
electronic health records and other health IT tools (such as population 
health management and data aggregation and analytic tools), telehealth 
services (including remote patient monitoring), health information 
exchange services, or other electronic tools to engage patients in 
their care. We also proposed to add a new provision at Sec.  
425.112(b)(4)(ii)(D) to require the applicant to describe how the ACO 
intends to partner with long-term and post-acute care providers to 
improve care coordination for the ACO's assigned beneficiaries. 
Finally, we proposed to add a provision under Sec.  
425.112(b)(4)(ii)(E) to require that an ACO define and submit major 
milestones or performance targets it will use in each performance year 
to assess the progress of its ACO participants in implementing the 
elements required under Sec.  425.112(b)(4). For instance, providers 
would be required to submit milestones and targets such as: Projected 
dates for implementation of an electronic quality reporting 
infrastructure for participants; the number of providers expected to be 
connected to health information exchange services by year; or the 
projected dates for implementing elements of their care coordination 
approach, such as alert notifications on emergency department and 
hospital visits or e-care plan tools for virtual care teams. We believe 
this information would allow us to better understand and support ACOs' 
plans to put into place the systems and processes needed to deliver 
high quality care to beneficiaries.
    We also noted that ACOs have flexibility to use telehealth 
services, as they deem appropriate for their efforts to improve care 
and avoid unnecessary costs. Some ACOs have already reported that they 
are actively using telehealth services to improve care for their 
beneficiaries. We welcomed information from ACOs and other stakeholders 
about the use of such technologies. We sought comment on the specific 
services and functions of this technology that might be appropriately 
adopted by ACOs. For example, do the use of telehealth services and 
other technologies necessitate any additional protections for 
beneficiaries? Are these technologies necessary for care coordination 
or could other methods be used for care coordination? If a particular 
technology is necessary, under what circumstances?
    Comment: Several commenters supported our proposed new provision at 
Sec.  425.112(b)(4)(ii)(D) to require the applicant to describe how the 
ACO intends to partner with long-term and post-acute care providers to 
improve care coordination for the ACO's assigned beneficiaries. A 
commenter noted that recent studies have established that use of post-
acute care contributes to the most variation in expenditures for 
Medicare beneficiaries. Another commenter suggested that CMS evaluate 
whether the requirement for ACOs to define a process to promote care 
coordination is sufficiently patient-centered.
    Commenters also stated that post-acute care should include both 
community-based and facility-based long-term services and other 
supporting practitioners. Several commenters noted their belief that 
primary care physicians are the key to improving care coordination. A 
commenter noted that nurse practitioners play a contributing role in 
the implementation of care coordination activities across ACO 
professionals within the ACO. A few commenters recommended that CMS 
create an additional requirement for ACOs to describe how it will 
provide beneficiaries with palliative care services.
    A few commenters disagreed with the addition of any requirements, 
stating that they believe this requirement would add administrative 
burden to ACOs and distract from coordination of care. A commenter 
opposed care coordination requirements and the current requirement at 
Sec.  425.112(a)(3)(i) for ACOs to outline remedial processes and 
penalties that would apply for provider non-compliance and suggested 
CMS eliminate them.
    Response: We appreciate the broad support for the program rules 
requiring ACOs to develop a process to promote patient-centered care 
coordination, including the requirements for the ACO to define this 
process across sites of care. We believe that our current rules place a 
strong emphasis on patient-centeredness and refer the reader to the 
November 2011 proposed and final rules for a more fulsome discussion of 
this important issue. Our current rules require ACOs to define, 
establish, implement, evaluate, and periodically update its care 
processes, including its process to coordinate care across and among 
primary care physicians, specialists, and acute and post-acute 
providers and suppliers. When engaging beneficiaries and in shared 
decision-making, the ACO must take into account the beneficiaries' 
unique needs, preferences, values, and priorities. Individualized care 
plans must take into account community resources available to the 
individual. Therefore, we believe that the ACO's care coordination 
efforts could include both community-based and facility-based long-term 
services and other supporting practitioners. Furthermore, we agree that 
primary care practitioners are central to the ACO's efforts to improve 
care coordination for the assigned beneficiary population and that many 
clinical and administrative personnel, including nurse practitioners 
and other non-physician practitioners, play an important contributing 
role in the implementation of care coordination activities for the ACO. 
Our rules at Sec.  425.112(a)(3)(i) require each ACO to explain how it 
will require ACO participants and ACO providers/suppliers to comply 
with and implement each process (and all sub-elements of each process), 
including remedial processes and penalties (including the potential for 
expulsion)

[[Page 32724]]

applicable to ACO participant and ACO providers/suppliers for failure 
to comply with their implementation. We believe this is necessary 
because the processes are so integral to ACO participation and the 
mission of an ACO. We believe that compliance with these processes can 
indicate whether an ACO participant or ACO provider/supplier has made a 
meaningful commitment to the mission and success of the ACO.
    We are not including other specific requirements at this time 
because we believe ACOs should have flexibility within the current 
rules to define care processes that are appropriate for their unique 
patient population. Therefore, we are finalizing the proposed policy 
without change.
    Comment: Many commenters supported our proposed revision to add a 
new eligibility requirement under Sec.  425.112(b)(4)(ii)(C) which 
would require an ACO to describe in its application how it will 
encourage and promote the use of enabling technologies for improving 
care coordination for beneficiaries. Commenters specifically encouraged 
CMS to require ACOs to use specific technologies such as EHRs, image 
sharing, mobile devices, electronic access for beneficiaries, HIT-
enabled monitoring of performance on patient-reported outcomes, and 
remote patient monitoring. A commenter suggested requiring ACOs to give 
beneficiaries the ability to view, download, and transmit their health 
information in a manner consistent with Meaningful Use requirements. 
Supporters suggested modifications to the proposed provision such as 
recognizing that care coordination tools may be part of EHR 
functionality that care coordination tools may include innovative 
electronic care coordination applications, or that care coordination 
tools can be designed to assist both providers and beneficiaries. A 
commenter recommended that use of EHRs be a requirement for 
participation in the program, rather than a description in the 
application. Several commenters offered specific suggestions, such as 
requiring inpatient facilities to notify a patient's primary care 
provider immediately upon presentation to the emergency department, 
prior to admission, and on a daily basis when the patient has been 
admitted. A commenter recommended that CMS require ACOs to describe how 
it would use enabling technologies to engage patients. Another 
commenter encouraged CMS to consider the cultural needs, health 
literacy, and technological literacy of the community as components in 
the promotion of enabling technologies. A commenter suggested CMS 
support transparency by evaluating and reporting on the best enabling 
technology outcomes to encourage ACO adoption of best practices. 
Another commenter made the statement that to enhance patient engagement 
and caregiver engagement of care, patient-facing information and 
communication platforms should be accessible to those with visual, 
hearing, cognitive, and communication impairments.
    Several commenters raised concerns about the proposal stating that 
ACOs should have flexibility to work with their participating 
physicians and other health professionals on how best to deploy 
technology in a manner that drives efficiency and quality improvement. 
These commenters viewed the proposed policy as overly restrictive and a 
deterrent to the development of innovative enabling technologies. Some 
commenters agreed that health IT is a critical component of ACO 
success, but warned that a requirement such as this would just increase 
ACO burden and not ensure that health IT would actually be used 
effectively to transform care, in other words, enabling technologies 
should be understood as a means for care coordination and not an end 
unto itself. Commenters also raised a concern about the costs of such 
technologies and suggested CMS offer financial awards or bonuses to 
ACOs to defray the costs of acquiring technologies or hiring care 
coordinators to better implement care coordination processes.
    Response: We appreciate the support of those that recognize the 
importance of encouraging ACO adoption of enabling technologies to 
improve care coordination. We agree that enabling technologies should 
be adopted thoughtfully with the goal of improving care, and not just 
adoption for its own sake. We are not finalizing additional specific 
requirements because we agree with commenters that ACOs should have 
flexibility to define their care coordination processes and use of 
enabling technologies. We believe this flexibility can encourage 
innovative methods of engaging both beneficiaries and providers in the 
coordination of a patient's care. ACOs should also have flexibility 
because of differences in the rate of adoption of enabling 
technologies, cultural needs and health literacy of the ACO's 
population. Additionally, we believe this flexibility is needed because 
it is too early in the adoption of enabling technologies to determine 
what processes or technologies produce the best outcomes for patients. 
We therefore disagree with commenters that view the proposal as overly 
restrictive. As use of such technologies becomes more established, best 
practices may emerge in the future which CMS may consider. While we 
encourage ACO efforts to improve care coordination throughout episodes 
of care and during care transitions, we agree with commenters that 
additional requirements on providers would be burdensome. Therefore, at 
this time to we will not require inpatient facilities to notify primary 
care providers of emergency room visits or admissions. However, we note 
that inpatient facilities have an interest in coordinating the care of 
beneficiaries to reduce avoidable admissions and encourage ACOs to 
develop relationships with local hospitals to improve these 
transitions.
    We continue to believe ACOs should coordinate care between all 
types of providers and suppliers across all services, and secure, 
electronic exchange of health information across all providers in a 
community is of the utmost importance for both effective care 
coordination activities and the success of the Shared Savings Program. 
We believe having a process and plan in place to coordinate a 
beneficiary's care by electronically sharing health information 
improves care, and that this helps all clinicians involved in the care 
of a patient to securely access the necessary health information in a 
timely manner. We further believe that Shared Savings Program 
applicants should provide, as part of the application, their plans for 
improving care coordination by developing, encouraging, and using 
enabling technologies and electronic health records to make health 
information electronically available to all practitioners involved in a 
beneficiary's care, both within the ACO and with other practitioners 
and sites of care outside of the ACO involved in the care of a 
beneficiary. Therefore, we are finalizing our proposal to add a new 
requirement to the eligibility requirements under Sec.  
425.112(b)(4)(ii)(C) which will require an ACO to describe in its 
application how it will encourage and promote the use of enabling 
technologies for improving care coordination for beneficiaries. 
Specifically, such enabling technologies and services may include 
electronic health records and other health IT tools (such as population 
health management and data aggregation and analytic tools), telehealth 
services, remote patient monitoring, health information exchange 
services or other electronic tools to engage patients in their care.

[[Page 32725]]

    In response to the comment suggesting that communications and 
information be accessible to people with impairments, we note that 
according to Sec.  425.208(b), the ACO must agree, and must require its 
ACO participants, ACO providers/suppliers, and other individuals or 
entities performing functions or services related to the ACO's 
activities to comply with all applicable laws, including laws such as 
the Rehabilitation Act of 1973, to ensure access to enabling 
technologies for individuals with disabilities.
    Comment: Several commenters supported our proposal to add a 
provision under Sec.  425.112(b)(4)(ii)(E) to require that an ACO 
define and submit major milestones or performance targets that it will 
use in each performance year to assess the progress of its ACO 
participants in implementing the elements required under Sec.  
425.112(b)(4). However, a majority of commenters opposed this proposal. 
Commenters who supported the proposal indicated that they believe that 
milestones would be important to keep the ACO and ACO participants 
accountable to their care coordination plan. Others requested 
clarification on what the penalties would be if targets and milestones 
are not met as well as how often these targets and milestones must be 
reported by ACOs. Commenters who were opposed to the proposal stated 
that additional eligibility requirements would be an administrative 
burden and distract from the actual coordination of care. A commenter 
suggested the CMS amend this proposal to require that the ACO take into 
account the cultural needs, and health and technological literacy of 
the community when setting milestones. Another commenter wondered if 
this requirement would apply to ACOs renewing their participation 
agreements.
    Response: We believe that setting milestones is important for an 
ACO to track its progress and the progress of its ACO participants in 
implementing care coordination activities and the use of enabling 
technologies. However, we agreed with commenters who believe the 
requirement to be overly burdensome. We note that although we are not 
finalizing this specific requirement at this time, ACOs are currently 
required under Sec.  425.112(b)(4), as a condition of program 
eligibility and participation, to ``define, establish, implement, 
evaluate, and periodically update'' processes to promote care 
coordination among primary care physicians, specialist, and acute and 
post-acute providers and suppliers. We believe that the obligation to 
evaluate such processes necessarily entails an evaluation of the ACO's 
progress in achieving care coordination. We will continue to monitor 
ACO progress on HIT infrastructure as part of program administration. 
In addition, we will assess general progress through ACO performance on 
measures related to HIT adoption and use, for instance, the current 
MSSP quality measure around participation in the EHR Incentives 
program, or a future measure which would reflect ACO providers' ability 
to electronically exchange data to support care transitions. We also 
encourage providers to monitor the degree of interoperability and 
exchange across providers in their ACO, which could include evaluating 
performance on the transition of care or health information exchange 
measures in the EHR Incentives Program.
    FINAL ACTION: For the reasons previously discussed, we are 
finalizing our proposal to add a new requirement to the eligibility 
requirements under Sec.  425.112(b)(4)(ii)(C) which will require an ACO 
to describe in its application how it will encourage and promote the 
use of enabling technologies for improving care coordination for 
beneficiaries. Specifically, such enabling technologies and services 
may include electronic health records and other health IT tools (such 
as population health management and data aggregation and analytic 
tools), telehealth services, remote patient monitoring, health 
information exchange services, or other electronic tools to engage 
patients in their care. We note that in section II.F. of this final 
rule we consider payment rule waivers for such things as telehealth 
services.
    Additionally, we are finalizing our proposal to add a new provision 
at Sec.  425.112(b)(4)(ii)(D) to require the applicant to describe how 
the ACO intends to partner with long-term and post-acute care providers 
to improve care coordination for the ACO's assigned beneficiaries. We 
note that in section II.F.7. of this final rule we discuss and finalize 
a waiver of the SNF 3-day rule.
    Finally, based on comments, we will not finalize our proposal to 
add a provision under Sec.  425.112(b)(4)(ii)(E) to require that an ACO 
define and submit major milestones or performance targets it will use 
in each performance year to assess the progress of its ACO participants 
in implementing the elements required under Sec.  425.112(b)(4). 
Although this requirement is not being finalized, ACOs are currently 
required under Sec.  425.112(b)(4), as a condition of program 
eligibility and participation, to ``define, establish, implement, 
evaluate, and periodically update'' processes to promote care 
coordination among primary care physicians, specialist, and acute and 
post-acute providers and suppliers. We believe that the obligation to 
evaluate such processes necessarily entails an evaluation of the ACO's 
progress in achieving care coordination.
9. Transition of Pioneer ACOs Into the Shared Savings Program
a. Overview
    The Center for Medicare and Medicaid Innovation (the CMS Innovation 
Center) was established by section 1115A of the Act (as added by 
section 3021 of the Affordable Care Act) for the purpose of testing 
``innovative payment and service delivery models to reduce program 
expenditures . . . while preserving or enhancing the quality of care'' 
for those individuals who receive Medicare, Medicaid, or Children's 
Health Insurance Program (CHIP) benefits. The Pioneer ACO Model is a 
CMS Innovation Center initiative designed for organizations with 
experience operating as ACOs or in similar arrangements. Among the 
design elements being tested by the Pioneer ACO Model is the impact of 
using two-sided risk and different payment arrangements in to achieve 
the goals of providing better care to patients, and reducing Medicare 
costs. Under section 1899(b)(4) of the Act, to be eligible to 
participate in the Shared Savings Program, a provider of services or 
supplier may not also be participating in a program or demonstration 
project that involves shared savings, such as the Pioneer ACO Model. 
Thus, Pioneer ACOs are not permitted to participate concurrently in the 
Shared Savings Program. As Pioneer ACOs complete the model test (the 
agreement is for a minimum of 3 years with an option to participate for 
an additional 2 years), they would have an opportunity to transition to 
the Shared Savings Program. We believe it would be appropriate to 
establish an efficient process to facilitate this transition in a way 
that minimizes any unnecessary burdens on these ACOs and on CMS.
b. Proposed Revisions
    In order to do this, we proposed to use a transition process that 
is similar to the transition process we established previously for 
Physician Group Practice (PGP) demonstration participants applying to 
participate in the Shared Savings Program. The PGP demonstration, 
authorized under section 1866A of the Act, was our first experience 
with a shared savings program in Medicare and served as a

[[Page 32726]]

model for many aspects of the Shared Savings Program.
    In the November 2011 final rule (76 FR 67834), we finalized Sec.  
425.202(b), which provides that PGP sites applying for participation in 
the Shared Savings Program will be given the opportunity to complete a 
condensed application form. This condensed application form requires a 
PGP site to provide the information that was required for the standard 
Shared Savings Program application but that was not already obtained 
through its application for or via its participation in the PGP 
demonstration. Also, a PGP participant would be required to update any 
information contained in its application for the PGP demonstration that 
was also required on the standard Shared Savings Program application. 
Former PGP participants qualified to use a condensed application form 
if their ACO legal entity and TINs of ACO participant were the same as 
those that participated under the PGP demonstration.
    We noted that, as we continue to implement the Shared Savings 
Program, we will likely have a similar situation with regard to Pioneer 
ACOs that have completed their current agreement and wish to transition 
to the Shared Savings Program. Given that we have been working with and 
have a level of familiarity with these organizations similar to that 
with the PGP participants, we stated our belief that it was appropriate 
to consider offering some latitude with regard to the process for 
applying to the Shared Savings Program for these ACOs.
    Thus, we proposed to revise Sec.  425.202(b) to offer Pioneer ACOs 
the opportunity to apply to the Shared Savings Program using a 
condensed application if three criteria are satisfied. First, the 
applicant ACO must be the same legal entity as the Pioneer ACO. Second, 
all of the TINs on the applicant's ACO participant list must have 
appeared on the ``Confirmed Annual TIN/NPI List'' (as defined in the 
Pioneer ACO Model Innovation Agreement with CMS) for the applicant 
ACO's last full performance year in the Pioneer ACO Model. Third, the 
applicant must be applying to participate in a two-sided model. We 
noted that, consistent with the statute and our regulation at Sec.  
425.114, any Pioneer ACO transitioning to the Shared Savings Program 
must apply to participate in the Shared Savings Program for an 
agreement period that would start after its participation in the 
Pioneer ACO Model has ceased. We further noted that Pioneer ACOs 
transitioning to the Shared Savings Program would be subject to the 
standard program integrity screening and an evaluation of their history 
of compliance with the requirements of the Pioneer ACO Model.
    Regarding the second criterion, we recognized that there are 
differences between the Pioneer ACO Model and the Shared Savings 
Program, and that only some of the NPIs within a TIN might have 
participated in the Pioneer ACO. Therefore, for purposes of determining 
whether a condensed application will be appropriate under the Shared 
Savings Program, we stated we would compare only the TINs and not NPIs. 
We also recognized that some TINs may not be able to obtain the consent 
of all NPIs billing through the TIN to participate in the Shared 
Savings Program, which disqualifies the TIN from participating in the 
program. Therefore, unlike with the PGP demonstration sites, we 
proposed to allow the ACO applicant to complete a condensed application 
form even if it drops TINs that participated in its Pioneer ACO. 
However, we proposed that if the applicant ACO includes TINs that were 
not on the Pioneer ACO's Confirmed Annual TIN/NPI List for its last 
full performance year in the Pioneer ACO Model, the applicant would be 
required to use the standard application for the Shared Savings 
Program. A Pioneer ACO applying to the Shared Savings Program using a 
condensed application form would be required to include a narrative 
description of the modifications they need to make to fulfill our 
requirements (for example, making changes to the governing body and 
obtaining or revising agreements with ACO participants and ACO 
providers/suppliers).
    Because the Pioneer ACO Model is a risk-bearing model designed for 
more experienced organizations, the third proposed criterion would 
permit Pioneer ACOs to use the condensed application only if they apply 
to participate in the Shared Savings Program under a two-sided model. 
We established Track 1 of the Shared Savings Program as an on-ramp for 
ACOs while they gain experience and become ready to accept risk. In 
this case, the Pioneer ACOs are already experienced and will have 
already accepted significant financial risk. Therefore, under this 
proposal, former Pioneer ACOs would not be permitted to enter the 
Shared Savings Program under Track 1. We further noted that the rules 
and methodologies used under the Pioneer ACO Model to assess 
performance-based risk are different than under the Shared Savings 
Program. Therefore, we encourage former Pioneer Model ACOs to carefully 
consider the risk-based track to which they apply under the Shared 
Savings Program, and to be cognizant of the differences in rules and 
methodologies.
    We sought comments on this proposal to establish a condensed 
application process for Pioneer ACOs applying to participate in the 
Shared Savings Program and to require such Pioneer ACOs to participate 
under a track that includes performance-based risk. We noted that 
Pioneer ACOs that do not meet criteria for the condensed application 
would have to apply through the regular application process.
    Comment: Commenters supported our proposal to revise Sec.  
425.202(b) to offer Pioneer ACOs the opportunity to apply to the Shared 
Savings Program using a condensed application. A commenter expressed 
concern that a transition to the Shared Savings Program might 
``disenfranchise both nurse practitioners and their patients'' because 
of the statutory criterion that beneficiaries be assigned to Shared 
Savings Program ACOs based on primary care services rendered by 
physicians. Another commenter supported the proposals but recommended 
that CMS require Pioneer ACOs to complete a narrative detailing the 
modifications the ACO would make to comply with Shared Savings Program 
rules.
    Response: We appreciate the support for our proposal to allow 
Pioneer ACOs to enter the Medicare Share Saving Program using a 
condensed application. We recognize there are differences between the 
Pioneer ACO Model and the Shared Savings Program requirements and 
methodologies, such as the assignment methodology, that may alter 
whether beneficiaries seen by certain provider types become assigned to 
a Shared Savings Program ACO. We believe that the commenter's concern 
regarding the differences in assignment methodologies and the 
``disenfranchisement'' it may cause is not a sufficient reason to deny 
Pioneer ACOs the opportunity to use a condensed application when 
transitioning to the Shared Savings Program. Additionally, we intend to 
ensure that all applicants to the program are appropriately screened 
and meet eligibility requirements prior to participation, including 
applicants that may qualify to use a condensed application. As stated 
previously, the condensed application form will require the Pioneer ACO 
to describe the modifications it will need to make to fulfill our 
requirements (for example, making changes to the governing body and 
obtaining or revising agreements

[[Page 32727]]

with ACO participants and ACO providers/suppliers).
    Comment: A few commenters suggested that CMS alter the criterion 
that a Pioneer ACO may use a condensed application if the applicant ACO 
is the same legal entity as the entity that participated under the 
Pioneer ACO Model. These commenters suggested that the criterion should 
be revised so that a former Pioneer ACO may demonstrate that it is 
either the same legal entity or that the majority of its ACO 
participants would remain the same. Several commenters requested that 
the criteria be modified to require a full application only if there is 
a 50 percent or greater change in the TIN makeup of the ACO. Another 
commenter recommended elimination of this criterion but did not provide 
details for the reason.
    Response: We appreciate the suggestion; however, we believe the 
best way to determine if the organization is the same entity that is 
transitioning to the Shared Savings Program from the Pioneer ACO Model 
is to establish that its legal entity has the same TIN. As articulated 
by commenters in response to our proposal under Sec.  425.214(a) to 
quantify a significant change in the ACO participant list, a simple 
percent threshold does not necessarily identify a 50 percent change, 
and a majority change could easily occur with the addition or removal 
of a very small number of TINs if the ACO is small. Similarly, we 
believe assessing whether the organization is the same on the basis of 
a percentage of a consistent cohort of ACO participant TINs is 
problematic. Therefore, we will finalize the criterion that a Pioneer 
ACO may use a condensed application if the applicant ACO is the same 
legal entity as the entity that participated under the Pioneer ACO 
Model.
    Comment: Several commenters suggested CMS either eliminate or 
modify the criterion that in order to qualify to use the condensed 
application, all TINs on the applicant's ACO participant list must have 
appeared on the ``Confirmed Annual TIN/NPI List'' (as defined in the 
Pioneer ACO Model Innovation Agreement with CMS) for the applicant 
ACO's last full performance year in the Pioneer ACO Model. A few 
commenters suggested that Pioneer ACOs should be allowed to also 
include any TINs that they planned to add midyear (that is, during the 
application period). Several commenters supported comparing only ACO 
participant TINs and not ACO provider/supplier (NPI) lists because of 
the different rules under the two initiatives.
    Response: We agree with commenters that supported the proposal to 
compare only TINs and not NPIs when assessing the ability of a Pioneer 
ACO that seeks to use a condensed application when transitioning to the 
Shared Savings Program. As we noted in the proposed rule, we recognized 
that there are differences between the Pioneer ACO Model and the Shared 
Savings Program, and that only some of the NPIs within a TIN might have 
participated in the Pioneer ACO. Therefore, for purposes of determining 
whether a condensed application will be appropriate under the Shared 
Savings Program, we stated we would compare only the TINs and not NPIs. 
We also recognized that some TINs may not be able to obtain the consent 
of all NPIs billing through the TIN to participate in the Shared 
Savings Program, which disqualifies the TIN from participating in the 
program. Therefore, unlike with the PGP demonstration sites, we 
proposed to allow the ACO applicant to complete a condensed application 
form even if it drops TINs that participated in its Pioneer ACO. While 
we understand the desire for organizations to annually update the ACO 
participants list, we have concerns that that permitting an ACO to add 
TINs during the application cycle during its transition to the Shared 
Savings Program would erode our ability to determine if the ACO closely 
approximates the same organization that is currently participating in 
the Pioneer ACO Model and thus its ability to qualify for using a 
condensed application. We welcome such ACOs to apply through the normal 
application process which permits both additions and deletions to the 
ACO participant list during the course of application review.
    Comment: Many commenters strongly encouraged CMS not to define 
which track the applicant ACO must enter. Commenters suggested that 
although a Pioneer ACO participated in the more ``advanced'' program, 
there are different program rules in the Shared Savings Program. 
Additionally, a Pioneer ACO transitioning to the Shared Savings Program 
may not have been comfortable with the risk levels taken in Pioneer 
ACOs and may believe it should have the opportunity to move into a 
lower risk track.
    Response: We clarify that we are not defining what track a 
transitioning Pioneer ACO must enter. Instead, we are offering the 
opportunity, when certain criteria are met, for such organizations to 
seamlessly transition to the Shared Savings Program using a condensed 
application, similar to the application offered to PGP demonstration 
sites as they transitioned from the PGP demonstration to the Shared 
Savings Program. We believe these criteria are necessary and important 
to provide us with some assurance that the organization that is 
participating in the Pioneer ACO Model will be the same organization 
that will participate in the Shared Savings Program. We note that 
several former Pioneer ACOs that participated in the early years of the 
model were not comfortable with the increased risk that was phased in 
under the model after terminating their participation in the model; 
they used the normal application process to enter the Shared Savings 
Program under Track 1. We clarify that our proposal to use a condensed 
application was intended to assist Pioneer ACOs that are currently 
participating in the Pioneer ACO Model to transition seamlessly to the 
Shared Savings Program. We acknowledge that there are methodological 
differences between the two initiatives; however, because the Pioneer 
ACOs are currently participating in the model under performance-based 
two-sided risk, we do not believe such entities should be permitted to 
apply under Track 1. We recognize that such entities may wish to modify 
aspects of their organization, such as adding or removing certain 
Medicare-enrolled TINs from participation, or for other reasons may no 
longer be comfortable continuing to take two-sided risk. Such entities 
may not meet criteria for completing a condensed application or could 
choose to apply to the program through the normal application process. 
Such ACOs would then have the opportunity to elect to participate under 
Track 1. We also note that, similar to the process for offering PGP 
demonstration sites the opportunity to transition to the Shared Savings 
Program using a condensed application, we anticipate that this 
opportunity would be time-limited. In other words, because the Pioneer 
ACO Model is scheduled to end after next year, we anticipate that the 
only organizations transitioning would be those that apply in the 
summer of 2015 for a 2016 start date and those that apply in the summer 
of 2016 for a 2017 start date.
    FINAL ACTION: We are finalizing and clarifying our proposal to use 
a transition process that is similar to the transition process we 
established previously for Physician Group Practice (PGP) demonstration 
participants applying to participate in the Shared Savings Program.
    Specifically we are finalizing our proposal to revise Sec.  
425.202(b) to offer Pioneer ACOs the opportunity to apply to the Shared 
Savings Program using a

[[Page 32728]]

condensed application if certain criteria are satisfied. First, the 
applicant ACO must be the same legal entity as the Pioneer ACO. Second, 
all of the TINs on the applicant's ACO participant list must have 
appeared on the ``Confirmed Annual TIN/NPI List'' (as defined in the 
Pioneer ACO Model Innovation Agreement with CMS) for the applicant 
ACO's last full performance year in the Pioneer ACO Model. Third, the 
applicant must be applying to participate in a two-sided model. We note 
that, consistent with the statute and our regulation at Sec.  425.114, 
any Pioneer ACO transitioning to the Shared Savings Program must apply 
to participate in the Shared Savings Program for an agreement period 
that would start after its participation in the Pioneer ACO Model has 
ceased. We further note that Pioneer ACOs transitioning to the Shared 
Savings Program would be subject to the standard program integrity 
screening and an evaluation of their history of compliance with the 
requirements of the Pioneer ACO Model.

C. Establishing and Maintaining the Participation Agreement With the 
Secretary

1. Background
    The November 2011 final rule established procedures for applying to 
participate in the Shared Savings Program, including the need to submit 
a complete application, the content of the application, and our 
criteria for evaluating applications (see Sec. Sec.  425.202 through 
425.206). In addition, Sec.  425.212 specifies which changes to program 
requirements will apply during the term of an ACO's participation 
agreement. In this section we discuss our proposals to clarify and to 
supplement the rules related to these requirements.
    The current regulations address certain issues with respect to ACOs 
that wish to reapply after termination or experiencing a loss during 
their initial agreement period (Sec. Sec.  425.222 and 425.600(c), 
respectively). However, the regulations are silent with respect to the 
procedures that apply to ACOs that successfully complete a 3-year 
agreement and would like to reapply for a subsequent agreement period 
in the Shared Savings Program. In this section, we discuss our proposal 
to establish the procedure for an ACO to renew its participation 
agreement for a subsequent agreement period.
2. Application Deadlines
a. Overview
    To obtain a determination on whether a prospective ACO meets the 
requirements to participate in the Shared Savings Program, our rules at 
Sec.  425.202(a) require that an ACO submit a complete application in 
the form and manner required by CMS by the deadline established by CMS. 
Information on the required content of applications can be found in 
Sec.  425.204, as well as in guidance published at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/sharedsavingsprogram/Application.html. Among other requirements, applications must include 
certain information such as an ACO's prior participation in or 
termination from the program (Sec.  425.204(b)); documents such as 
participation agreements, employment contracts and operating policies 
(Sec.  425.204(c)(1)(i)); and a list of all ACO participants and their 
Medicare-enrolled TINs (Sec.  425.204(c)(5)(i)).
    We determine and publish in advance on our Web site the relevant 
due dates for the initial submission of applications for each 
application cycle. While we expect ACOs to submit a completed 
application by the initial application due date specified on our Web 
site, we recognize that there may be portions of the application where 
additional information is necessary for CMS to make a determination. 
Therefore, according to Sec.  425.206(a)(2), we notify an applicant 
when additional information is needed and provide an opportunity to 
submit information to complete the application by a deadline specified 
by CMS in the notice.
    As stated in Sec.  425.206(a), CMS evaluates an ACO's application 
on the basis of the information contained in and submitted with the 
application. Applications that remain incomplete after the deadline 
specified by CMS are denied. It is incumbent upon the ACO applicant to 
submit timely the information that is required for CMS to decide 
whether the applicant is eligible to participate in the program.
    Finally, under Sec.  425.202(c), CMS determines whether an 
applicant satisfies the requirements and is qualified to participate in 
the Shared Savings Program.
b. Proposed Revisions
    In implementing the Shared Savings Program, we found that some 
applicants misunderstood our application process and the need to submit 
all required information by a specified deadline for submission of 
applications and supporting information. Thus, we proposed to revise 
our application review process set forth at Sec.  425.206(a) to better 
reflect our review procedures.
    We proposed to consolidate at Sec.  425.206 two similar provisions 
regarding application review. Currently, Sec.  425.202(c)(1) regarding 
application review provides that CMS determines whether an applicant 
satisfies the requirements of part 425 and is qualified to participate 
in the Shared Savings Program, and Sec.  425.202(c)(2) provides that 
CMS approves or denies applications accordingly. We proposed to amend 
Sec.  425.206(a)(1) to address the concept of application review 
currently set forth at Sec.  425.202(c)(1), and we proposed to amend 
Sec.  425.202(c) by replacing the existing text with language 
clarifying that CMS reviews applications in accordance with Sec.  
425.206.
    We also proposed to revise Sec.  425.206(a) to better reflect our 
application review process and the meaning of the reference to 
``application due date.'' Specifically, we proposed to revise Sec.  
425.206(a)(1) to clarify that CMS approves or denies an application on 
the basis of the following:
     Information contained in and submitted with the 
application by a deadline specified by CMS.
     Any supplemental information submitted in response to CMS' 
request for information and by a deadline specified by CMS.
     Other information available to CMS (including information 
on the ACO's program integrity history).
    In addition, we proposed to amend Sec.  425.206(a)(2) to clarify 
our process for requesting supplemental information and to add a new 
paragraph (a)(3) to specify that CMS may deny an application if an ACO 
applicant fails to submit supplemental information by the deadlines 
specified by CMS. We believe that additional clarity may result in more 
timely submission of the information necessary to evaluate 
applications. Moreover, it is critical that ACOs submit information on 
a timely basis so that we can perform other necessary operational 
processes before the start of the approved ACO's first performance year 
(for example, determining the number of beneficiaries assigned to the 
ACO, screening prospective ACO participants and ACO providers/
suppliers, identifying the preliminary prospective list of assigned 
beneficiaries, and calculating the ACO's historical benchmark).
    Comment: A few commenters supported our proposed changes as 
written. One of the commenters stated that it is important for ACOs to 
have definitive deadlines, and requested that CMS make clear all 
deadlines necessary for ACOs to meet all program

[[Page 32729]]

requirements, for example, deadlines for making public certain 
information.
    Response: We agree with commenters that it is important to clearly 
communicate deadlines to ACOs. Specific application deadlines will 
continue to be posted on our Web site on an annual basis, and deadlines 
for the submission of supplemental information provided in response to 
a CMS' request will be communicated directly with applicants throughout 
the application review process. For ACOs that have been accepted into 
the program, we make announcements directly to ACOs through our weekly 
newsletter and the ACO's CMS coordinator. Deadlines are also indicated 
in guidance documents and the calendar posted on the ACO portal.
    FINAL ACTION: We are finalizing our proposal to consolidate at 
Sec.  425.206(a)(1) two similar provisions regarding application review 
found at Sec.  425.202(c)(1) and Sec.  425.202(c)(2). Therefore, we are 
finalizing our proposals to revise Sec.  425.206(a)(1) to clarify that 
CMS approves or denies an application on the basis of the following:
     The information contained in and submitted with the 
application by the deadline.
     Any supplemental information submitted in response to a 
CMS request and by the specified deadline .
     Other information available to CMS (including information 
on the ACO's program integrity history).
    Since incomplete applications prevent us from making a timely 
evaluation of whether the ACO satisfies the requirements of our 
regulations, we are also finalizing as proposed the policies related to 
application procedures and deadlines. Specifically, we are finalizing 
our proposals to amend Sec.  425.206(a)(2) to clarify our process for 
requesting supplemental information and to add a new paragraph (a)(3) 
to specify that CMS may deny an application if an ACO applicant fails 
to submit information by the deadlines specified by CMS.
3. Renewal of Participation Agreements
a. Overview
    For ACOs that would like to continue participating in the Shared 
Savings Program after the expiration of their current agreement period, 
we proposed a process for renewing their existing participation 
agreements, rather than requiring submission of a new or condensed 
application for continued program participation. Specifically, we 
proposed to add new Sec.  425.224 to establish procedures for renewing 
the participation agreements of ACOs. In addition, we proposed (in 
section II.C.4. of the proposed rule) to modify the definition of 
``agreement period'' at Sec.  425.20 to clarify its meaning in the 
context of participation agreement renewals.
b. Proposed Revisions
    Under proposed Sec.  425.224(a), an ACO would be permitted to 
request renewal of its participation agreement prior to its expiration 
in a form and manner and by a deadline specified by CMS in guidance. We 
proposed that an ACO executive who has the authority to legally bind 
the ACO must certify that the information contained in the renewal 
request is accurate, complete, and truthful. Further, we proposed that 
an ACO that seeks renewal of its participation agreement and was newly 
formed after March 23, 2010, as defined in the Antitrust Policy 
Statement, must agree that CMS can share a copy of its renewal request 
with the Antitrust Agencies (as defined at Sec.  425.20). We 
anticipated that our operational guidance will outline a process 
permitting renewal requests during the last performance year of an 
ACO's participation agreement. For example, we stated that an ACO with 
a participation agreement ending on December 31, 2015 would be offered 
the opportunity to renew its participation agreement sometime during 
the 2015 calendar year in preparation to begin a new 3-year agreement 
period on January 1, 2016. To streamline program operations, we 
anticipated specifying a timeframe for submission and supplementation 
of renewal requests that would coincide with the deadlines applicable 
to submission and supplementation of applications by new ACO applicants 
under Sec.  425.202.
    Under proposed Sec.  425.224(b), we proposed to evaluate an ACO's 
participation agreement renewal based on all of the following factors:
     Whether the ACO satisfies the criteria for operating under 
the selected risk model.
     The ACO's history of compliance with the requirements of 
the Shared Savings Program.
     Whether ACO established that it is in compliance with the 
eligibility and other requirements of the Shared Savings Program, 
including the ability to repay losses, if applicable.
     Whether the ACO met the quality performance standards 
during at least 1 of the first 2 years of the previous agreement 
period.
     Whether an ACO under a two-sided model repaid losses owed 
to the program that it generated during the first 2 years of the 
previous agreement period.
     The results of a program integrity screening of the ACO, 
its ACO participants, and its ACO providers/suppliers (conducted in 
accordance with Sec.  425.304(b)).
    We solicited comments on these criteria and any additional criteria 
that would help ensure the success of the program.
    We further proposed to approve or deny a renewal request based on 
the information submitted in the request and other information 
available to CMS. We proposed to notify the ACO when the initial 
request is incomplete or inadequate and to provide an opportunity for 
the ACO to submit supplemental information to correct the deficiency. 
Under the proposal, the ACO must submit both the renewal request and 
any additional information needed to evaluate the request in the form 
and manner and by the deadlines specified by CMS.
    Under Sec.  425.224(c), we proposed to notify each ACO in writing 
of our determination to approve or deny the ACO's renewal request. If 
we were to deny the renewal request, the notice would specify the 
reasons for the denial and inform the ACO of any rights to request 
reconsideration review in accordance with the procedures specified in 
part 425 subpart I.
    We stated our belief that a simple renewal process would reduce the 
burden for ACOs that wish to continue in the program and minimize the 
administrative burden on CMS, which would allow us to focus our 
attention on new applicants that have not yet established their 
eligibility to participate. We stated our intention to establish the 
deadlines and other operational details for this renewal process 
through guidance and instructions. Finally, we noted that under our 
proposal to modify the definition of the participation ``agreement 
period'' (section II.C.4 of this final rule), a new agreement period 
would begin upon the start of the first performance year of the renewed 
participation agreement.
    Comment: A few stakeholders expressed support for our efforts to 
develop a renewal process. A commenter stated that the proposed 
criteria were appropriate and adequate to ensure the success of the 
program and to reduce the administrative burden on CMS and ACOs. Some 
offered specific comments related to the criteria for permitting an ACO 
to renew its agreement. For example, some commenters agreed that the 
renewal process should review the ACO's

[[Page 32730]]

history of compliance and quality performance. Some commenters 
suggested that CMS consider additional criteria for renewing current 
agreements, including the following:
     The stability of leadership.
     Attainment of certain levels of EHR implementation or 
accreditation.
     Establishment of a partnership with Geriatric Workforce 
Enhancement Programs.
     Other criteria related to the ACO's ability to perform 
utilization review and accept performance-based risk.
    A commenter recommended that an ACO changing its legal entity or 
undergoing substantial changes in its ACO participant list be permitted 
to use the renewal application, rather than having to submit an 
application as a new ACO applicant.
    Response: We agree with the commenters regarding the advantages of 
providing a more flexible renewal process for current ACOs who meet our 
specific criteria. We appreciate the support for our proposed renewal 
criteria and the suggested criteria; however, we do not believe that 
additional criteria are necessary at this time. As stated in the 
proposed rule, we believe the criteria as proposed will both ensure 
continued compliance with program rules and reduce the burden for ACOs 
that wish to continue in the program and minimize the administrative 
burden on CMS, which will allow us to focus our attention on new 
applicants that have not yet established their eligibility to 
participate. We clarify that ACOs seeking to renew agreements must be 
entities that have previously participated in the Shared Savings 
Program. In other words, the same legal entity that previously 
participated in the program may renew its agreement for a subsequent 
agreement period. New organizations that have not previously 
participated in the Shared Savings Program may apply using the 
established application process. We believe it is important to conduct 
a complete review of any new legal entity that wishes to apply for 
participation in the program.
    FINAL ACTION: We are finalizing our policies as proposed regarding 
the renewal process. Specifically, we are finalizing our proposal to 
add new Sec.  425.224 to establish procedures for renewal of the 
participation agreements of ACOs. Under Sec.  425.224(a), an ACO will 
be permitted to request renewal of its participation agreement prior to 
its expiration in a form and manner and by a deadline specified by CMS 
in guidance. An ACO executive who has the authority to legally bind the 
ACO must certify that the information contained in the renewal request 
is accurate, complete, and truthful. Further, an ACO that seeks renewal 
of its participation agreement and was newly formed after March 23, 
2010, as defined in the Antitrust Policy Statement, must agree that CMS 
can share a copy of its renewal request with the Antitrust Agencies. To 
streamline program operations, we anticipate specifying in guidance a 
timeframe for submission and supplementation of renewal requests that 
will coincide with the deadlines applicable to submission and 
supplementation of applications by new ACO applicants under Sec.  
425.202.
    Under Sec.  425.224(b), CMS will evaluate an ACO's participation 
agreement renewal based on all of the following factors:
     Whether the ACO satisfied the criteria for operating under 
the selected risk model.
     The ACO's history of compliance with the requirements of 
the Shared Savings Program.
     Whether the ACO established that it is in compliance with 
the eligibility and other requirements of the Shared Savings Program, 
including the ability to repay losses, if applicable.
     Whether the ACO met the quality performance standards 
during at least 1 of the first 2 years of the previous agreement 
period.
     Whether an ACO under a two-sided model repaid losses owed 
to the program that it generated during the first 2 years of the 
previous agreement period.
     The results of a program integrity screening of the ACO, 
its ACO participants, and its ACO providers/suppliers (conducted in 
accordance with Sec.  425.304(b)).
    CMS approves or denies a renewal request based on the information 
submitted in the request and other information available to CMS and 
notifies the ACO when the request is incomplete or inadequate to 
provide an opportunity for the ACO to submit supplemental information 
to correct the deficiency. The ACO must submit both the renewal request 
and any additional information needed to evaluate the request in the 
form and manner and by the deadlines specified by CMS.
    Under Sec.  425.224(c), we are finalizing our proposal to notify 
each ACO in writing of our determination to approve or deny the ACO's 
renewal request. If we deny the renewal request, the notice will 
specify the reasons for the denial and inform the ACO of any rights to 
request reconsideration review in accordance with the procedures 
specified in part 425 subpart I.
4. Changes to Program Requirements During the 3-Year Agreement
a. Overview
    In the November 2011 final rule (76 FR 67838), we recognized the 
potential for changes to the Shared Savings Program regulations that 
would become effective while participating ACOs are in the middle of an 
agreement period. Therefore, we promulgated a rule to specify under 
what conditions an ACO would be subject to regulatory changes that 
become effective after the start of its agreement period. Specifically, 
we finalized Sec.  425.212(a)(2), which provided that ACOs are subject 
to all regulatory changes with the exception of changes to the 
eligibility requirements concerning ACO structure and governance, the 
calculation of the sharing rate, and the assignment of beneficiaries. 
We did not exempt ACOs from becoming immediately subject to other 
regulatory changes. For example, we did not exempt changes such as 
those related to quality measures because of our belief that requiring 
ACOs to adhere to changes related to quality measures would ensure that 
they keep pace with changes in clinical practices and developments in 
evidence-based medicine.
    The November 2011 final rule did not require ACOs to be subject to 
any regulatory changes regarding beneficiary assignment that become 
effective during an agreement period because we recognized that changes 
in the beneficiary assignment methodology could necessitate changes to 
ACOs' financial benchmarks. At the time we published the November 2011 
final rule (76 FR 67838), we had not developed a methodology for 
adjusting an ACO's benchmark to reflect changes in the beneficiary 
assignment methodology during an agreement period. We anticipated that 
ACOs would complete their 3-year agreement period with a relatively 
stable set of ACO participants. Therefore, they would all have stable 
benchmarks during the 3-year agreement period that would require 
updates only to reflect annual national FFS trends and changes in 
beneficiary characteristics, consistent with statutory requirements. 
Without a methodology for adjusting benchmarks to reflect changes in 
the beneficiary assignment methodology during the agreement period, we 
were reluctant to subject ACOs to immediate regulatory changes that 
could impact their benchmarks during the term of a participation 
agreement. However, in light of the extensive changes ACOs made to 
their lists of ACO participants during the first 2 performance years, 
the significant

[[Page 32731]]

effect these changes had upon beneficiary assignment, and our 
subsequent development of policies regarding benchmark adjustment at 
the start of each performance year to reflect such changes (see https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/sharedsavingsprogram/Updating-ACO-Participant-List.html), we proposed 
to revise the types of regulatory changes an ACO would become subject 
to during its agreement period. We also proposed to clarify Sec.  
425.212(a) regarding the applicability of certain regulatory changes 
and to clarify the definition of ``agreement period'' under Sec.  
425.20.
b. Proposed Revisions
    We proposed to modify Sec.  425.212(a) to provide that ACOs are 
subject to all regulatory changes ``that become effective during the 
agreement period,'' except for regulations regarding certain specified 
program areas (specifically, the eligibility requirements concerning 
the structure and governance of ACOs and calculation of the sharing 
rate), ``unless otherwise required by statute.'' This proposed revision 
corrects the omission of temporal language in the requirement regarding 
regulatory changes. In addition, it clarifies that ACOs would be 
subject to regulatory changes regarding ACO structure and governance, 
and calculation of the sharing rate during an agreement period if CMS 
is mandated by statute to implement such changes by regulation in the 
middle of a performance year.
    In addition, we proposed to modify the definition of ``agreement 
period'' at Sec.  425.20. The term ``agreement period'' is currently 
defined at Sec.  425.20 to mean ``the term of the participation 
agreement which begins at the start of the first performance year and 
concludes at the end of the final performance year.'' However, in light 
of our proposal to renew participation agreements (see section II.C.3. 
of this final rule), the reference to ``final performance year'' in the 
existing definition is ambiguous. For example, if the ``final 
performance year'' of the agreement period includes the last 
performance year of a renewed participation agreement, an ACO would 
never be subject to regulatory changes regarding ACO structure and 
governance or calculation of the sharing rate. Therefore, we proposed 
to amend the definition to provide that the agreement period would be 
3-performance years, unless otherwise specified in the participation 
agreement. Thus, an ACO whose participation agreement is renewed for a 
second or subsequent agreement period would be subject, beginning at 
the start of that second or subsequent agreement period, to any 
regulatory changes regarding ACO structure and governance that became 
effective during the previous 3 years (that is, during the preceding 
agreement period).
    Also, we proposed to require ACOs to be subject to any regulatory 
changes regarding beneficiary assignment that become effective during 
an agreement period. Specifically, we proposed to remove beneficiary 
assignment as an exception under Sec.  425.212(a). Consistent with our 
authority under section 1899(d)(1)(B)(ii) of the Act to adjust the 
benchmark ``for beneficiary characteristics and other factors as the 
Secretary determines appropriate,'' we have now developed operational 
policies under which we are able to adjust the benchmark on a yearly 
basis to account for changes in beneficiary assignment resulting from 
changes in the ACO's list of ACO participants. For more detailed 
information on these policies see https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/sharedsavingsprogram/Updating-ACO-Participant-List.html. Given that these operational policies enable annual 
adjustments to ACO benchmarks to account for changes in beneficiary 
assignment resulting from changes in ACO participants, we believe we 
would also be able to adjust an ACO's benchmark to account for 
regulatory changes regarding beneficiary assignment methodology that 
become effective during an agreement period. Accordingly, we do not 
believe our proposal to make regulatory changes regarding beneficiary 
assignment applicable to ACOs during an agreement period would 
inappropriately affect the calculation of an ACO's benchmark or shared 
savings for a given performance year. Rather, our adjustment 
methodology will ensure continued and appropriate comparison between 
benchmark and performance year expenditures.
    Under this proposal, regulatory changes regarding beneficiary 
assignment would apply to all ACOs, including those ACOs that are in 
the middle of an agreement period. However, as discussed in section 
II.E.6. of this final rule, we also proposed that any final regulations 
that affect beneficiary assignment would not be applicable until the 
start of the next performance year. We believe that implementing any 
revisions to the assignment methodology at the beginning of a 
performance year is reasonable and appropriate because it would permit 
time for us to make the necessary programming changes and would not 
disrupt the assessment of ACOs for the current performance year. 
Moreover, we would adjust all benchmarks at the start of the first 
performance year in which the new assignment rules are applied so that 
the historical benchmark for an ACO reflects the use of the same 
assignment rules that would apply in the performance year.
    We also noted that we would carefully consider the timing and 
effect on both current and future ACOs of any new regulatory proposal, 
and when promulgating new regulatory changes through rulemaking, we 
would solicit comment on these matters. Additionally, when implementing 
a final rule that changes our processes and methodologies, we stated 
that we would alert current and prospective ACOs of such changes via 
CMS communications and updates to guidance.
    Comment: Ae commenter recommended a uniform start of January 1 of 
the year following changes in regulations to allow ACOs to adequately 
plan, budget, recruit, and make the necessary staffing adjustments to 
meet new requirements. Another commenter suggested that CMS proceed 
cautiously when making regulatory changes that would impact an ACO in 
the middle of an agreement period. Finally, another commenter 
recommended that CMS permit ACOs to exit the MSSP during a performance 
year if the ACO believes the regulatory changes are detrimental to the 
ACO's performance goals.
    Response: We appreciate the comments regarding regulatory changes 
and their impact on ACOs that are currently participating in the 
program. We agree with stakeholders that January 1 of a performance 
year is a logical time to make regulatory changes effective for 
beneficiary assignment. We also agree that regulatory changes that 
impact ACOs during an agreement should be considered carefully, and the 
rulemaking process will provide ACOs with an opportunity to comment on 
the effective date for such changes. Finally, we note that an ACO is 
permitted under Sec.  425.212(d) to terminate its participation 
agreement in those instances where statutory or regulatory standards 
are established during the agreement period which the ACO believes will 
impact its ability to continue participating in the Shared Savings 
Program.
    Comment: A few commenters agreed with our proposed revision of the 
definition of an agreement period as written. Several commenters 
specifically supported the revision because they believe this would 
give CMS flexibility to extend the agreement

[[Page 32732]]

period from three to five years as discussed in greater detail in 
section II.F.2. of this final rule.
    Response: We appreciate the support for the revision to the 
definition of an agreement period and will finalize as proposed. As 
further discussed in section II.F.3. of this final rule, we do not at 
this time intend to extend the term of an ACO's agreement period. In 
accordance with Sec.  425.200(b)(2)(ii), the term of the agreement 
period is three years for ACOs that are approved to participate in the 
Shared Savings Program for 2013 and all subsequent years.
    FINAL ACTION: We are finalizing our policies as proposed. 
Specifically, we are finalizing our modification of Sec.  425.212(a) to 
provide that ACOs are subject to all regulatory changes ``that become 
effective during the agreement period,'' except for regulations 
regarding certain specified program areas, ``unless otherwise required 
by statute.'' This proposed revision corrects the omission of temporal 
language in the requirement regarding regulatory changes and clarifies 
that ACOs are subject to regulatory changes regarding ACO structure and 
governance, and calculation of the sharing rate during an agreement 
period if CMS is mandated by statute to implement such changes by 
regulation in the middle of a performance year.
    In addition, we are finalizing our modification of the definition 
of ``agreement period'' at Sec.  425.20. Thus, an ACO whose 
participation agreement is renewed for a second or subsequent agreement 
period would be subject, beginning at the start of that second or 
subsequent agreement period, to any regulatory changes regarding ACO 
structure and governance that became effective during the previous 3 
years (that is, during the preceding agreement period).
    Also, we are finalizing our proposal to remove beneficiary 
assignment as an exception under Sec.  425.212(a). Regulatory changes 
regarding beneficiary assignment will apply to all ACOs, including 
those ACOs that are in the middle of an agreement period. However, as 
discussed in section II.E.6. of this final rule, any final policies 
that affect beneficiary assignment will not apply until the start of 
the next performance year. We believe that implementing any revisions 
to the assignment methodology at the beginning of a performance year is 
reasonable and appropriate, because it will allow us to make the 
necessary programming changes and will not disrupt the assessment of 
ACOs for the current performance year. Moreover, we will adjust all 
benchmarks at the start of the first performance year in which the new 
assignment rules are applied so that the historical benchmark for an 
ACO reflects the use of the same assignment rules that will apply in 
the performance year.

D. Provision of Aggregate and Beneficiary Identifiable Data

1. Background
    Under section 1899(b)(2)(A) of the Act, an ACO must ``be willing to 
become accountable for the quality, cost, and overall care of the 
Medicare fee-for-service beneficiaries assigned to it.'' Furthermore, 
in order to be eligible to participate in the Shared Savings Program, 
section 1899(b)(2)(G) of the Act states an ``ACO shall define processes 
to . . . report on quality and cost measures, and coordinate care. . . 
.'' However, section 1899 of the Act does not address what data, if 
any, we should make available to ACOs on their assigned beneficiary 
populations to support them in evaluating the performance of ACO 
participants and ACO providers/suppliers, conducting quality assessment 
and improvement activities, or conducting population-based activities 
relating to improved health.
    As we explained in the November 2011 final rule (76 FR 67844), in 
agreeing to become accountable for a group of Medicare beneficiaries, 
and as a condition of participation in the Shared Savings Program, we 
expect that ACOs will have, or are working towards having, processes in 
place to independently identify and produce the data they believe are 
necessary to best evaluate the health needs of their patient 
population, improve health outcomes, monitor provider/supplier quality 
of care and patient experience of care, and produce efficiencies in 
utilization of services. Therefore, it is our expectation that ACOs are 
actively working on developing and refining these processes. Moreover, 
we continue to believe this ability to independently identify and 
produce data for evaluating, improving, and monitoring the health of 
their patient population is a critical skill for each ACO to develop, 
leading to an understanding of the patient population that it serves. 
Once the ACO achieves an understanding of its patient population, it 
can work toward redesigning appropriate care processes to address the 
specific needs of its patient population.
    However, as we noted previously (76 FR 67844), while an ACO 
typically should have, or at least be moving towards having complete 
information for the services its ACO providers/suppliers furnish to 
Medicare FFS beneficiaries, we recognize that the ACO may not have 
access to information about services provided to its assigned 
beneficiaries by health care providers and suppliers outside the ACO--
information that may be key to the ACO's coordination of care efforts. 
Therefore, during the original rulemaking process for the Shared 
Savings Program, we proposed and made final a policy--
     To distribute aggregate-level data reports to ACOs;
     Upon request from the ACO, to share limited identifying 
information about beneficiaries who are preliminarily prospectively 
assigned to the ACO and whose information serves as the basis for the 
aggregate reports; and
     Upon request from the ACO, to share certain beneficiary 
identifiable claims data with the ACO to enable it to conduct quality 
assessment and improvement activities, care coordination, or both, on 
its own behalf as a covered entity, or on behalf of its ACO 
participants and ACO providers/suppliers that are covered entities, 
unless the beneficiary chooses to decline to share his or her claims 
data.
    As we stated in the November 2011 final rule (76 FR 67844), we 
believe that access to beneficiary identifiable information would 
provide ACOs with a more complete picture about the care their assigned 
beneficiaries receive, both within and outside the ACO. In addition, it 
is our view that this information would help ACOs evaluate providers'/
suppliers' performance, conduct quality assessment and improvement 
activities, perform care coordination activities, and conduct 
population-based activities relating to improved health.
    In the April 2011 proposed rule (76 FR 19558), we described the 
circumstances under which we believe that the HIPAA Privacy Rule would 
permit our disclosure of certain Medicare Part A and B data to ACOs 
participating in the Shared Savings Program. Specifically, under the 
Shared Savings Program statute and regulations, ACOs are tasked with 
working with their ACO participants and ACO providers/suppliers to 
evaluate their performance, conduct quality assessment and improvement 
activities, perform care coordination activities, and conduct 
population-based activities relating to improved health for their 
assigned beneficiary population. When done by or on behalf of a covered 
entity, these are functions and activities that would qualify as 
``health care

[[Page 32733]]

operations'' under the first and second paragraphs of the definition of 
health care operations at 45 CFR 164.501. As such, these activities can 
be done by an ACO either on its own behalf, if it is itself a covered 
entity, or on behalf of its covered entity ACO participants and ACO 
providers/suppliers, in which case the ACO would be acting as the 
business associate of its covered entity ACO participants and ACO 
providers/suppliers. Accordingly we concluded that the disclosure of 
Part A and B claims data would be permitted by the HIPAA Privacy Rule 
provisions governing disclosures for ``health care operations,'' 
provided certain conditions are met.
    As we also discussed, upon receipt of a request for protected 
health information (PHI), a covered entity or its business associate is 
permitted to disclose PHI to another covered entity or its business 
associate for the requestor's health care operations if both entities 
have or had a relationship with the subject of the records to be 
disclosed (which is true in the Shared Savings Program), the records 
pertain to that relationship (which is also true in the Shared Savings 
Program), and the recipient states in its request for the data that it 
plans to use the records for a ``health care operations'' function that 
falls within the first two paragraphs of the definition of ``health 
care operations'' in the HIPAA Privacy Rule and that the data requested 
are the ``minimum necessary'' to carry out those health care 
operations. (See, the HIPAA Privacy regulations at 45 CFR 164.502(b) 
and 164.506(c)(4)). The first two paragraphs of the definition of 
health care operations under 45 CFR 164.501 include evaluating a 
provider's or supplier's performance, conducting quality assessment and 
improvement activities, care coordination activities, and conducting 
population-based activities relating to improved health.
    With respect to the relationship requirements in 45 CFR 
164.506(c)(4), we have a relationship with the individuals who are the 
subjects of the requested PHI because they are Medicare beneficiaries. 
The ACO has a relationship with such individuals, either as a covered 
entity itself or on behalf of its covered entity ACO participants and 
ACO providers/suppliers as a business associate, because the 
individuals are either preliminarily prospectively assigned to the ACO 
or have received a primary care service during the past 12-month period 
from an ACO participant upon whom assignment is based. We note that 
when we refer to an ACO participant ``upon whom assignment is based,'' 
we are referring to an ACO participant that submits claims for primary 
care service used to determine the ACO's assigned population under 42 
CFR part 425 subpart E. In addition, the requested PHI pertains to the 
individuals' relationship with both CMS and the ACO, in that we provide 
health care coverage for Medicare FFS beneficiaries and have an 
interest in ensuring that they receive high quality and efficient care, 
and the ACO is responsible for managing and coordinating the care of 
these individuals, who are part of the ACO's assigned beneficiary 
population.
    Beneficiary identifiable Medicare prescription drug information 
could also be used by ACOs to improve the care coordination of their 
patient populations. Accordingly, consistent with the regulations 
governing the release of Part D data, in the April 2011 proposed rule 
(76 FR 19559), we also proposed to make available the minimum Part D 
data necessary to allow for the evaluation of the performance of ACO 
participants and ACO providers/suppliers, to conduct quality assessment 
and improvement, to perform care coordination, and to conduct 
population-based activities relating to improved health.
    In the November 2011 final rule (76 FR 67846 and 67851), we adopted 
a policy that defined when we would share beneficiary identifiable 
information (including Part A and B claims data and Part D prescription 
drug event data) for preliminarily prospectively assigned beneficiaries 
and those beneficiaries who have a primary care visit with an ACO 
participant that is used to assign beneficiaries to the ACO. As a basic 
requirement, in order to receive such data an ACO that chooses to 
access beneficiary identifiable data is required under 42 CFR 425.704 
to request the minimum data necessary for the ACO to conduct health 
care operations work, either as a HIPAA-covered entity in its own 
right, or as the business associate of one or more HIPAA-covered 
entities (where such covered entities are the ACO participants and ACO 
providers/suppliers), for ``health care operations'' activities that 
fall within the first or second paragraph of the definition of health 
care operations at 45 CFR 164.501. As part of their application to 
participate in the Shared Savings Program, ACOs certify whether they 
intend to request beneficiary identifiable information, and that the 
requested data reflects the minimum necessary for the ACO to conduct 
health care operations either on its own behalf or on behalf of its 
covered entity ACO participants and ACO provider/suppliers. Thus, the 
ACO's formal request to receive data is accomplished at the time of its 
application to the Shared Savings Program. The ACO must also enter into 
a data use agreement (DUA) with CMS. If all of these conditions are 
satisfied, CMS makes available certain limited PHI regarding the 
preliminarily prospectively assigned beneficiaries whose data were used 
to generate the aggregate data reports provided to the ACO under Sec.  
425.702(b) and other beneficiaries who have a primary care visit during 
the performance year with an ACO participant upon whom assignment is 
based. In order to enhance transparency and beneficiary engagement, we 
also finalized a policy that before ACOs may start receiving PHI in the 
form of beneficiary identifiable claims data, they must give 
beneficiaries the opportunity to decline sharing of their claims data 
as required under Sec.  425.708.
    As we stated in the proposed rule, since the publication of the 
November 2011 final rule, we have gained further experience with 
sharing data with ACOs participating in the Shared Savings Program. We 
explained in the proposed rule that we continue to believe that 
distributing aggregate reports, paired with making available certain 
beneficiary identifiable information related to preliminarily 
prospectively assigned beneficiaries, as well as making available the 
claims data for preliminarily prospectively assigned FFS beneficiaries 
and other FFS beneficiaries who have primary care service visits with 
ACO participants that submit claims for primary care services that are 
used to determine the ACO's assigned population, is worthwhile and 
consistent with the goals of the Shared Savings Program. The aggregate 
data reports and the beneficiary identifiable information related to 
preliminarily prospectively assigned beneficiaries give ACOs valuable 
information that can be used to better understand their patient 
population, redesign care processes, and better coordinate the care of 
their beneficiaries. ACOs participating in the Shared Savings Program 
have reported that the beneficiary identifiable claims data that they 
receive from us are being used effectively to better understand the FFS 
beneficiaries who are served by their ACO participants and ACO 
providers/suppliers. These data give ACOs valuable insight into 
patterns of care for their beneficiary population; enable them to 
improve care coordination among and across providers and suppliers and 
sites of care, including providers and suppliers and sites of care

[[Page 32734]]

not affiliated with the ACO; and allow them to identify and address 
gaps in patient care.
    However, based upon our experiences administering the Shared 
Savings Program and feedback from stakeholders, we stated in the 
proposed rule that we believe that we can improve our data sharing 
policies and processes to streamline access to such data to better 
support the overall program, ACO functions and goals, and to better 
serve Medicare beneficiaries. Therefore, we proposed a number of 
modifications to our data sharing policies and procedures under the 
Shared Savings Program.
    We received several general comments about data sharing under the 
Shared Savings Program.
    Comment: A commenter suggested that we engage with the HHS 
interoperability roadmap work currently underway to ensure that the 
needs for sharing and integration of high quality, timely and 
interoperable data needed to support ACO functions are addressed. Some 
commenters requested that CMS share with ACOs the same type and amount 
of data that is routinely shared with MA plans and with the same 
frequency; for example, some commenters requested that we provide 
information to ACOs when a beneficiary's Medicare eligibility is 
checked by a provider or supplier. Some commenters stated they believe 
that the assignment methodology should be modified because it is 
responsible for creating delays in the provision of data, including 
claims data, quarterly data, and annual performance data.
    Response: As noted in the November 2011 final rule, we expect that 
ACOs will have, or will be working towards having, processes in place 
to independently identify and produce the data they believe are 
necessary to best evaluate the health needs of their patient 
population, improve health outcomes, monitor provider/supplier quality 
of care and patient experience of care, and produce efficiencies in 
utilization of services. We believe that with a robust health 
information exchange infrastructure and improved communication among 
ACO participants and the ACO's neighboring health care providers, ACOs 
will be better equipped to access data in a timeframe that is closer to 
``real time.'' Many ACOs are developing innovative solutions to share 
``real time'' information across sites of care and are actively 
engaged, as are we, in the HHS-wide discussions currently underway.
    However, we recognize that information from the CMS claims system 
could supplement an ACO's understanding of its patient population. 
Although we understand that ACOs would like to obtain data as services 
are performed, as we explained in the April 2011 proposed rule (76 FR 
19558), there is an inherent lag between when a service is performed 
and when the service is submitted for payment in FFS Medicare. Thus, 
our inability to provide data in real time to ACOs is not due to our 
methodology for assigning beneficiaries to ACOs, and ACOs participating 
in the Shared Savings Program are unlike managed care plans where 
preauthorization may be required for services. Although there is a 
mechanism by which external entities such as ACOs and providers can 
verify the Medicare enrollment status of a beneficiary through the 
HIPAA Eligibility Transaction System (HETS), our preliminary analysis 
suggests that the HETS eligibility checks through do not reliably 
predict what services or when, how, or by whom a service may be 
furnished to a beneficiary with FFS Medicare. Therefore, we believe the 
HETS information would be of limited value to an ACO.
    Comment: A commenter requested that CMS make the data reports 
provided to ACOs available to independent researchers to support 
additional analysis of the impact of the Shared Savings Program.
    Response: We recognize the public interest in obtaining this type 
of information. For this reason, we have made a set of Shared Savings 
Program research identifiable files available through the Research Data 
Assistance Center (ResDAC). To learn more about these files visit the 
ResDAC Web site: https://www.resdac.org/news/shared-savings-program-aco-research-identifiable-files/2015/01-0.

2. Aggregate Data Reports and Limited Identifiable Data

a. Overview
    Under Sec.  425.702, we share aggregate reports with ACOs at the 
beginning of the agreement period based on beneficiary claims used to 
calculate the benchmark, each quarter thereafter based on the quarterly 
assignment window, and in conjunction with the annual reconciliation. 
The aggregate reports provided under Sec.  425.702(a) and (b) contain 
certain de-identified beneficiary information including all of the 
following:
     Aggregated metrics on the ACO's preliminarily 
prospectively assigned beneficiary population, including 
characteristics of the assigned beneficiary population, the number of 
primary care services provided to the assigned beneficiary population 
by the ACO, and the proportion of primary care services provided to the 
assigned beneficiary population by ACO participants upon whom 
assignment is based.
     Expenditure data for the ACO's assigned beneficiary 
population by Medicare enrollment type (ESRD, disabled, aged/dual 
eligible, aged/non-dual eligible) and type of service (for example, 
inpatient hospital, physician, etc.).
     Utilization data on select metrics for the assigned 
population, such as ambulatory care sensitive conditions discharge 
rates per 1,000 beneficiaries for conditions such as congestive heart 
failure (CHF), and utilization rates for imaging, emergency department 
visits, hospitalizations, and primary care services.
    In addition, under Sec.  425.702(c), we also provide a report that 
includes certain beneficiary identifiable information about the 
beneficiaries who are preliminarily prospectively assigned to the ACO 
and whose data were used to generate the de-identified aggregate data 
reports. The information currently contained in this assignment report 
includes the beneficiary name, date of birth, HICN, and sex. These 
beneficiary identifiable data are made available to an ACO that has met 
the conditions previously discussed in detail for purposes of carrying 
out population-based activities related to improving health or reducing 
growth in health care costs, process development (such as care 
coordination processes), case management, and care coordination for the 
beneficiary population assigned to the ACO. Under Sec.  425.708(d) 
these data points are not subject to the requirement that an ACO give 
beneficiaries an opportunity to decline claims data sharing.
    As we stated in the proposed rule, feedback we received since the 
November 2011 final rule was issued and during implementation of the 
Shared Savings Program, has confirmed there is a strong desire among 
ACOs and their ACO participants and ACO providers/suppliers to have as 
much information about their patients as is possible, in as timely a 
manner as possible, to better coordinate care and target care 
strategies toward individual beneficiaries. Moreover, ACOs are actively 
using the reports provided under Sec.  425.702 to conduct their health 
care operations work with the expectation that it will result in higher 
quality and more efficient care for their assigned beneficiary 
populations. However, ACOs and their ACO participants and ACO 
providers/

[[Page 32735]]

suppliers have also reported that the four data elements currently made 
available on the assignment reports severely limit their care redesign 
efforts. They have indicated that additional data elements are 
necessary in order to conduct health care operations work under the 
first or second paragraph of the definition of health care operations 
at 45 CFR 164.501. For example, an ACO reported that having data not 
only on the frequency of hospitalizations but also on which specific 
beneficiaries were hospitalized and in which specific hospitals would 
better enable it to identify the effectiveness and outcomes of its 
post-hospitalization care coordination processes. Some stakeholders 
have made suggestions for beneficiary identifiable data that should be 
included in the quarterly reports in addition to the current four data 
elements, such as risk profiles or information on whether the 
beneficiary had a hospital visit in the past year. Some stakeholders 
suggested that the report be expanded to include information not only 
for the beneficiaries who received a plurality of their primary care 
services from ACO professionals, but also for all FFS beneficiaries who 
received a primary care service from an ACO participant in the past 
year. These stakeholders stated that understanding the entire FFS 
patient population served by the ACO and its ACO participants would 
improve their ability to redesign care, and reduce the uncertainty 
associated with a list of preliminarily prospectively assigned 
beneficiaries that fluctuates from quarter to quarter, based on the 
population's use of primary care services.
b. Proposed Revisions
    In the proposed rule, we considered what additional beneficiary 
identifiable data might be the minimum necessary to support the ACOs' 
health care operations work. Based on our discussions with ACOs and ACO 
participants and ACO providers/suppliers, we explained our belief that 
making additional information available to ACOs about the FFS 
beneficiaries they serve, including for example, on whether a 
beneficiary visited an emergency room or was hospitalized, would help 
support such efforts. Thus, we proposed to expand the information made 
available to ACOs under Sec.  425.702(c) to include certain additional 
beneficiary identifiable data subject to the existing requirements of 
Sec.  425.702(c)(2), which incorporates the requirements under HIPAA 
governing the disclosure of PHI. Specifically, in addition to the four 
data elements (name, date of birth, HICN, and sex) that we currently 
make available for preliminarily prospectively assigned beneficiaries, 
we proposed to expand the beneficiary identifiable information that is 
made available under existing Sec.  425.702(c)(1) to include these data 
elements (name, date of birth, HICN, and sex) for each beneficiary who 
has a primary care service visit with an ACO participant that bills for 
primary care services that are considered in the assignment process in 
the most recent 12-month period.
    Additionally, we proposed to expand the beneficiary identifiable 
information made available for preliminarily prospectively assigned 
beneficiaries to include additional data points. The information would 
be derived from the same claims used to determine the preliminary 
prospective assigned beneficiary list. Specifically, we proposed that 
we would make available the minimum data set necessary for purposes of 
the ACO's population-based activities related to improving health or 
reducing health care costs, required process development (under Sec.  
425.112), care management, and care coordination for its preliminarily 
prospectively assigned beneficiary population, at the following times:
     At the beginning of the agreement period.
     At the beginning of each performance year and quarterly 
thereafter.
     In conjunction with the annual reconciliation.
    We stated that we would articulate the data elements associated 
with the minimum data set in operational guidance, and update as needed 
to reflect changes in the minimum data necessary for ACOs to perform 
these activities. The information would fall under the following 
categories:
     Demographic data such as enrollment status.
     Health status information such as risk profile, and 
chronic condition subgroup.
     Utilization rates of Medicare services such as the use of 
evaluation and management, hospital, emergency, and post-acute 
services, including dates and place of service.
     Expenditure information related to utilization of 
services.
    We explained our belief that under this approach the data made 
available in the aggregate data reports under Sec.  425.702(c) would 
generally constitute the minimum data necessary for covered entity ACOs 
or for ACOs serving as the business associate of their covered entity 
ACO participants and ACO providers/suppliers, to evaluate providers' 
and suppliers' performance, conduct quality assessment and improvement 
activities, and conduct population-based activities relating to 
improved health.
    Finally, we noted in the proposed rule that these proposals for 
expansion of the data reports provided under Sec.  425.702(c) to 
include each FFS beneficiary who has a primary care visit with an ACO 
participant that submits claims for primary care services that are 
considered in the assignment process, would apply only to ACOs 
participating in Tracks 1 and 2, where beneficiaries are assigned in a 
preliminarily prospective manner with retrospective reconciliation. 
This is because ACOs in Tracks 1 and 2 have an incentive to redesign 
care processes for all FFS beneficiaries who receive care from their 
ACO participants, due to the nature of the preliminarily prospective 
assignment methodology with retrospective reconciliation. Under our 
proposal for Track 3, which is discussed in detail in section II.F.3.a. 
of this final rule, we explained our belief that the minimum data 
necessary for ACOs to perform health care operations as defined under 
the first and second paragraphs of the definition of health care 
operations at 45 CFR 164.501, would not extend beyond data needed for 
health operations related to the prospective list of assigned 
beneficiaries. We expressed our belief that a prospective assignment 
approach incentivizes targeting of the specific FFS beneficiaries on 
the list for care improvement, rather than redesigning care processes 
for all FFS beneficiaries seen by the ACO participants. As such, the 
minimum data necessary required for Track 3 ACOs to perform health care 
operations work would be limited to the data for beneficiaries who are 
prospectively assigned for a performance year. Thus, for Track 3, we 
proposed to limit the beneficiary identifiable data included in the 
reports made available under Sec.  425.702(c) to only those 
beneficiaries who appear on the ACO's prospective list of beneficiaries 
at the beginning of a performance year. Specifically, under our 
proposal, Track 3 ACOs would have access to beneficiary identifiable 
data elements associated with the list of categories under Sec.  
425.702(c) for beneficiaries prospectively assigned to the ACO, but 
would not be able to request any information related to other Medicare 
FFS beneficiaries who receive primary care services that are considered 
in the assignment process from ACO participants. We explained our 
belief that this limitation was

[[Page 32736]]

reasonable because, under Track 3, the prospectively assigned 
beneficiary list would encompass all beneficiaries for whom the ACO 
would be held accountable in a given performance year, in contrast to 
ACOs in Tracks 1 and 2 that would be held accountable for any FFS 
beneficiaries who choose to receive a plurality of their primary care 
services from ACO professionals billing through the TINs of ACO 
participants.
    We sought comment on our proposal to expand the data set made 
available to ACOs under Sec.  425.702(c). We sought comment on the 
categories of information that we proposed to include and on any other 
beneficiary identifiable information that should be offered in the 
aggregate reports provided under Sec.  425.702(c) in order to allow 
ACOs as covered entities or as the business associate of their covered 
entity ACO participants and ACO providers/suppliers to conduct health 
care operations work under paragraphs one or two of the definition of 
health care operations at 45 CFR 164.501. We also specifically sought 
comment on our proposal to expand the list of beneficiaries for which 
data are made available under Sec.  425.702(c) to ACOs participating in 
Track 1 and Track 2 to include all beneficiaries who had a primary care 
service visit with an ACO participant that submits claims for primary 
care services that are considered in the assignment process. We 
received a number of comments on these proposals. In general, there was 
overwhelming support for our proposal to expand the beneficiary 
identifiable information that is made available under existing Sec.  
425.702(c)(1) to include name, date of birth, HICN, and sex for each 
beneficiary who has a primary care service visit with an ACO 
participant that bills for primary care services that are considered in 
the assignment process in the most recent 12-month period. However, 
there were also suggestions on how we might improve the structure, 
content, and provision of both the de-identified and beneficiary 
identifiable information in the aggregate data reports made available 
under Sec.  425.702.
    Comment: Many commenters supported the proposed expansion of the 
beneficiary identifiable data made available to ACOs in the aggregate 
data reports. Numerous commenters made specific requests to expand the 
information made available under Sec.  425.702(b) and (c) to include 
various other identifiable and de-identified data elements, including 
but not limited to:
     Beneficiary demographic information, including contact 
information.
     Beneficiary eligibility information, including the date of 
the beneficiary's original Medicare eligibility and the date of any 
change in eligibility status.
     Aggregate information about the expenditures and 
utilization rates of claims that are missing from the claims files, for 
example, for beneficiaries who have declined claims data sharing.
     Health status data, such as Hierarchical Condition 
Category (HCC) scores for each beneficiary or quarterly analysis 
showing changes in beneficiaries' HCC scores.
     An indicator of the beneficiary's institutional/hospice 
status.
     Substance abuse expenditure data (in aggregate).
     Expanded utilization information for primary care versus 
non-primary care services.
     Information about ancillary services.
     Information from Part D pharmacy claims.
    Response: We appreciate the commenters' support for our proposal to 
expand the data made available to ACOs and we are finalizing our policy 
as proposed. We also appreciate the commenters' thoughtful suggestions 
regarding additional data elements that should be made available under 
Sec.  425.702(b) and (c). Many of the specific suggestions to expand 
the data elements available to ACOs are already covered in the four 
categories of information that we proposed to include: Demographic 
data, health status information, utilization rates, and expenditure 
information related to utilization of services. Therefore, we will 
consider commenters' suggestions as we determine the specific data 
points to include in our program reports. We will articulate the data 
elements associated with the minimum data set in operational guidance 
and update as needed to reflect changes in the minimum data necessary 
for ACOs to perform health care operations activities. However, we note 
that although we are finalizing our proposal to make available health 
status information, such as risk profile and chronic condition 
subgroup, at this time we do not intend to release beneficiary 
identifiable HCC risk score data to ACOs participating in the Shared 
Savings Program because this is not information that CMS has 
historically shared through the MA program or any other model or 
demonstration. We believe that providing the risk profile and chronic 
condition subgroups associated with a beneficiary will be more helpful 
to ACOs in identifying higher acuity beneficiaries and beneficiaries 
with multiple chronic conditions that could benefit from more intensive 
care coordination. We note that receiving this information would not 
preclude an ACO from calculating HCC risk scores based on its own 
claims data and publicly available software. We also do not intend to 
release contact information for individual beneficiaries. As we are 
eliminating the option for ACOs to notify beneficiaries by mail 
regarding the opportunity to decline data sharing, we believe there is 
no need for CMS to share beneficiary contact information with ACOs.
    Comment: Many commenters requested that we expand the availability 
of beneficiary identifiable data under Sec.  425.702(c) to Track 3 ACOs 
beyond the list of beneficiaries prospectively assigned to the ACOs. 
Some commenters suggested that prospective assignment be applied to all 
three tracks, which would obviate the need to distribute information 
beyond this list. A commenter suggested that we include on the reports 
under Sec.  425.702(c) beneficiaries who have had a primary care 
service visit with an ACO participant used in the assignment 
methodology within the past 24 months, instead of the previous 12 
months.
    Response: In section II.F.3. of this final rule, we are finalizing 
our proposal to assign beneficiaries prospectively to Track 3 ACOs. As 
discussed previously, we believe the minimum data necessary for Track 3 
ACOs to perform health care operations as defined under the first and 
second paragraphs of the definition of health care operations at 45 CFR 
164.501 would not extend beyond data needed for health care operations 
related to the prospective list of assigned beneficiaries because the 
prospective assignment list would encompass all beneficiaries for whom 
the ACO would be held accountable in a given performance year. 
Therefore, we will limit the information provided under Sec.  
425.702(c)(1)(ii)(A) and (c)(1)(ii)(B) to the Track 3 ACO's list of 
prospectively assigned beneficiaries. In addition, we believe it is 
important to provide information to ACOs participating in Tracks 1 and 
2 about beneficiaries who have had at least one primary care service 
visit with an ACO participant that is used in the assignment 
methodology because, at the time of retrospective reconciliation, the 
ACO may be determined responsible for their care during the performance 
year. We believe a 12 month look-back is sufficient for these purposes, 
but we may revisit this issue in future rulemaking.
    Comment: Many commenters requested that we provide detailed 
documentation regarding the definition

[[Page 32737]]

and calculation of each of the metrics in the reports provided under 
Sec.  425.702(b) and examples of how these metrics can be calculated 
from the Claim and Claim Line Feed (CCLF) files. Commenters requested 
that we make available these calculations and examples to new ACOs 
prior to their start date in the Shared Savings Program. A commenter 
recommended that we use open source methods for all data and 
calculations in the Shared Savings Program. Another commenter suggested 
providing Shared Savings Program ACOs with the same summary reports 
given to Pioneer ACOs. Several commenters requested that we provide the 
aggregate reports under Sec.  425.702 to ACOs in a user-friendly format 
or more often--for example, monthly. Several commenters requested that 
the quarterly reports include an update to the ACO's benchmark based on 
changing HCC scores and enrollment mix relative to the benchmark 
period.
    Response: We recognize that certain reports provided under the 
Shared Savings Program, such as benchmark reports, are difficult to 
reproduce based on the claims data. However, our goal is to encourage 
transparency and understanding of these calculations, and we provide 
webinars and have developed other educational materials to help ACOs 
better understand the claims data files and other reports. At this 
time, we do not intend to share the software or source code used to 
create these reports with the public. However, we will continue to 
provide user guides, templates, and information packets detailing the 
metrics and valid data values contained in each of our program reports. 
These documents are available to ACOs shortly after they are accepted 
and agree to participate in the Shared Savings Program, and they are 
available in a user-friendly spreadsheet format. We will continue to 
work to improve the utility of these reports and will consider these 
comments as we do so. The quarterly aggregate reports we provide are 
based on the most recent 12 months of data. The quarterly reports are 
not calendar year reports; therefore, they do not provide benchmark 
calculations, which are developed based on the 3 calendar years prior 
to an ACO's agreement start date.
    FINAL ACTION: We are finalizing our policies in Sec.  425.702(c) as 
proposed. The existing requirements will continue to apply to aggregate 
reports generated for PY 2015, which will include any quarterly reports 
or annual reconciliation reports for PY 2015 generated during CY 2016. 
The new requirements will apply to reports that are generated for PY 
2016, including any PY 2016 reports that are generated in CY 2015 or CY 
2017. To ensure the timing of these reports is understood, we have 
retained the existing rules under Sec.  425.702(c)(1)(i). The rules 
that apply for PY 2016 and subsequent performance years as finalized 
have been designated at Sec.  425.702(c)(1)(ii). Specifically, for ACOs 
in Tracks 1 and 2, we are expanding the list of beneficiaries for which 
data are made available under Sec.  425.702(c)(1) to include all 
beneficiaries who had a primary care service visit during the previous 
12 months with an ACO participant that submits claims for primary care 
services that are considered in the assignment process. We are also 
expanding the beneficiary identifiable information made available for 
preliminarily prospectively assigned beneficiaries to include 
additional data points in the following categories: Demographic 
information, health status information, utilization rates of Medicare 
services, and expenditures related to utilization of services. We will 
articulate the data elements associated with the minimum data set in 
operational guidance and update as needed to reflect changes in the 
minimum data necessary for ACOs to perform health care operations 
activities. For Track 3 ACOs, the beneficiary identifiable data 
included in the reports made available under Sec.  425.702(c) will be 
limited to the ACO's prospectively assigned beneficiaries.
3. Claims Data Sharing and Beneficiary Opportunity To Decline Claims 
Data Sharing
a. Overview
    Because Medicare FFS beneficiaries have the freedom to choose their 
health care providers and suppliers, and are not required to receive 
services from providers and suppliers participating in the ACO, the 
patients of ACO participants and ACO providers/suppliers often receive 
care from other providers and suppliers that are not affiliated with 
the ACO. As a result, ACOs and their ACO participants and ACO 
providers/suppliers may not be aware of all of the services an assigned 
beneficiary is receiving. Furthermore, under Tracks 1 and 2, we perform 
a retrospective reconciliation at the end of each performance year to 
determine an ACO's assigned beneficiary population based on 
beneficiaries' use of primary care services using the assignment 
algorithm described at Sec.  425.402 of the regulations. Therefore, 
under Tracks 1 and 2, it is often the case that an ACO's preliminary 
prospective assigned beneficiary list is not complete and does not 
include all the beneficiaries who would ultimately be assigned to the 
ACO at the end of the performance year--that is, all of the 
beneficiaries for which the ACO ultimately would be held accountable. 
As we discussed in the April 2011 proposed rule (76 FR 19558) and in 
the November 2011 final rule (76 FR 67844), we were concerned about 
ACOs' ability to do their work in the absence of information about 
services delivered outside of the ACO. We stated our belief at that 
time that it would be important to give ACOs appropriate access to a 
beneficiary's identifiable claims data when the beneficiary has 
received a primary care service billed through the TIN of an ACO 
participant, and is thus a candidate for assignment at the time of 
retrospective reconciliation for the performance year. We explained our 
belief that sharing beneficiary identifiable claims data would enable 
ACOs to better coordinate and target care strategies towards the 
individual beneficiaries seen by ACO participants and ACO providers/
suppliers.
    We ultimately concluded that the bases for disclosure under the 
HIPAA Privacy Rule were broad enough to cover our disclosure of 
Medicare Parts A and B claims data to ACOs for health care operations 
work when certain conditions are met. Similarly, we concluded that the 
Part D regulations governing the release of Part D data on prescription 
drug use would permit the release of Part D prescription drug event 
data to ACOs for purposes of supporting care coordination, quality 
improvement, and performance measurement activities. Thus, we concluded 
that we are permitted to disclose the minimum Medicare Parts A, B, and 
D data necessary to allow ACOs to conduct the health care operations 
activities that fall into the first or second paragraph of the 
definition of health care operations under the HIPAA Privacy Rule when 
such data is requested by the ACO as a covered entity or as the 
business associate of its covered entity ACO participants and ACO 
providers/suppliers. Accordingly, in the November 2011 final rule (76 
FR 67851), we adopted a policy under which an ACO may request Part A 
and Part B claims data and Part D prescription drug event data for 
preliminarily prospectively assigned beneficiaries and other 
beneficiaries who receive primary care services from an ACO participant 
upon whom assignment is based. In accordance with the terms of the DUA 
that the ACO must enter into with CMS, data received from CMS under the 
data sharing provisions of the Shared

[[Page 32738]]

Savings Program may only be used for the purposes of clinical 
treatment, care management and coordination, quality improvement 
activities, and provider incentive design and implementation. In 
providing the claims data subject to these limitations, we explained 
our belief that we would ensure compliance with the requirements of the 
HIPAA Privacy Rule and the regulations governing the release of Part D 
data.
    While the disclosure of claims data in this manner is within the 
bounds of the applicable laws, we also noted concerns about 
beneficiaries' interests in controlling access to their individually 
identifiable health information. Thus, even though we believed that we 
had legal authority to make the contemplated disclosures without the 
consent of beneficiaries, in the November 2011 final rule (76 FR 67849) 
we implemented the additional requirement at Sec.  425.708 that ACOs 
offer beneficiaries an opportunity to decline to have their claims data 
shared with the ACO. We note that in the November 2011 final rule we 
discussed alternative approaches, such as requiring beneficiary opt-in 
prior to claims data sharing, however, as stated, we believe that 
either approach, done well, offers equivalent control for beneficiaries 
over their personal health information. Moreover, an opt-in would 
significantly increase paperwork burden. We therefore believe that an 
opt-out approach is sufficient and appropriate. As such, before 
requesting access to the beneficiary's data and as part of its broader 
activities to notify patients that their health care provider or 
supplier is participating in an ACO, the ACO is required to inform 
beneficiaries that the ACO may request access to their claims data, and 
give beneficiaries an opportunity to decline such claims data sharing.
    Under the current process for allowing beneficiaries to decline 
claims data sharing, once the ACO formally requests beneficiary 
identifiable claims data through the application process, enters into a 
DUA with CMS, and begins its first performance year, the ACO must 
supply beneficiaries with a written notification explaining their 
opportunity to decline claims data sharing. Offering beneficiaries the 
opportunity to decline claims data sharing may take two forms under 
current Sec.  425.708. First, if the ACO has formally requested 
beneficiary identifiable claims data as part of the application 
process, the ACO must notify each FFS beneficiary of the opportunity to 
decline claims data sharing when the beneficiary has his or her first 
visit with an ACO participant upon whom assignment is based. During 
this visit, the beneficiary must be provided with written notification 
informing him or her of the ACO provider/supplier's participation in 
the ACO and that the ACO may request claims information from CMS in 
order to better coordinate the beneficiary's care and for other health 
operations activities. This written notification contains template 
language created by CMS with the assistance of the Medicare Ombudsman's 
office and with input from beneficiaries, and explains the 
beneficiary's option to decline claims data sharing. Once the 
beneficiary has expressed a preference at the point of care, the ACO 
may immediately inform CMS of the beneficiary's data sharing 
preference. If the beneficiary has not declined data sharing, CMS makes 
that beneficiary's data available to an ACO.
    However, we recognized that beneficiaries may not seek primary care 
services until later in the performance year. Because of this, we 
offered an alternative option to ACOs who meet the requirements for 
receiving beneficiary identifiable claims data. Under the alternative 
option, ACOs may contact beneficiaries via a mailed notification that 
is sent to all preliminarily prospectively assigned beneficiaries to 
notify them of their health care provider's participation in an ACO 
under the Shared Savings Program, and the ACO's intent to request 
beneficiary identifiable claims data. The mailed notification contains 
template language that was developed in conjunction with the Medicare 
Ombudsman's office with input from beneficiaries. If the beneficiary 
wishes to decline claims data sharing, the beneficiary is instructed to 
sign the mailed notification and return it to the ACO or call 1-800-
Medicare directly. If the ACO chooses to contact beneficiaries via a 
mailed notification, rather than waiting to notify them at the point of 
care, the ACO must wait 30 days before submitting the beneficiary's 
preference and receiving access to the data for those beneficiaries who 
have chosen not to decline claims data sharing. The 30-day waiting 
period provides beneficiaries with an opportunity to mail back the 
notification or to call 1-800-Medicare before the ACO receives access 
to their claims data. In addition, in order to ensure transparency, 
beneficiary engagement and meaningful choice, the notification and 
opportunity to decline claims data sharing must be repeated at the 
beneficiary's first primary care visit with an ACO participant upon 
whom assignment is based (76 FR 67850 and 67851). Finally, in addition 
to the point of care and mailed notifications provided by ACOs, all 
Medicare FFS beneficiaries are notified through the Medicare & You 
Handbook about ACOs and the opportunity to decline claims data sharing 
by contacting CMS directly at 1-800-Medicare.
    Once the ACO has notified the beneficiaries according to program 
rules, and any applicable wait periods are over, the ACO submits the 
beneficiaries' data sharing preferences to CMS. Beneficiary preferences 
submitted by ACOs are combined with preferences received by CMS through 
1-800-Medicare. Based on these beneficiary preferences, we generate 
claims files containing the beneficiary identifiable claims data for 
beneficiaries who have not declined data sharing. These claims files 
are then made available for ACO access on a monthly basis.
    Once a beneficiary has declined data sharing, the beneficiary may 
choose to reverse the decision by signing another form and sending it 
to the ACO (which in turn notifies CMS of the beneficiary's updated 
preference) or by calling 1-800-Medicare directly. We then include the 
beneficiary's claims data in the claims file provided to the ACO the 
following month.
    In the November 2011 final rule (76 FR 67849), we acknowledged that 
it is possible that a beneficiary may decline to have his or her claims 
data shared with an ACO but would choose to continue to receive care 
from ACO participants and ACO providers/suppliers. In such a case, the 
ACO would still be responsible for that beneficiary's care, and, as 
such, although the beneficiary's claims data would not be shared with 
the ACO, CMS would continue to use the beneficiary's claims data in its 
assessment of the ACO's quality and financial performance.
    In the November 2011 final rule (76 FR 67849 through 67850) we 
expressed our view that beneficiaries should be notified of their 
health care provider's participation in an ACO in order to have some 
control over who has access to their health information for purposes of 
the Shared Savings Program. We further indicated that the requirement 
that an ACO provider/supplier engage patients in a discussion about the 
inherent benefits, as well as the potential risks, of claims data 
sharing provided an opportunity for true patient-centered care and 
would create incentives for ACOs, ACO participants, and ACO providers/
suppliers to develop positive relationships with each beneficiary under 
their care. Additionally, we stated

[[Page 32739]]

that this policy would provide ACO participants and ACO providers/
suppliers the opportunity to engage with beneficiaries by explaining 
the Shared Savings Program and its potential benefits for both the 
beneficiaries and the health care system as a whole.
    Since implementation of the Shared Savings Program, we have shared 
claims data on over 7 million beneficiaries with 375 Shared Savings 
Program ACOs. As we noted in the proposed rule, we have received 
informal feedback from ACOs that are putting into practice the claims 
data sharing notification requirements, and from beneficiaries who have 
received notifications from an ACO that wanted to request access to 
their claims data. We learned the following from this feedback:
     The option for ACOs to mail notifications and then conduct 
the in-office follow-up adds to ACOs' financial costs and delays their 
ability to access claims data in a timely manner. ACOs must wait until 
January 1 of their first performance year to send out mailings. After 
waiting the requisite 30 days, the earliest the ACO may submit 
beneficiary preferences to CMS is in February. The first set of claims 
data is then available in mid-March. In addition, some ACOs struggle 
with obtaining current mailing information for preliminarily 
prospectively assigned beneficiaries, which can delay the mailing of 
notifications to later in the performance year. Thus, the earliest 
opportunity for ACOs to receive claims data is mid-February, and that 
is only the claims data for beneficiaries who visited primary care 
providers in early January and were given the opportunity to decline 
claims data sharing at the point of care.
     Stakeholders, including ACOs, ACO participants, and ACO 
providers/suppliers, continually confuse the notification regarding the 
ACO's intent to request access to claims data with the separate 
requirement that all FFS beneficiaries must be notified of ACO 
participants' and ACO providers/suppliers' participation in the 
program. Beneficiaries must be notified at the point of care of the ACO 
participants' and ACO providers/suppliers' participation in an ACO, 
regardless of whether the ACO has requested or intends to request 
access to claims data.
     ACOs have commented that beneficiaries are confused about 
why their providers do not already have access to information regarding 
other care they may receive, which potentially erodes rather than 
strengthens the patient-provider relationship. Beneficiaries often 
assume their providers have all the information they need to care for 
them. However, as noted previously, the ACO, its ACO participants, and 
ACO providers/suppliers would not have claims data for services 
rendered outside the ACO, and would not necessarily have knowledge 
about that care.
     Beneficiaries that are preliminarily prospectively or 
prospectively assigned to an ACO can choose to receive care from any 
Medicare-enrolled provider or supplier, whether inside or outside the 
ACO, so beneficiaries may receive notices regarding data sharing from 
more than one ACO. This is most likely to occur in markets with high 
ACO penetration where a beneficiary may receive primary care services 
from several different ACO professionals, each participating in 
different ACOs. Beneficiaries report confusion, concern, and annoyance 
over receiving multiple mailings from ACOs, and question why their 
health care providers do not already have the information they need to 
appropriately coordinate their care.
     Beneficiaries receiving the notifications giving them the 
opportunity to decline claims data sharing may mistakenly believe the 
notification is a request to ``opt-out'' of ACO care or Medicare FFS, 
or both, or that they have been placed in a managed care plan without 
their consent.
     Beneficiaries who receive the letters in the mail 
notifying them of their provider's participation in an ACO and offering 
them the opportunity to decline claims data sharing often mistakenly 
believe that these letters are fraudulent and do not know what to do. 
Many ACOs are entities that have been newly formed by providers and 
suppliers for purposes of participating in the Shared Savings Program. 
While the beneficiary may have a strong relationship with his or her 
primary care provider, the beneficiary may not recognize the name of 
the newly formed ACO. Therefore the beneficiary may have concerns and 
question the legitimacy of the notification.
     Our most recent data indicate that approximately 3 percent 
of beneficiaries have declined claims data sharing.
    As previously discussed, beneficiaries currently have the 
opportunity to decline claims data sharing by responding to the letters 
that ACOs send to their preliminarily prospectively assigned 
beneficiaries, by informing an ACO provider/supplier during a face-to-
face primary care service visit, or by contacting 1-800-Medicare 
directly. We continue to be committed to offering beneficiaries some 
control over ACO access to their beneficiary identifiable information 
for purposes of the Shared Savings Program. However, in light of the 
feedback we received, we were motivated to review our claims data 
sharing policies and processes to determine what refinements we could 
make to mitigate the concerns raised by stakeholders regarding the 
burden imposed on both beneficiaries and those entities participating 
in the Shared Savings Program. We considered several aspects of our 
claims data sharing policies, including the use of various formats to 
communicate with beneficiaries regarding claims data sharing under the 
program such as: Mailed notifications to the list of preliminarily 
prospectively assigned beneficiaries by the ACO; face-to-face 
discussions with healthcare providers during primary care visits; and 
CMS' use of 1-800-Medicare and the Medicare & You Handbook. As 
discussed in the proposed rule, as well as the April 2011 proposed rule 
(76 FR 19558) and the November 2011 final rule (76 FR 67846), we are 
convinced by stakeholders that Medicare claims data provide an 
important supplement to the data to which the ACO and its ACO 
participants and ACO providers/suppliers already have access. Current 
law allows CMS to share certain beneficiary identifiable claims data 
with ACOs when those data are necessary for purposes of certain health 
care operations. HIPAA does not require that beneficiaries be presented 
with an opportunity to decline claims data sharing before their PHI can 
be shared. Moreover, several other CMS initiatives, including the 
Medicare Health Support demonstration, the Multi-Payer Advanced Primary 
Care Practice demonstration, the Physician Group Practice 
demonstration, and the Physician Group Practice Transition 
demonstration, have successfully shared claims data with providers in 
the absence of an opportunity for beneficiaries to decline claims data 
sharing. Therefore, we considered how to retain meaningful beneficiary 
choice in claims data sharing while reducing the confusion and burden 
caused by our current claims data sharing policies. As we stated in the 
proposed rule, we believe meaningful beneficiary choice in claims data 
sharing is maintained when the purpose and rationale for such claims 
data sharing are transparent and communicated to beneficiaries, and 
there is a mechanism in place for beneficiaries to decline claims data 
sharing. Thus, in revisiting our claims data sharing policies, we 
sought to maintain claims data sharing transparency and a mechanism for

[[Page 32740]]

beneficiaries to decline claims data sharing.
b. Proposed Revisions
    Based on our experiences with data sharing under the Shared Savings 
Program to date, we proposed to modify our processes and policy for 
claims data sharing while remaining committed to retaining meaningful 
beneficiary choice over claims data sharing with ACOs. First, we 
proposed to provide beneficiaries with the opportunity to decline 
claims data sharing directly through 1-800-Medicare, rather than 
through the ACO. We noted that 1-800-Medicare has the capability for 
beneficiaries to use accessible alternative or appropriate assistive 
technology, if needed. We would continue to maintain a list of 
beneficiaries who have declined data sharing and ensure that their 
claims information is not included in the claims files shared with 
ACOs. Second, we proposed to provide advance notification to all FFS 
beneficiaries about the opportunity to decline claims data sharing with 
ACOs participating in the Shared Savings Program through CMS materials 
such as the Medicare & You Handbook. The Handbook would include 
information about the purpose of the program, describe the opportunity 
for ACOs to request beneficiary identifiable claims data for health 
care operations purposes, and provide instructions on how beneficiaries 
may decline claims data sharing by contacting CMS directly through 1-
800-Medicare. The Handbook would also contain instructions on how a 
beneficiary may reverse his or her preference to decline claims data 
sharing by contacting 1-800-Medicare. Third, to reduce burden for both 
beneficiaries and ACOs, we proposed to remove the option for ACOs to 
mail notifications to beneficiaries and for beneficiaries to sign and 
return the forms to the ACO in order to decline claims data sharing. 
This process would be replaced by a simpler, direct process through 
notification at the point of care and through 1-800-Medicare as 
described previously.
    We also proposed to continue to require that ACO participants 
notify beneficiaries in writing at the point of care that their 
providers and suppliers are participating in the Shared Savings Program 
as required under Sec.  425.312(a). We proposed that ACO participants 
would continue to be required to post signs in their facilities using 
required template language. Rather than requiring ACO participants 
furnishing primary care services to provide a written form regarding 
claims data sharing to all beneficiaries who have a primary care 
service office visit, we proposed to update the required notification 
template language for these signs to include information regarding 
claims data sharing. We would update the template language with the 
assistance of the Medicare Ombudsman's Office and beneficiary input to 
inform beneficiaries about both the Shared Savings Program and also 
that the ACO may request access to beneficiary identifiable claims data 
from CMS in order to perform health care operations as defined under 
the first and second paragraphs of the definition of health care 
operations at 45 CFR 164.501. The signs would also provide 
beneficiaries with information about their opportunity to decline this 
data sharing and instructions to call 1-800-Medicare if they would 
prefer that we not share their claims data with an ACO and its ACO 
participants and ACO providers/suppliers. The signs would likewise 
include instructions for how beneficiaries may reverse their decision 
to decline claims data sharing through 1-800-Medicare, if they 
determine in the future they would prefer to have their claims data 
made available to ACOs and their ACO participants and ACO providers/
suppliers. Because ACO participants are required to post these signs in 
their facilities at all times, this written notification through the 
signs would occur at each visit, including the first visit the 
beneficiary has with an ACO participant during a performance year.
    We also noted in the proposed rule that we anticipate that some 
beneficiaries may continue to want to have the ability to take the 
information home or into their visit with their primary care provider 
for further discussion. Therefore, in addition to the signs, we 
proposed to retain our policy that ACO participants that submit claims 
for primary care services used to determine the ACO's assigned 
beneficiary population be required to make a separate written 
notification form available to the beneficiary upon request. We 
proposed to modify Sec. Sec.  425.312 and 425.708 for clarity and to 
reflect these revised notification policies.
    Finally, under Tracks 1 and 2, we proposed to make beneficiary 
identifiable claims data available in accordance with applicable law on 
a monthly basis for beneficiaries who are either preliminarily 
prospectively assigned to the ACO based on the quarterly assignment 
window or who have received a primary care service from an ACO 
participant upon whom assignment is based. Because Tracks 1 and 2 use a 
preliminary prospective assignment methodology with retrospective 
reconciliation, we stated our belief that ACOs, ACO participants, and 
ACO providers/suppliers in Tracks 1 and 2 would benefit from access to 
beneficiary identifiable claims information for all FFS beneficiaries 
who may be assigned to the ACO at the end of the performance year. In 
contrast, under Track 3, we proposed to make beneficiary identifiable 
claims data available only for beneficiaries who are prospectively 
assigned to an ACO, because the beneficiaries on the prospective 
assignment list are the only beneficiaries for whom the ACO would be 
held accountable at the end of the performance year. Consistent with 
the existing requirements at Sec.  425.704, in order to request 
beneficiary identifiable claims data, and regardless of track, an ACO 
must do all of the following:
     Certify that it is a covered entity or the business 
associate of a covered entity that has provided a primary care service 
to the beneficiary in the previous 12 months.
     Enter into a DUA with CMS prior to the receipt of these 
beneficiary identifiable data.
     Submit a formal request to receive beneficiary 
identifiable claims data for such beneficiaries at the time of 
application to the Shared Savings Program.
     Certify that the request reflects the minimum data 
necessary for the ACO to conduct either its own health care operations 
work that falls within the first or second paragraph of the definition 
of health care operations at 45 CFR 164.501 or health care operations 
work on behalf of its ACO participants and ACO providers/suppliers that 
are covered entities (as the business associate of these covered 
entities) that falls within the first or second paragraph of the 
definition of health care operations at 45 CFR 164.501.
    We explained our belief that these proposed modifications to our 
data sharing rules would significantly improve the claims data sharing 
process. First, we stated our belief that the modified process would 
reduce burden for beneficiaries who would no longer have to mail back 
forms. In addition, it would minimize beneficiary confusion in 
situations where an ACO may be newly formed and may not yet have 
established a relationship with the beneficiary. Instead, the 
beneficiary would be able decline claims data sharing, and reverse a 
decision to decline claims sharing, by contacting CMS directly using 1-
800-Medicare. We stated our belief that beneficiaries would be more 
comfortable expressing

[[Page 32741]]

their claims data sharing preferences directly through CMS, an agency 
with which beneficiaries have an existing relationship. Moreover, we 
stated our belief that our proposals would streamline ACO operations 
and would allow ACOs to access beneficiary identifiable claims data 
earlier in the performance year than is possible under our current 
policies. Beneficiary identifiable claims data would still be available 
on a monthly basis, but the new process would be operationally more 
efficient and less expensive for ACOs. By removing the 30-day delay 
before ACOs may request beneficiary identifiable claims data for their 
preliminarily prospectively assigned beneficiaries under Tracks 1 and 2 
and prospectively assigned beneficiaries under Track 3, and reducing 
operational complexities associated with providing these data, ACOs 
would have access to beneficiary identifiable claims data in a more 
timely fashion. This could allow ACOs to intervene in the care of 
beneficiaries earlier during the performance year. In addition, as 
discussed previously, while we initially believed that requiring ACOs 
to notify beneficiaries of the opportunity to decline claims data 
sharing would improve engagement between ACO providers/suppliers that 
furnish primary care services and their patients, we realized that this 
policy unintentionally created burden and confusion for both ACOs and 
beneficiaries, as many beneficiaries assume that their health care 
providers already have the information needed to optimally coordinate 
their care, even though this is not always the case. We stated our 
belief that the proposed revisions to our claims data sharing policy 
would reduce beneficiary confusion about the Shared Savings Program and 
the role an ACO plays in assisting the beneficiary's health care 
providers to improve their health and health care experience, while 
still retaining a beneficiary's meaningful opportunity to decline 
claims data sharing.
    We also noted in the proposed rule that, since implementation of 
the program, a small percentage of FFS beneficiaries have requested 
that their identifiable claims data not be shared and have done so 
either by notifying the ACO or by contacting 1-800-Medicare to decline 
claims data sharing. We stated that none of our proposed revisions 
would have any effect on any existing beneficiary preferences. 
Previously recorded beneficiary preferences would continue to be 
honored, unless and until a beneficiary changes his or her preference 
by contacting 1-800-Medicare. Accordingly, we noted that our proposal 
not only would preserve the beneficiary's ability to decline claims 
data sharing by directly contacting CMS, but it also would have no 
effect on existing beneficiary claims data sharing preferences, unless 
the beneficiary subsequently amends his or her preferences to allow 
claims data sharing.
    We noted that the beneficiary identifiable information that is made 
available under Sec.  425.704 would include Parts A, B and D data, but 
would exclude any information related to the diagnosis and treatment of 
alcohol or substance abuse. As we discussed in the April 2011 proposed 
rule (76 FR 19557), 42 U.S.C. 290dd-2 and the implementing regulations 
at 42 CFR part 2 restrict the disclosure of patient records by 
federally conducted or assisted substance abuse programs. Such data may 
be disclosed only with the prior written consent of the patient, or as 
otherwise provided in the statute and regulations. We stated that we 
may revisit this approach as technology in the area of consent 
management advances.
    We sought comment on these proposals, as well as other specific 
modifications that could be made to our existing policies on data 
sharing to improve the ability of ACOs to access beneficiary 
identifiable claims data, and to reduce burden and confusion for ACOs, 
ACO participants, ACO providers/suppliers, and beneficiaries. We 
received many comments regarding these proposals.
    Comment: Commenters supported our proposal to provide beneficiaries 
the opportunity to decline claims data sharing directly through 1-800-
MEDICARE, rather than through the ACO. Stakeholders commented that the 
proposed modifications to the claims data sharing process would result 
in ACOs obtaining claims data sooner; which would allow certain 
services such as care coordination activities to begin much sooner in 
the program year. Commenters noted that the modified process would 
negate the cumbersome process that is currently used by ACOs to track 
and maintain beneficiary opt out preferences as well as the monthly 
file transfers of those preferences between the ACO and CMS. A few 
commenters stated that 1-800-MEDICARE should not be the sole method for 
a beneficiary to decline data sharing. A commenter suggested developing 
a Web site that beneficiaries could use to decline claims data sharing 
electronically.
    Response: We appreciate the strong support for our proposals to 
simplify both the process for beneficiaries to decline claims data 
sharing and the process for ACOs to notify beneficiaries about this 
opportunity. We agree with commenters that the modified process will 
result in the ACO obtaining claims information earlier than is 
currently possible, which could in turn allow the ACO to intervene in a 
beneficiary's care earlier in the performance year. However, we do not 
believe that ACOs should wait for this data before implementing 
appropriate care coordination and other processes as required under the 
program rules. We note that defining certain required processes under 
Sec.  425.112, including processes to coordinate care, and promote 
evidence-based medicine and patient engagement, and having these 
processes in place is a requirement for program eligibility. We believe 
that using 1-800-MEDICARE is an efficient and effective way for 
beneficiaries to let CMS know directly that they wish to decline claims 
data sharing because beneficiaries are accustomed to contacting 1-800 
Medicare with questions and comments. In addition, 1-800-MEDICARE is 
staffed with customer service representatives who can answer questions 
beneficiaries may have about ACOs and claims data sharing. We are 
finalizing this simplified process for declining claims data sharing 
and we anticipate it will reduce ACO and beneficiary burden and 
confusion. Finally, we recognize that although most current 
beneficiaries are used to contacting 1-800 Medicare with questions and 
comments, use of the internet and smart phones is becoming ubiquitous, 
and a new generation of computer-savvy baby-boomers is now becoming 
eligible for Medicare. Therefore, we will explore whether to establish 
in the future alternate means by which beneficiaries can elect to 
decline claims data sharing, such as, for example, through an 
appropriately secure transaction via the Internet.
    Comment: Commenters were supportive of the proposal to notify FFS 
beneficiaries about the opportunity to decline claims data sharing with 
ACOs participating in the Shared Savings Program through CMS materials 
such as the Medicare & You Handbook. Several commenters suggested that 
CMS take the opportunity to revise and redesign CMS publications to 
incentivize healthy behaviors and encourage beneficiary engagement with 
ACOs.
    Several commenters stated that CMS should not continue to require 
ACO participants to provide written notification of their participation 
in the

[[Page 32742]]

Shared Savings Program at the point of care, including notification of 
the opportunity to decline claims data sharing. However, a few 
commenters supported the requirement for the ACO and its providers and 
suppliers to provide written notification at the point of care 
regarding their participation in the program and the beneficiary's 
ability to seek care from any FFS provider and the opportunity to 
decline claims data sharing. A few commenters suggested that CMS 
require ACOs to develop language for the notifications that would 
clearly describe why and how the beneficiary's health information would 
be stored, exchanged, used and protected, along with the beneficiary's 
opportunity to decline claims data sharing. A commenter suggested that 
the notification language clearly identify the type of data sharing 
that would be subject to the opt-out.
    A few commenters stated that our proposals should not preclude 
providers from actively engaging in conversations with beneficiaries 
regarding the sharing of their claims data and how their claims data 
will be utilized and stored, or from providing relevant publications 
regarding beneficiary opt-out opportunities.
    Response: We encourage ACOs to work with their ACO participants and 
ACO providers/suppliers to fully engage their FFS beneficiary 
population. Also, under the modified beneficiary notification and 
opportunity to decline data sharing processes, which we are finalizing, 
we will continue to make available written information for ACO 
participants to give to beneficiaries at the point of care, which 
explains what an ACO is and what beneficiaries can expect when their 
providers are ACO providers/suppliers participating in an ACO. These 
materials are available to all participating ACOs through the ACO 
portal.
    Additionally, we agree with commenters that ACOs and their 
participating providers and suppliers should be required at the point 
of care and in writing to notify beneficiaries of their participation 
in the program and to provide an opportunity for beneficiaries to 
decline data sharing. We believe the transparency provided by such 
notification is important. For this reason, we are also finalizing our 
proposal that beneficiaries be notified in writing by Medicare 
regarding the Shared Savings Program and the opportunity to decline 
claims data sharing in accordance with Sec.  425.708 and by the ACO 
participant at the point of care that their ACO providers/suppliers are 
participating in the Shared Savings Program and the opportunity to 
decline data sharing in accordance with Sec.  425.312. With respect to 
the comment about ACOs providing detailed notification about how they 
handle beneficiary health information, we note that the HIPAA Privacy 
Rule requires covered entities, including covered health care 
providers, to provide a notice of privacy practices that describes how 
they may use and disclose PHI and the individual's rights with respect 
to PHI. (See 45 CFR 164.520.) Therefore, we believe healthcare 
providers should already be providing information that describes how 
beneficiary's health information may be used and disclosed and is 
protected under the HIPAA Privacy Rule.'
    Furthermore, we believe the information contained in the Medicare & 
You Handbook and the signs posted in ACO participant facilities will 
prompt beneficiaries to ask questions and engage with their providers 
concerning their provider's participation in an ACO and the 
beneficiary's opportunity to decline data sharing. We do not believe 
these policies will limit or impede a provider's ability or opportunity 
to engage with beneficiaries at the point of care, and we encourage ACO 
participants to speak with their beneficiaries about the Shared Savings 
Program and claims data sharing, including how the ACO uses, stores, 
and accesses beneficiary data.
    Comment: A commenter requested that CMS develop and share with ACOs 
a list of beneficiaries who have declined to share their claims data, 
and that CMS analyze this list for the overall impact on the Shared 
Savings Program.
    Response: Currently, for an ACO receiving CCLFs, we provide a 
monthly file that indicates what beneficiaries have declined data 
sharing and have held webinars to explore the impact of withheld 
claims. We intend to continue to provide that information under the new 
process implemented as a result of this final rule. Additionally, we 
intend to continue educating ACOs through webinars and other methods 
regarding the impact of withheld claims.
    Comment: Commenters made suggestions related to the type and format 
of claims data that we share with ACOs, including that CMS:
     Eliminate the suppression of claims data related to 
alcohol and substance abuse diagnosis and treatment.
     Include a beneficiary demographic file in the monthly 
claim line feeds.
     Establish a test file process where changes to data sets 
can be provided in a test file to an ACO in advance of these changes 
being incorporated into the live claim feeds.
    Response: We noted in the proposed rule that the beneficiary 
identifiable information that is made available under Sec.  425.704 
will include Parts A, B and D data, but will exclude any information 
related to the diagnosis and treatment of alcohol or substance abuse. 
As we discussed in the April 2011 proposed rule (76 FR 19557), 42 
U.S.C. 290dd-2 and the implementing regulations at 42 CFR part 2 
restrict the disclosure of patient records by federally conducted or 
assisted substance abuse programs. Such data may be disclosed only with 
the prior written consent of the patient, or as otherwise provided in 
the statute and regulations. We also noted in the proposed rule, as 
well as the November 2011 final rule (76 FR 67844), that we expect ACOs 
will have, or will be working towards having, processes in place to 
independently identify and produce the data they believe are necessary 
to best evaluate the health needs of their patient population, 
including the desired beneficiary demographic data. A robust health 
information exchange infrastructure and improved communication among 
ACO participants and the ACO's neighboring health care providers could 
also result in better access to beneficiary demographic data. We 
believe the ACO professionals who are providing the plurality of a 
beneficiary's primary care services have the most up-to-date data. To 
assist ACOs in identifying the best sources for beneficiary medical 
record data', we provide the ACO with the TIN and NPI of the ACO 
participant and ACO professionals that provided the most recent primary 
care service to the beneficiary on each quarterly report. We also make 
mock CCLF files available to all ACOs that are eligible to receive 
claims data. Whenever we make modifications to the CCLF file layouts, 
we update and supply these mock files to ACOs before we make 
modifications to the CCLF file layouts.
    Comment: Several commenters requested that we make claims data 
sharing 'automatic' for prospectively assigned beneficiaries and not 
dependent on an ACO's request for data. Commenters suggested that 
claims data should be made available for all beneficiaries that are 
eligible for assignment to an ACO. A commenter requested that CMS 
provide 3 years of claims data prior to the start of an agreement 
period rather than the most recent 12-month period at the start of the 
agreement period.
    Response: As we discussed in detail in the December 2014 proposed 
rule and

[[Page 32743]]

the April 2011 proposed rule, we have concluded that we are permitted 
to disclose the minimum Medicare Parts A, B, and D data necessary to 
allow ACOs to conduct the health care operations activities that fall 
into the first or second paragraph of the definition of health care 
operations under the HIPAA Privacy Rule when such data is requested by 
the ACO as a covered entity or as the business associate of its covered 
entity ACO participants and ACO providers/suppliers. Since CMS requires 
a request to ensure the ACO has met the applicable HIPAA conditions for 
disclosure, our provision of claims data to ACOs cannot be 'automatic.' 
``Consistent with the existing requirements at Sec.  425.704, in order 
to request beneficiary identifiable claims data, and regardless of 
track, an ACO must take all of the following steps:
     Certify that it is a covered entity or the business 
associate of a covered entity that has provided a primary care service 
to the beneficiary in the previous 12 months.
     Enter into a DUA with CMS prior to the receipt of these 
beneficiary identifiable data.
     Submit a formal request to receive beneficiary 
identifiable claims data for such beneficiaries at the time of 
application to the Shared Savings Program.
     Certify that the request reflects the minimum data 
necessary for the ACO to conduct either its own health care operations 
work that falls within the first or second paragraph of the definition 
of health care operations at 45 CFR 164.501 or health care operations 
work on behalf of its ACO participants and ACO providers/suppliers that 
are covered entities (as the business associate of these covered 
entities) that falls within the first or second paragraph of the 
definition of health care operations at 45 CFR 164.501.
    Thus, the ACO's formal request to receive data is accomplished at 
the time of its application to the Shared Savings Program and does not 
delay the receipt of claims data.
    We proposed and are finalizing a policy under Tracks 1 and 2 to 
make beneficiary identifiable claims data available in accordance with 
applicable law on a monthly basis for beneficiaries who are either 
preliminarily prospectively assigned to the ACO or who have received a 
primary care service from an ACO participant upon whom assignment is 
based during the most recent 12-month period. Because Tracks 1 and 2 
use a preliminary prospective assignment methodology with retrospective 
reconciliation, we believe that ACOs, ACO participants, and ACO 
providers/suppliers in Tracks 1 and 2 will benefit from access to 
beneficiary identifiable claims information for all FFS beneficiaries 
who may be assigned to the ACO at the end of the performance year. 
Furthermore, we believe this policy is consistent with commenters' 
desire to have access to claims information for a majority of 
beneficiaries that are eligible to be assigned to the ACO. In contrast, 
under Track 3, we proposed to make beneficiary identifiable claims data 
available only for beneficiaries who are prospectively assigned to an 
ACO, because the beneficiaries on the prospective assignment list are 
the only beneficiaries for whom the ACO will be held accountable at the 
end of the performance year.
    With respect to the comment about providing 3 years of claims data 
prior to the start of the agreement period, we continue to believe 
providing the most recent 12 months of claims data prior to the start 
of the agreement period is appropriate and sufficient to allow ACOs to 
coordinate care for their patient population. Our proposals were not 
intended to revise or extend the ``look back'' for claims data that we 
currently provide to ACOs for beneficiaries who have not declined 
claims data sharing. We also have concerns that expanding the look back 
period from 12 months prior to the agreement period to 3 years as 
suggested by the commenter will create barriers for some ACOs because 
stakeholders have told us that the current CCLF files are large and 
require sophisticated systems to accept even the 12-months' worth of 
claims data we provide.
    FINAL ACTION: We are finalizing our claims data sharing policies as 
proposed. Specifically, we are finalizing our proposal in Sec.  425.704 
to begin sharing beneficiary identifiable claims data with ACOs 
participating under Tracks 1 and 2 that request claims data on 
beneficiaries who are included on their preliminary prospective 
assigned beneficiary list or that have received a primary care service 
from an ACO participant upon whom assignment is based during the most 
recent 12-month period, at the start of the ACO's agreement period, 
provided all other requirements for claims data sharing under the 
Shared Savings Program and HIPAA regulations are met. In addition, we 
are finalizing our proposal to share beneficiary identifiable claims 
data with ACOs participating under Track 3 that request beneficiary 
identifiable claims data on beneficiaries who are included on their 
prospectively assigned beneficiary list. These changes are effective 
January 1, 2016 in order to give ACOs in the middle of their 3-year 
participation agreements some time to make necessary adjustments in 
light of the new rules. For example, ACOs may need to improve their 
ability to accept larger amounts of claims data. ACOs will also need 
some time to finalize the collection and notification to CMS of any 
beneficiary notifications mailed prior to November 1. The timing will 
also coincide with a new cohort of ACOs and the issuance of the 2016 
Medicare & You Handbook that will notify beneficiaries of the 
opportunity to decline claims data sharing through 1-800 Medicare. We 
are finalizing our proposed modifications to Sec.  425.708 to reflect 
the streamlined process by which beneficiaries may decline claims data 
sharing. We are finalizing our proposals in Sec.  425.312(a) and Sec.  
425.708 to require ACO participants to use CMS-approved template 
language to notify beneficiaries regarding participation in an ACO and 
the opportunity to decline data sharing. We are also finalizing our 
proposal in Sec.  425.708(c) to honor any beneficiary request to 
decline claims data sharing that is received under Sec.  425.708 until 
such time as the beneficiary may reverse his or her claims data sharing 
preference to allow data sharing. These changes are effective November 
1, 2015, to enable ACOs that choose to mail notifications under the 
current requirements to mail notifications to beneficiaries up until 
the end of October; permit the 30-day window for ACOs to receive 
notifications from beneficiaries that choose to decline claims data 
sharing; and give ACOs one last opportunity to notify CMS, in turn, of 
`beneficiaries' preferences in December 2015.

E. Assignment of Medicare FFS Beneficiaries

1. Background
    Section 1899(c) of the Act requires the Secretary to ``determine an 
appropriate method to assign Medicare fee-for-service beneficiaries to 
an ACO based on their utilization of primary care services provided 
under this title by an ACO professional described in paragraph 
(h)(1)(A).'' Section 1899(h)(1)(A) of the Act constitutes one element 
of the definition of the term ``ACO professional.'' Specifically, this 
provision establishes that ``a physician (as defined in section 
1861(r)(1) of the Act)'' is an ``ACO professional'' for purposes of the 
Shared Savings Program. Section 1861(r)(1) of the Act in turn defines 
``physician'' as ``a doctor of medicine or osteopathy legally 
authorized to practice medicine and surgery by the State in which he

[[Page 32744]]

performs such function or action''. In addition, section 1899(h)(1)(B) 
of the Act defines ``ACO professional'' to include practitioners 
described in section 1842(b)(18)(C)(i) of the Act, such as physician 
assistants (PAs) and nurse practitioners (NPs).
    As we explained in the November 2011 final rule (76 FR 67851), the 
term ``assignment'' refers only to an operational process by which 
Medicare determines whether a beneficiary has chosen to receive a 
sufficient level of the requisite primary care services from physicians 
associated with a specific ACO so that the ACO may be appropriately 
designated as exercising basic responsibility for that beneficiary's 
care. Consistent with section 1899(b)(2)(A) of the Act, an ACO is held 
accountable ``for the quality, cost, and overall care of the Medicare 
fee-for-service beneficiaries assigned to it.'' The ACO may also 
qualify to receive a share of any savings that are realized in the care 
of these assigned beneficiaries due to appropriate efficiencies and 
quality improvements that the ACO may be able to achieve. The term 
``assignment'' for purposes of the Shared Savings Program in no way 
implies any limits, restrictions, or diminishment of the rights of 
Medicare FFS beneficiaries to exercise freedom of choice in the 
physicians and other health care providers and suppliers from whom they 
receive their services.
    In developing the process for assigning Medicare beneficiaries to 
ACOs, in addition to the definition of an ACO professional (76 FR 
67851), we also considered the following elements:
     The operational definition of an ACO (see the discussion 
of the formal and operational definitions of an ACO in section II.B. of 
this final rule) so that ACOs can be efficiently identified, 
distinguished, and associated with the beneficiaries for whom they are 
providing services.
     The definition of primary care services for purposes of 
determining the appropriate assignment of beneficiaries.
     Whether to assign beneficiaries to ACOs prospectively, at 
the beginning of a performance year on the basis of services rendered 
prior to the performance year, or retrospectively, on the basis of 
services actually rendered by the ACO during the performance year.
     The proportion of primary care services that is necessary 
for a beneficiary to receive from an ACO in order to be assigned to 
that ACO for purposes of this program.
    In the November 2011 final rule (76 FR 67851 through 67870), we 
finalized the methodology that we currently use to assign beneficiaries 
to ACOs for purposes of the Shared Savings Program. Beneficiaries are 
assigned to a participating ACO using the assignment methodology in 
part 425, subpart E of our regulations. In addition, since the final 
rule was issued, we have provided additional guidance and more detailed 
specifications regarding the beneficiary assignment process in 
operational instructions which are available to the public on the CMS 
Web site. (https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/sharedsavingsprogram/Financial-and-Assignment-Specifications.html).
    In this section of this final rule, we summarize certain key 
policies and methodological issues to provide background for several 
revisions to the assignment methodology that we proposed based on our 
initial experiences with the program and questions from stakeholders.
2. Basic Criteria for a Beneficiary To Be Assigned to an ACO
    As discussed in detail in the proposed rule (79 FR 72791 and 72792) 
and consistent with previous guidance (see guidance at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/sharedsavingsprogram/Downloads/Shared-Savings-Losses-Assignment-Spec-v2.pdf.), we proposed to add a new provision at Sec.  425.401(a) of the 
regulations to outline the criteria that a beneficiary must meet in 
order to be eligible to be assigned to an ACO. Specifically, we 
proposed that a beneficiary would be eligible to be assigned to a 
participating ACO, for a performance year or benchmark year, if the 
beneficiary meets all of the following criteria during the assignment 
window (defined in section II.F. of this final rule as the 12-month 
period used for assignment):
     Has at least 1 month of Part A and Part B enrollment and 
does not have any months of Part A only or Part B only enrollment.
     Does not have any months of Medicare group (private) 
health plan enrollment.
     Is not assigned to any other Medicare shared savings 
initiative.
     Lives in the U.S. or U.S. territories and possessions as 
determined based on the most recent available data in our beneficiary 
records regarding the beneficiary's residence at the end of the 
assignment window.
    If a beneficiary meets all of the criteria in Sec.  425.401(a), 
then the beneficiary would be eligible to be assigned to an ACO in 
accordance with the two-step beneficiary assignment methodology in 
Sec.  425.402 and Sec.  425.404. We also proposed to make a conforming 
change to Sec.  425.400 to reflect the addition of this new provision. 
We sought comment on our proposal.
    Comment: Commenters generally agreed that the proposed beneficiary 
eligibility criteria are consistent with the statute, and agreed that 
their explicit inclusion within the regulations would help to promote a 
clearer understanding of the assignment process for purposes of such 
operations as benchmarking, preliminary prospective assignment 
(including quarterly updates), retrospective reconciliation, and 
prospective assignment.
    Response: We agree that revising the regulations to include these 
eligibility criteria will help promote understanding of the assignment 
methodology. We are also make a conforming change to Sec.  425.400 to 
clarify that the assignment methodology applies for purposes of 
benchmarking, preliminary prospective assignment (including quarterly 
updates), retrospective reconciliation, and prospective assignment.
    Comment: A number of commenters suggested additional criteria such 
as removing the beneficiary if he/she moves from the ACO's service 
region or otherwise lives in two or more geographic locations during 
the year. Some commenters requested a policy that geographically 
defines and pre-identifies the target population for ACOs willing to 
take financial risk. Commenters suggested such a policy could be 
defined by distance based on miles, out of state residence, or if one 
of these geographic factors is combined with attribution, on a limited 
number of attributing services billed over a short period of time. To 
illustrate, some commenters suggested that to be eligible for ACO 
assignment, beneficiaries should receive a large majority (for example, 
75 to 95 percent) of their qualified primary care services delivered in 
the ACO's service area. Another commenter suggested that CMS implement 
a beneficiary assignment appeals process to allow for removal of 
beneficiaries from assignment to an ACO if they meet certain conditions 
such as move out of the area or select a new non-ACO physician. These 
commenters believe that ACOs should not be financially accountable for 
patients who live outside of their service area, such as those who move 
during the year or otherwise live in two or more geographic locations 
during the year. In such cases, commenters noted that it may be 
difficult for the ACO to which the patient is assigned to manage 
effectively the beneficiary's care throughout the year. In addition, 
that

[[Page 32745]]

ACO will be held accountable for the cost and quality of the care 
provided to the beneficiary in the alternate location, which may have 
different standards of practice. A few commenters requested that 
beneficiaries who opt out of sharing their data should also not be 
assigned to an ACO.
    Response: We greatly appreciate the varied suggestions for 
additional criteria for excluding beneficiaries from assignment. We 
explored some of these suggestions and performed an initial analysis on 
the specific suggestion for removal of beneficiaries who move out of 
the ACO's service area and determined there is a very small number of 
beneficiaries who will meet the criteria for exclusion on this basis, 
and these beneficiaries will not represent a significant portion of the 
ACO's list. We further point out that for Tracks 1 and 2, beneficiaries 
who move may drop off an ACO's assignment list since the lists are 
retrospectively reconciled. Under Tracks 1 and 2, a beneficiary only 
gets retrospectively assigned to an ACO if he/she received a plurality 
of primary care services from ACO professionals at the ACO. Therefore, 
we believe the ACO can reasonably be held accountable for the overall 
cost and quality of the care furnished to that beneficiary during that 
performance year. This policy has an additional advantage of providing 
an incentive for ACOs to coordinate care and provide for an appropriate 
hand-off when beneficiaries move out of their service area. Likewise, 
we believe that continuing to include those beneficiaries who have not 
permanently moved, but who otherwise live in two or more geographic 
locations during the year, on the ACO's assignment list during the 
performance year provides an excellent opportunity for ACOs to make 
sure the care for such beneficiaries is coordinated. Finally, regarding 
the suggestion that beneficiaries who opt out of sharing their data 
should not be assigned to an ACO, we believe the assignment methodology 
adequately indicates which beneficiaries should be assigned to an ACO 
on the basis of the primary care services furnished by ACO 
professionals. In addition, ACOs will have their own clinical 
information about the patient that they may share and use as permitted 
by HIPAA and other applicable laws. Therefore, we believe the 
beneficiary should remain assigned to the ACO even if the beneficiary 
does not choose to permit us to disclose his/her PHI in the form of 
claims data. We intend to monitor and assess the impact of not 
excluding these beneficiaries from assignment and, if appropriate, may 
consider making adjustments in future rulemaking.
    Comment: A commenter suggested exclusion of Medicare beneficiaries 
who are already deceased at the time of their initial assignment to an 
ACO. The commenter stated that ACOs are prevented from coordinating the 
care of these beneficiaries and from learning from their claims 
experience. The commenter noted that this is a critical issue because 
many studies have shown that Medicare beneficiaries spend a 
disproportionate share of their lifetime medical expenses in the last 
few months of life. The commenter believes that assigning such 
beneficiaries to an ACO is an unfair burden on their financial 
performance under the Shared Savings Program and their fair opportunity 
to earn shared savings.
    Response: We appreciate this comment. However, we are not revising 
the program's assignment methodology to remove beneficiaries with a 
date of death during the assignment window. Including beneficiaries 
with a date of death during the assignment window helps to reduce the 
introduction of actuarial bias when comparing the ACO's benchmark and 
performance year expenditures. Beneficiaries who are deceased will only 
be assigned to an ACO under either a prospective or retrospective 
assignment methodology if the ACO had previously been treating the 
beneficiary and providing the beneficiary's plurality of primary care 
services. Further, a purpose of sharing the preliminary list of 
assigned beneficiaries is to give the ACO information about their 
Medicare FFS patient population. On the reports we give to ACOs, we 
indicate if a beneficiary is deceased. The ACO can learn about the 
beneficiary's experience by seeking information from both the ACO 
providers/suppliers as well as any of the beneficiary's other Medicare-
enrolled providers and suppliers that cared for the beneficiary during 
the assignment window to the extent permitted by HIPAA and other 
applicable laws, and by reviewing the monthly beneficiary-identifiable 
claims line feeds (if the ACO properly requested these data). We 
believe it is' better to include deceased beneficiaries for the sake of 
completeness. Further, we do not believe it is unfair to the ACO 
because such beneficiaries are represented in both benchmark and 
performance years. Accordingly, we believe it is appropriate that ACOs 
be held accountable for beneficiaries who pass away during a 
performance year.
    Comment: A few commenters suggested that the criterion that a 
beneficiary not have any months of Medicare group (private) health plan 
enrollment during the assignment window be revised to not more than 3 
to 6 months, to account for certain situations where beneficiaries, 
such as dual eligible, might change, enroll in or disenroll from plans 
more frequently. This would allow such beneficiaries to remain 
attributed to the ACO.
    Response: Section 1899(c) of the Act requires the Secretary to 
``determine an appropriate method to assign Medicare fee-for-service 
beneficiaries to an ACO''. As required by section 1899(c) of the Act, 
and consistent with the definition of Medicare FFS beneficiary in 
section 1899(h)(3) of the Act Sec.  425.20 of the regulations, only 
beneficiaries enrolled in traditional Medicare FFS under Parts A and B 
are eligible to be assigned to an ACO participating in the Shared 
Savings Program. We believe our current policy is consistent with these 
requirements because under our current approach, only beneficiaries 
enrolled in traditional Medicare FFS under Parts A and B throughout the 
full performance year are eligible to be assigned to an ACO, and 
therefore, we will not revise the policy at this time. However, we plan 
to consider this issue further and we may address this issue in future 
rulemaking.
    FINAL ACTION: We are finalizing our proposal to codify the criteria 
that a beneficiary must meet in order to be eligible to be assigned to 
an ACO. Specifically, a beneficiary will be eligible to be assigned to 
an ACO, for a performance year or benchmark year, if the beneficiary 
meets all of the following criteria during the assignment window:
     Has at least 1 month of Part A and Part B enrollment and 
does not have any months of Part A only or Part B only enrollment.
     Does not have any months of Medicare group (private) 
health plan enrollment.
     Is not assigned to any other Medicare shared savings 
initiative.
     Lives in the U.S. or U.S. territories and possessions as 
determined based on the most recent available data in our beneficiary 
records regarding the beneficiary's residence at the end of the 
assignment window.
    We are also finalizing our proposal to add a new provision at Sec.  
425.401(a) of the regulations outlining these criteria. If a 
beneficiary meets all of the criteria in Sec.  425.401(a), then the 
beneficiary will be eligible to be assigned to an ACO in accordance 
with the two-step beneficiary assignment methodology in Sec.  425.402 
and Sec.  425.404. We also are finalizing the conforming change to 
Sec.  425.400 to reflect the addition of this new provision and 
additional

[[Page 32746]]

conforming changes to Sec.  425.400 to clarify that these revisions 
apply for purposes of benchmarking, preliminary prospective assignment 
(including quarterly updates which are in turn used to determine a 
sample of beneficiaries for purposes of assessing the ACO's quality 
performance), retrospective reconciliation, and prospective assignment.
3. Definition of Primary Care Services
a. Overview
    As discussed in the proposed rule (79 FR 72792), we currently 
define ``primary care services'' for purposes of the Shared Savings 
Program in Sec.  425.20 as the set of services identified by the 
following HCPCS/CPT codes: 99201 through 99215, 99304 through 99340, 
99341 through 99350, the Welcome to Medicare visit (G0402), and the 
annual wellness visits (G0438 and G0439). In addition, as we will 
discuss later in this section, we have established a crosswalk for 
these codes to certain revenue center codes used by FQHCs (prior to 
January 1, 2011) and RHCs so that their services can be included in the 
beneficiary assignment process.
    As we explained in the proposed rule (79 FR 72792), we established 
the current list of codes that constitute primary care services because 
of our belief that the listed codes represented a reasonable 
approximation of the kinds of services that are described by the 
statutory language at section 1899(c) of the Act, which refers to 
assignment of ``Medicare fee-for-service beneficiaries to an ACO based 
on their utilization of primary care services'' furnished by 
physicians. In addition, we selected this list to be largely consistent 
with the definition of ``primary care services'' in section 5501 of the 
Affordable Care Act, which establishes the Primary Care Incentive 
Payment Program (PCIP). The PCIP was established to expand access to 
primary care services, and thus its definition of ``primary care 
services'' provides a compelling precedent for adopting a similar list 
of codes for purposes of the beneficiary assignment process under the 
Shared Savings Program. We slightly expanded the list of codes found in 
section 5501 of the Affordable Care Act to include the Welcome to 
Medicare visit (HCPCS code G0402) and the annual wellness visits (HCPCS 
codes G0438 and G0439) as primary care services since these codes 
clearly represent primary care services frequently received by Medicare 
beneficiaries, and in the absence of the special G codes the services 
provided during these visits would be described by one or more of the 
regular office visit codes that are included in the list under section 
5501 of the Affordable Care Act.
b. Proposed Revisions
    As discussed in detail in the proposed rule (79 FR 72792 through 
72794), we proposed to update the definition of primary care services 
at Sec.  425.20 to include the transitional care management (TCM) codes 
(CPT codes 99495 and 99496) and the chronic care management (CCM) code 
HCPCS code GXXX1, which was replaced by CPT 99490 in the 2015 Medicare 
Physician Fee Schedule final rule. (See discussion at 79 FR 67716). We 
also proposed to include these codes in our beneficiary assignment 
methodology under Sec.  425.402.
    Specifically, effective January 1, 2013, Medicare pays for two CPT 
codes (99495 and 99496) that are used to report physician or qualifying 
non-physician practitioner TCM services for a patient following a 
patient's discharge to a community setting from an inpatient hospital 
or skilled nursing facility (SNF) or from outpatient observation status 
in a hospital or partial hospitalization. These codes were established 
to pay a patient's physician or practitioner to coordinate the 
patient's care in the 30 days following a hospital or SNF stay.
    In addition, effective January 1, 2015, Medicare pays for CCM 
services (see 79 FR 67715 through 67728). CCM services generally 
include regular development and revision of a plan of care, 
communication with other treating health professionals, and medication 
management.
    Further, in order to promote flexibility for the Shared Savings 
Program and to allow the definition of primary care services used in 
the Shared Savings Program to respond more quickly to HCPCS/CPT coding 
changes made in the annual PFS rulemaking process, we proposed to make 
any future revisions to the definition of primary care service codes 
through the annual PFS rulemaking process. Accordingly, we also 
proposed to amend the definition of primary care services at Sec.  
425.20 to include additional codes that we designated as primary care 
services for purposes of the Shared Savings Program, including new 
HCPCS/CPT codes or revenue codes and any subsequently modified or 
replacement codes. We sought comments on these proposals.
    As discussed in detail in the proposed rule (79 FR 72792 through 
72793), we also welcomed comment from stakeholders on the implications 
of retaining certain evaluation and management (E&M) codes used for 
physician services furnished in SNFs and other nursing facility 
settings (CPT codes 99304 through 99318) in the definition of primary 
care services. As we noted in the proposed rule, in some cases, 
hospitalists that perform E&M services in SNFs have requested that 
these codes be dropped from the definition of primary care services so 
that their ACO participant TIN need not be exclusive to only one ACO 
based on the exclusivity policy established in the November 2011 final 
rule (76 FR 67810 through 67811). The requirement under Sec.  
425.306(b) that an ACO participant TIN be exclusive to a single ACO 
applies when the ACO participant TIN submits claims for primary care 
services that are considered in the assignment process. However, ACO 
participant TINs upon which beneficiary assignment is not dependent 
(that is, ACO participant TINs that do not submit claims for primary 
care services that are considered in the assignment process) are not 
required to be exclusive to a single ACO. We indicated in the proposed 
rule that we continued to believe that it is reasonable to conclude 
that services provided in SNFs with CPT codes 99304 through 99318 
represent basic E&M services that would ordinarily be provided in 
physician offices if the beneficiaries were not residing in nursing 
homes and should continue to be included in the definition of primary 
care services used for purposes of beneficiary assignment to an ACO 
participating in the Shared Savings Program.
    Finally, we sought comments as to whether there are any additional 
existing HCPCS/CPT codes that we should consider adding to the 
definition of primary care services in future rulemaking for purposes 
of assignment of beneficiaries to ACOs under the Shared Savings 
Program.
    Comment: Almost all commenters supported the proposal to include 
TCM and CCM in the definition of primary care, agreeing that the care 
coordination and care management services included under these codes 
are consistent with the delivery of primary care and will assist ACOs 
in lessening fragmentation and improving care coordination. A very 
small number of commenters opposed including these codes, suggesting 
that because they are new codes still untested in the market place, 
there could be unintended consequences, such as that there could be a 
propensity to double-pay for these services if attribution rules are 
not written properly since the possibility exists that beneficiaries 
may be seeing multiple providers in different locations. A commenter 
suggested there

[[Page 32747]]

should be a minimum of 1 year experience under the new codes available 
before they are used for assignment in the performance year. Another 
commenter believes that inclusion of CCM should be delayed until other 
concerns are addressed. For example, this commenter suggested that an 
ACO should be permitted to control utilization of CCM for its assigned 
beneficiaries, allowing an ACO to bill for CCM directly (assuming that 
all the requirements for billing the CCM code are met by the ACO) and 
superseding claims submitted by ACO providers/suppliers. A commenter 
pointed out that in the 2015 Medicare Physician Fee Schedule final 
rule, CMS opted to use CPT code 99490 for the CCM services instead of 
HCPCS code GXXX1.
    Response: For the reasons discussed in the proposed rule, we agree 
with commenters who believe that the care coordination and care 
management services included under these codes are consistent with the 
delivery of primary care and will assist ACOs in lessening 
fragmentation and improving care coordination. We agree that we should 
use CPT code 99490 for the Chronic Care Management (CCM) services 
instead of HCPCS code GXXX1. (See the discussion at 79 FR 67716). We do 
not believe it is necessary to allow for a transition period for ACOs 
and their ACO participants to gain experience with these codes before 
incorporating them into the assignment process. We believe the coding 
definitions and other criteria that have been developed by CPT and CMS 
will facilitate use of these codes by ACO participants. Further, we do 
not believe it is appropriate for ACOs to use these or any other codes 
as a way to control utilization by the ACO participants.
    Comment: A commenter recommended that emergency department visits 
count as primary care visits for purposes of assignment and that ACO 
participants should be encouraged to modify delivery of care in the ED 
to provide 24-hour access to care, but with a redesigned payment and 
delivery system that promotes primary care, meets the needs of rural 
communities and keeps costs down. Another commenter requested inclusion 
of inpatient E&M codes: Observation--99218-99220/Initial, 99224-99226/
Subsequent; Hospital Inpatient--99221- 99223/Initial, 99231-99233/
Subsequent; and Hospital Inpatient Consultation--99251-99255.
    Response: For the reasons we discussed in the initial Shared 
Savings Program final rule (76 FR 67853), we continue to believe that 
the services represented by these codes do not represent the kind of 
general evaluation and management of a patient that will constitute 
primary care. In addition, we will also note that these codes were not 
included in the definition of ``primary care services'' in section 5501 
of the Affordable Care Act. That section establishes an incentive 
program to expand access to primary care services, and thus the 
definition of ``primary care services'' under that program provides a 
compelling reason for adopting a similar definition and list of codes 
for purposes of the Shared Savings Program.
    Comment: A commenter requested clarification of how CMS would be 
modifying the ETA processes to reflect a change in coding policy under 
the Outpatient Hospital Prospective Payment System (OPPS) effective for 
services furnished on or after January 1, 2014.
    Response: Effective January 1, 2014, CPT codes 99201 through 99205 
and 99211 through 99215 are no longer recognized for payment under the 
OPPS. Under the OPPS, outpatient hospitals have been instructed to use 
HCPCS code G0493 and may no longer use 99201 through 99205 and 99211 
through 99215. (For example, see our Web site at https://www.cms.gov/Outreach-and-Education/Medicare-Learning-Network-MLN/MLNMattersArticles/downloads/MM8572.pdf, page 3). This coding change 
under OPPS affects our ETA operational processes under the Shared 
Savings Program. This new information about how clinic visits are 
billed under OPPS came to light after the issuance of the December 2014 
proposed rule. Therefore, we need to reconsider our ETA hospital-
related proposal and intend to address the issue in future rulemaking. 
We discuss the primary care codes we use for ETA hospitals in section 
II.E.5. of this final rule.
    Comment: Some commenters-- in response to the discussion in the 
proposed rule regarding including the codes for SNF visits, CPT codes 
99304 through 99318 in the definition of primary care services--
objected to inclusion of SNF visit codes because they believe a SNF is 
more of an extension of the inpatient setting rather than a component 
of the community based primary care setting. These commenters believe 
that ACOs are often inappropriately assigned patients who've had long 
SNF stays but would not otherwise be aligned to the ACO and with whom 
the ACO has no clinical contact after their SNF stay. Some commenters 
draw a distinction between the services represented by these codes when 
provided in two different places of service, POS 31 (SNF) and POS 32 
(NF). While the same CPT visit codes are used to describe these 
services in SNFs (POS 31) and NFs (POS 32), the patient population is 
arguably quite different. These commenters suggest excluding SNF visit 
codes furnished in POS 31 to relieve ACO participants that bill for the 
services of hospitalists from the requirement that they must be 
exclusive to a single ACO if their services are considered in 
assignment. Patients in SNFs (POS 31) are shorter stay patients who are 
receiving continued acute medical care and rehabilitative services. 
While their care may be coordinated during their time in the SNF, they 
are then transitioned back to the community. Patients in a SNF (POS 31) 
require more frequent practitioner visits--often from 1 to 3 times a 
week. In contrast, patients in NFs (POS 32) are almost always permanent 
residents and generally receive their primary care services in the 
facility for the duration of their life. Patients in NFs (POS 32) are 
usually seen every 30 to 60 days unless medical necessity dictates 
otherwise. Another commenter suggested that we should consider 
establishing separate CPT codes to distinguish between E&M services 
provided by SNFs vs other nursing facilities.
    Response: We appreciate receiving these suggestions on how we could 
create a method to exclude services billed for beneficiaries receiving 
Part A SNF care from the definition of ``primary care services'' by 
using POS 31 to identify such claims. We plan to consider this issue 
further and will discuss it in future rulemaking.
    Comment: A commenter requested that we establish a separate 
definition for ``beneficiary assignment services'' that will reflect 
the primary care services used to assign beneficiaries to ACOs under 
Sec.  425.20. In this way, CMS could satisfy the need to narrowly 
define ACO assignment while continuing to broaden the definition of 
``primary care'' in a manner consistent with a wide range of CMS' 
health reform efforts.
    Response: We do not believe that this revision is necessary. The 
definition of primary care services under Sec.  425.20 applies only to 
the Shared Savings Program and does not directly affect other CMS 
programs.
    Comment: A few commenters supported CMS's proposal to make any 
future revisions to the definition of primary care service codes 
through the annual PFS rulemaking process.
    Response: We believe such a process will provide CMS with 
flexibility to address any future appropriate revisions to the 
definition of primary care service

[[Page 32748]]

codes promptly. ACOs and other interested stakeholders will continue to 
have an opportunity as part of the annual PFS rulemaking to provide 
input before any revisions to the definition of primary care services 
are implemented.
    FINAL ACTION: We are finalizing our proposal to update the 
definition of primary care services at Sec.  425.20 to include both TCM 
codes (CPT codes 99495 and 99496), the CCM code (CPT code 99490), and 
to include these codes in our beneficiary assignment methodology under 
Sec.  425.402. Further, we are finalizing our proposal to amend Sec.  
425.20 to make any future revisions to the definition of primary care 
service codes through the annual PFS rulemaking process.
4. Consideration of Physician Specialties and Non-Physician 
Practitioners in the Assignment Process
a. Overview
    Primary care services can generally be defined based on the type of 
service provided, the type of provider specialty that provides the 
service, or both. As discussed in detail in the proposed rule (79 FR 
72794) our current assignment process simultaneously maintains the 
requirement to focus on primary care services in beneficiary 
assignment, while recognizing the necessary and appropriate role of 
specialists in providing primary care services, such as in areas with 
primary care physician shortages.
    Under Sec.  425.402, after identifying all patients who had a 
primary care service with a physician who is an ACO professional (and 
who are thus eligible for assignment to the ACO under the statutory 
requirement to base assignment on ``utilization of primary care 
services'' furnished by physicians), we employ a step-wise assignment 
process that occurs in the following two steps:
    Step 1: In this step, first we add up the allowed charges for 
primary care services billed by primary care physicians through the 
TINs of ACO participants in the ACO. Next, we add up the allowed 
charges for primary care services furnished by primary care physicians 
that are billed through other Medicare-enrolled TINs (or through a 
collection of ACO participant TINs in the case of another ACO). If the 
allowed charges for the services furnished by ACO participants are 
greater than the allowed charges for services furnished by the 
participants in any other ACO or by any non-ACO participating Medicare-
enrolled TIN, then the beneficiary is assigned to the ACO in the first 
step of the assignment process.
    Step 2: This step applies only for beneficiaries who have not 
received any primary care services from a primary care physician. We 
assign a beneficiary to an ACO in this step if the beneficiary received 
at least one primary care service from a physician participating in the 
ACO, and more primary care services (measured by Medicare allowed 
charges) from ACO professionals (physician regardless of specialty, NP, 
PA or clinical nurse specialist (CNS)) at the ACO than from ACO 
professionals in any other ACO or solo practice/group of practitioners 
identified by a Medicare-enrolled TIN or other unique identifier, as 
appropriate, that is unaffiliated with any ACO.
    Since publication of the November 2011 final rule (76 FR 67853 
through 67858), we have gained further experience with this assignment 
methodology. We have learned from its application for the first 400 
ACOs participating in the program that, for the total 7.1 million 
assigned beneficiaries, about 92 percent of the beneficiaries assigned 
to ACOs are assigned in step 1, with only about 8 percent of the 
beneficiaries being assigned in step 2. We have adopted a similar 
beneficiary assignment approach for some other programs, such as the 
PQRS Group Practice Reporting Option via the GPRO web interface (77 FR 
69195 through 69196) and the Value Modifier (VM) (79 FR 67790 and 79 FR 
67962).
    We continue to believe that the current step-wise assignment 
methodology generally provides a balance between maintaining a strong 
emphasis on primary care while ultimately allowing for assignment of 
beneficiaries on the basis of how they actually receive their primary 
care services. However, we proposed several revisions that we believe 
would improve the assignment methodology.
b. Proposed Revisions
(1) Including Primary Care Services Furnished by Non-Physician 
Practitioners in Step 1
    First, we proposed to include primary care services furnished by 
non-physician practitioners (NPs, PAs, and CNSs) in step 1 of the 
assignment methodology rather than only in step 2 as they are under the 
current process. We discussed the reasons for this proposal in detail 
in the proposed rule (79 FR 72795). In summary, including services 
furnished by NPs, PAs, and CNSs in determining the plurality of primary 
care services in step 1 of the assignment process may help ensure that 
beneficiaries are assigned to the ACO (or non-ACO entity) that is 
actually providing the plurality of primary care for that beneficiary 
and thus, should be responsible for managing the patient's overall 
care. We also noted that section 5501 of the Affordable Care Act 
defines a ``primary care practitioner'' as a physician who has a 
primary specialty designation of family medicine, internal medicine, 
geriatric medicine, or pediatric medicine or as a ``nurse practitioner, 
clinical nurse specialist, or physician assistant.'' Therefore, we 
believe that it would be appropriate to include these non-physician 
practitioners in step 1 of the assignment process in order to better 
align the Shared Savings Program assignment methodology with the 
primary care emphasis in other provisions of the Affordable Care Act. 
Further, we believe that including these non-physician practitioners in 
step 1 would be supported by the statute as long as we continue to 
first identify all patients that have received a primary care service 
from a physician who is an ACO professional and who are thus eligible 
for assignment to the ACO under the statutory requirement to base 
assignment on ``utilization of primary care services'' furnished by 
physicians. Accordingly, we proposed to amend the assignment 
methodology to include primary care services furnished by NPs, PAs, and 
CNSs in step 1 of the assignment process. Specifically, we proposed to 
revise Sec.  425.402(a) to include NPs, PAs, and CNSs as ACO 
professionals that would be considered in step 1 of the assignment 
process. We sought comments on our proposal.
    However, we also noted that there could be some concerns about 
adding NPs, PAs, and CNSs to step 1 of the assignment methodology. 
Unlike for physicians, the CMS self-reported specialty codes reported 
on claims for NPs, PAs, and CNSs are not further broken down by 
specific specialty areas. Therefore, the codes do not allow 
practitioners to indicate whether they are typically functioning as 
primary care providers or as specialists. We expressed concern that by 
considering services furnished by NPs, PAs, and CNSs in step 1, we may 
ultimately assign some beneficiaries to an ACO inappropriately based on 
specialty care over true primary care. Thus, while we invited comments 
on our proposal to include primary care services furnished by NPs, PAs, 
and CNSs in step 1 of the assignment methodology, we also requested 
comment on the extent to which these non-physician practitioners 
provide non-primary care services and whether there are ways to 
distinguish between primary care services and non-

[[Page 32749]]

primary care services billed by these non-physician practitioners.
    Comment: Most commenters supported this proposal, at least in 
concept, agreeing that many NPs, PAs, and CNSs are engaged in the 
delivery of primary care and their inclusion within Step 1 can provide 
for a more accurate primary care-based assignment. However, many of 
these commenters also pointed out that some NPs, PAs, and CNSs furnish 
specialty care and not primary care. Therefore, these commenters 
suggested that CMS should take additional steps to assure that the NPs, 
PAs, and CNSs considered under Step 1 are truly primary care providers 
in order to better assure accurate assignment of beneficiaries to ACOs. 
These commenters provided a wide range of suggestions. These 
suggestions included developing new, more detailed specialty codes for 
NPs, PAs, and CNSs: Implementing a primary care attestation process for 
non-physician practitioners that would be somewhat similar to the 
attestation process that is currently used for physicians that furnish 
primary care services in FQHCs/RHCs; implementing such a primary care 
attestation process for all ACO professionals including both physicians 
and non-physician practitioners; revising the CMS PECOS enrollment 
system to require non-physician practitioners to indicate whether they 
provide primary care; analyzing claims data to determine whether a 
relationship exists between a non-physician practitioner and a primary 
care physician; using service code modifiers to clearly identify the 
clinician performing a specific service; and giving each ACO the option 
to include or not include non-physician practitioners for their 
beneficiary assignments, among other suggestions.
    Some commenters supporting the proposal acknowledged that NPs are 
not classified in specialty codes by CMS, but believe this is unlikely 
to be a serious problem. For example, a commenter indicated that recent 
surveys found that, of the 205,000 NPs in the U.S., more than 87 
percent are prepared in primary care and more than 75 percent practice 
in at least one primary care site. Another commenter stated that NPs 
are prepared and certified in the primary care specialties with 
basically the same frameworks as physicians: Family, adult (internal 
medicine) and gerontology, and that women's health NPs are focused on 
primary care. Another commenter noted that there exists the same 
inability to discern whether physicians are actually providing primary 
care services versus non-primary care services. These commenters 
requested that CMS not create barriers for one group of ACO 
professionals with requirements that are not placed on others.
    A few commenters opposed including non-physician practitioners in 
step 1 because Medicare claims data is not able to distinguish between 
their primary care and specialty care. A commenter opposed assigning a 
beneficiary to an ACO based solely on services delivered by a non-
physician ACO professional.
    Response: We agree with commenters who believe including NPs, PAs, 
and CNSs in step 1 of the assignment methodology will further 
strengthen our current assignment process. Including services furnished 
by NPs, PAs, and CNSs in determining the plurality of primary care 
services in step 1 of the assignment process may help ensure that 
beneficiaries are assigned to the ACO (or non-ACO entity) that is 
actually providing the plurality of primary care for that beneficiary 
and thus, should be responsible for managing the patient's overall 
care. In this way, all primary care services furnished by the entire 
primary care physician and practitioner team (including NPs, PAs, and 
CNSs working in clinical teams in collaboration with or under the 
supervision of physicians), will be considered for purposes of 
determining where a beneficiary received the plurality of primary care 
services under step 1 of the assignment methodology.
    At this time, we will not establish special procedures to determine 
whether NPs, PAs, and CNSs are actually performing primary care and not 
specialty care. We agree with commenters who indicated that most non-
physician practitioners have been prepared in primary care or provide 
services in primary care settings or both, and that we should not 
unnecessarily create barriers for one group of ACO professionals with 
requirements that are not placed on others. Furthermore, we note that 
any non-physician practitioner services furnished and billed as 
``incident to'' the services of a specialist physician will be billed 
under the specialist physician's NPI. Therefore, such ``incident to'' 
non-physician services will be excluded from Step 1 of the assignment 
process. However, we will continue to monitor this issue.
    Also we further clarify that beneficiaries will not be assigned to 
ACOs solely based on services provided by non-physician practitioners. 
We will continue under Sec.  425.402 to first identify all patients who 
have received a primary care service from a physician who is an ACO 
professional and who are thus eligible for assignment to the ACO under 
the statutory requirement to base assignment on ``utilization of 
primary care services'' furnished by physicians.
    Comment: A commenter believes that CMS should allow primary care 
physicians to identify collaborating allied professionals, such as NPs, 
to act ``on their behalf,'' so those visits would not count against 
them in the attribution process. The commenter stated that this should 
be allowed even if the collaborating allied professional is under an 
entity with a different Medicare-enrolled TIN.
    Response: We disagree. Primary care services furnished by 
physicians and non-physicians are all included in the assignment 
algorithm if they are billed under the TIN of an ACO participant. We do 
not believe it would be appropriate under the beneficiary assignment 
process to include such primary care services billed under a TIN that 
has not agreed to participate in the ACO.
    Comment: A commenter encouraged CMS to assign Medicare 
beneficiaries directly to ACOs on the basis of primary care services 
provided by NPs and PAs, only when such services are provided in a 
manner consistent with state law requirements, including requirements 
related to physician supervision.
    Response: We do not believe it is necessary to establish such 
additional criteria for the Shared Savings Program. Primary care 
services provided by NPs and PAs are only payable under the PFS when 
such services are provided in a manner consistent with state law 
requirements, including requirements related to physician supervision.
    FINAL ACTION: We are finalizing our proposal to amend Sec.  
425.402(a) to include claims for primary care services furnished by 
NPs, PAs, and CNSs under step 1 of the assignment process, after having 
identified beneficiaries who received at least one primary care service 
by a physician participating in the ACO. The current methodology will 
continue to be used for PY 2015, including reconciliation, while the 
new methodology will be used for operations related to PY 2016. Thus, 
we are retaining the rules for the current methodology under Sec.  
425.402(a) and the methodology that will be applicable for performance 
years beginning in 2016 has been designated under Sec.  425.402(b).
(2) Excluding Services Provided by Certain Physician Specialties From 
Step 2
    Second, we proposed to exclude services provided by certain 
physician specialties from step 2 of the assignment process. We made 
this proposal partly to address stakeholder concerns that by

[[Page 32750]]

including such claims in step 2 of the assignment process, the ACO 
participant TINs that submit claims for services furnished by certain 
specialists are limited to participating in only one ACO because of the 
exclusivity requirement under Sec.  425.306(b) of the regulations. This 
requirement is discussed in the November 2011 final rule (76 FR 67810 
through 67811). Specifically, some stakeholders have stated that 
certain specialties that bill for some of the E&M services designated 
as primary care services under Sec.  425.20 do not actually perform 
primary care services. We agree that although some specialties such as 
surgeons and certain others bill Medicare for some of the Shared 
Savings Program ``primary care'' codes, in actual practice the services 
such specialists perform when reporting these codes do not typically 
represent primary care services because the definitions of HCPCS/CPT 
codes for office visits and most other E&M services are not based on 
whether primary care is provided as part of the service. Accordingly, 
we agree that to identify primary care service claims more accurately, 
the CPT codes for primary care services should be paired with the 
specialties of the practitioners who render those services and that it 
would be appropriate to exclude claims for services provided by certain 
physician specialties from the beneficiary assignment process.
    Therefore, we proposed to exclude services provided by certain CMS 
physician specialties from the beneficiary assignment process. The net 
effect of this proposal would be to exclude certain claims from 
determining the ACO's assigned population. The proposed lists of 
physician specialties that would be included in and excluded from the 
assignment process (provided in Tables 1 through 4 of the proposed rule 
and also included in Tables 2 through 5 in this final rule) were based 
on recommendations by CMS medical officers knowledgeable about the 
services typically performed by physicians and non-physician 
practitioners. However, we note that given the many requests and 
comments from specialists and specialty societies asking to have their 
services included in the assignment methodology that we received during 
the original rulemaking to establish the Shared Savings Program, in the 
proposed rule we attempted to limit the list of physician specialty 
types that would be excluded from the assignment process to those 
physician specialties that would very rarely, if ever, provide primary 
care to beneficiaries. As a general rule, for example, we expected that 
physicians with an internal medicine subspecialty such as nephrology, 
oncology, rheumatology, endocrinology, pulmonology, and cardiology 
would frequently provide primary care to their patients. Especially for 
beneficiaries with certain chronic conditions (for example, certain 
heart conditions, cancer or diabetes) but who are otherwise healthy, we 
expect that these specialist physicians often take the role of primary 
care physicians in the overall treatment of the beneficiaries if there 
is no family practitioner or other primary care physician serving in 
that role. In contrast, we expect that most surgeons, radiologists, and 
some other types of specialists would not typically provide a 
significant amount of primary care, if any, and therefore we proposed 
to exclude their services from the assignment process.
    We proposed to amend Sec.  425.402 by adding a new paragraph (b) to 
identify the physician specialty designations that would be considered 
in step 2 of the assignment process. We also proposed to modify the 
exclusivity requirement at Sec.  425.306(b) to clarify how the 
exclusivity rules would be affected by this proposal to exclude certain 
specialists from step 2 of the assignment methodology. Specifically, we 
proposed to revise Sec.  425.306(b) to indicate that each ACO 
participant who submits claims for primary care services used to 
determine the ACO's assigned population must be exclusive to one Shared 
Savings Program ACO.
    In addition, we proposed to make several conforming and technical 
changes to Sec.  425.402(a). First, we proposed a modification to 
provide that for purposes of determining whether a beneficiary has 
received a primary care service from a physician who is an ACO 
professional, we would consider only services furnished by primary care 
physicians or physicians with a specialty listed in new paragraph (b). 
Secondly, we proposed to make modifications to conform with changes in 
the definitions of ``assignment,'' ``ACO professional,'' and ``ACO 
provider/supplier'' in addition to our proposal to adopt a prospective 
assignment approach under proposed Track 3, which is discussed in 
section II.F. of this final rule. We sought comment on these proposals. 
We received a high volume of comments on this proposal.
    Comment: Commenters agreed with the proposal to remove from the 
assignment process those claims submitted by physician specialties (for 
example, surgeons) that, despite using the general purpose CPT and 
HCPCS codes defined as ``primary care'' under current regulations, do 
not actually perform primary care services. Some commenters suggested 
specialty specific revisions to CMS' proposal. However, in a few cases 
commenters were not in agreement about whether specific specialties 
should be included in step 2 or not. For example, a few commenters 
supported including physical medicine and rehabilitation, rheumatology, 
and OB/GYN whereas a few other commenters requested they be removed. A 
number of commenters suggested we modify our proposals based on input 
from each individual specialty organization. Other commenters requested 
revisions to CMS' proposals regarding specialties to be included in 
step 2 of the beneficiary assignment process are as follows:
    A commenter urged CMS to include pediatric medicine (specialty code 
37) as an explicit part of the beneficiary assignment step 1 rather 
than step 2. The commenter noted that many elements of the framework 
that CMS constructs for Medicare ACOs will guide future proposals for 
Medicaid ACOs, as well as the design of similar plans by commercial 
payers or large self-insured groups.
    Commenters requested that psychiatrists (specialty codes 26, 27, 
79, and 86) be included in step 2 assignment. These commenters 
indicated psychiatry is frequently the point of first contact for 
persons with undiagnosed conditions and that there are a number of 
important reasons why most persons with serious mental illness would 
rather receive their care from their psychiatrist rather than primary 
care physicians.
    Other commenters requested that CMS include specialty code 12 
(osteopathic manipulative medicine) in step 2 because osteopaths 
frequently provide primary care services. These commenters also 
requested that CMS update this specialty code name in Table 4 of this 
final rule.
    A commenter urged CMS to exclude hospice and palliative medicine 
(specialty code 17) from step 2 of the beneficiary assignment process 
in the final rule. The commenter that while many hospice and palliative 
care physicians have formal relationships with multiple health systems 
in order to meet a current and growing demand for palliative care and 
hospice services, the exclusivity requirement makes it difficult for 
these physicians to easily participate in multiple ACOs.
    A commenter representing specialty code 03 requested exclusion of 
specialty code 03 from step 2, indicating that allergy and immunology 
physicians are

[[Page 32751]]

not primary care physicians for the vast majority of patients they 
serve.
    A commenter requested that infectious disease physicians (specialty 
code 44) be excluded from step 2 of the beneficiary assignment process 
in the final rule. The commenter stated these specialists would not 
typically provide primary care and that these specialists should be 
free to participate in multiple ACOs as, often times, they visit 
multiple hospitals and their clinical practice can span wide 
geographies. Other commenters requested that gastroenterology 
(specialty code 10), rheumatology (specialty code 66) and 
interventional cardiology (C3) be excluded from step 2, indicating that 
these specialists typically provide specialty care and would not 
routinely provide primary care.
    Response: Our intent under the proposal was to exclude primary care 
service codes submitted by physician specialties that will very rarely, 
if ever, provide true primary care to beneficiaries. We continue to 
believe that the exclusion of such claims from determining the ACO's 
assigned population will result in more accurately assigning 
beneficiaries to ACOs based on where beneficiaries receive a plurality 
of true primary care services. However, after reviewing comments, we 
have determined that we need to modify our proposed policy. 
Specifically, we agree with the commenters who suggested that we 
consider the recommendations submitted by individual specialty 
organizations to revise the specialties to be included in step 2, 
because in general specialty organizations are knowledgeable about the 
types of services that the specialists provide, as well as the typical 
types of organizational relationships that such specialists have 
established. Therefore, if we received support for a specialty specific 
proposal listed in Table 2 or 3 of the proposed rule (79 FR 72796 and 
72797), or at least received no objection from an affected specialty 
organization, then we are finalizing our specialty proposal. If a 
specialty society requested a revision to our proposals listed in 
Tables 1 through 4 of the proposed rule (79 FR 72796 and 72797), then 
we have generally accepted their recommendation when feasible. 
Responses to the specialty specific comments requesting revisions to 
our proposals are as follows:
     We agree with comments that recommended that it would be 
appropriate to include pediatric medicine in step 1 assignment. We 
agree that pediatricians typically provide primary care for their 
patients. While very few children are Medicare beneficiaries, we also 
believe it will be appropriate to include these physicians in step 1 of 
the assignment process in order to better align the Shared Savings 
Program assignment methodology with the primary care emphasis in other 
provisions of the Affordable Care Act; section 5501 of the Affordable 
Care Act includes pediatric medicine in the definition of ``primary 
care practitioner.''
     Because we agree that osteopaths frequently provide 
primary care services, we agreed with commenters that specialty code 12 
(osteopathic manipulative medicine) should be included in Step 2 
assignment. As requested, we have also corrected the specialty name in 
this final rule for specialty code 12.
     We agree with commenters that psychiatry and its 
subspecialties (CMS specialty codes 26, 27, 79, and 86) often provide a 
substantial proportion of primary care for certain patients and 
therefore should be included in Step 2 assignment. We agree that 
psychiatry is frequently the point of first contact for persons with 
undiagnosed conditions and that those persons with serious mental 
illness or substance abuse disorders or both may prefer to receive 
their total care from their psychiatrist rather than from primary care 
physicians.
     We agree with commenters who requested that the following 
specialties be added to the list of specialties to be excluded from 
step 2 assignment: allergy and immunology (specialty code 03); 
gastroenterology (specialty code 10); infectious diseases (specialty 
code 44); rheumatology (specialty code 66); and interventional 
cardiology (C3). We agree that these specialists typically provide 
specialty care and do not routinely provide primary care for the vast 
majority of patients they serve. Despite their use of the same office 
visit codes that are included in the definition of primary care 
services under Sec.  425.20, we agree with the commenters that these 
specialties do not routinely furnish primary care and furthermore, are 
not seen by patients as serving in a primary care role.
     We agree with commenters who requested that hospice and 
palliative medicine physicians (specialty code 17) should also be 
excluded from step 2 assignment. We note that certain physician 
services furnished to beneficiaries receiving services under the 
hospice benefit are paid through the Part A Hospice benefit and are not 
paid under the PFS. (See, for example, Medicare Claims Processing 
Manual, Chapter 11--Processing Hospice Claims). This could make it 
difficult to determine for such beneficiaries, based on analysis of PFS 
claims, whether an ACO is actually providing the plurality of primary 
care service and managing the patient's overall care. At this time, we 
agree with commenters that hospice and palliative medicine physicians 
(specialty code 17) should be excluded from step 2. We emphasize that 
we are not excluding beneficiaries in Hospice from assignment to ACOs. 
However, we will not use services furnished by specialty code 17 to 
help determine beneficiary assignment. We believe this approach will 
still provide an incentive for ACOs to work with physicians furnishing 
palliative care and hospice care. We will consider these issues further 
and we may request additional comments in a future rulemaking on ways 
to assign beneficiaries receiving services under the Hospice benefit to 
the ACO or other entity that is actually providing primary care and 
managing the patient's overall care.
    Therefore, we are finalizing our proposal to exclude services 
provided by certain physician specialties with the exception of these 
modifications. We believe the resulting step 2 exclusion list is 
limited to those physician specialties that will rarely, if ever, 
provide primary care to beneficiaries. We do not expect that the 
exclusion of these specialties from step 2 will have a significant 
impact on the overall number of beneficiaries assigned to each ACO 
because we believe the specialties that we are excluding from the 
assignment methodology provide a relatively modest number of services 
under the codes included in the definition of primary care services or 
are not typically the only physician who a beneficiary sees. For 
example, patients who are furnished consultations by a thoracic surgeon 
will typically also concurrently receive care from a primary care 
physician, cardiologist or other medical specialist.
    The primary benefit of this final policy is that it will help 
correctly assign beneficiaries to the ACO or other entity that is 
actually providing primary care and managing the patient's overall 
care. Otherwise, for example, a beneficiary could inadvertently be 
assigned to an ACO based on services furnished by a surgeon who had not 
provided primary care but had provided a number of consultations for a 
specific clinical condition. Another important benefit of this policy 
is that any ACO participants who submit claims solely for services 
performed by the categories of specialists that we are excluding from 
the assignment process will have greater flexibility to participate in 
more than

[[Page 32752]]

one ACO. This could especially be the case for small physician 
practices that only submit claims for specialty services. Allowing such 
ACO participants who are composed solely of excluded specialists to 
participate in more than one ACO will support our goal of facilitating 
competition among ACOs by increasing the number of specialists who can 
participate in more than one ACO. ACO participant TINs that submit 
claims for primary care services that are used in our assignment 
methodology must continue to be exclusive to one Shared Savings Program 
ACO for purposes of beneficiary assignment.
    Comment: A few commenters believe that CMS has applied assignment 
exclusivity more broadly than we had indicated in the 2011 final rule, 
and that we have effectively precluded any practice, regardless of 
specialty, that bills for E&M services from full-fledged participation 
in more than one ACO. Another commenter requested that previously 
issued guidance on how Medicare enrolled TINs could join with multiple 
ACOs as ``other entities'', instead of as exclusive ACO participants, 
be formalized to ease ACOs' reservations about entering into shared 
savings contracts with ``other entities.'' Specifically, the commenter 
urged CMS to formalize the principle that such other entities that are 
not ACO participants or ACO providers/suppliers may share in an ACO's 
savings if the arrangement advances the ACO's goals of increased care 
coordination, improved quality, and more efficient care delivery. A 
commenter requested that CMS provide clarity on how specialists that 
are excluded from the ACO beneficiary assignment process can 
participate in multiple ACOs and how we will ensure that administrative 
errors are avoided. The commenter is concerned that solo practitioners 
and single specialty practices will encounter problems if it is 
discovered that their TINs are associated with multiple ACOs.
    Response: We have been consistent in our application of the 
requirement that ACO participants that submit claims for primary care 
services that are considered in the assignment methodology must be 
exclusive to a single ACO. We are finalizing our proposed changes to 
Sec.  425.306(b) to clarify that each ACO participant who submits 
claims for primary care services used to determine the ACO's assigned 
population must be exclusive to one Shared Savings Program ACO. 
Specifically, under Sec.  425.306(b), the requirement that an ACO 
participant must be exclusive to a single ACO applies whenever the 
ACO's beneficiary assignment is dependent on that TIN, or in other 
words, when the primary care service claims submitted by the ACO 
participant are used to determine the ACO's assigned population. The 
application of the exclusivity requirement to an ACO participant is not 
affected by whether or not a FFS beneficiary for whom an ACO 
participant has submitted claims for primary care services is 
ultimately assigned to the ACO. Retrospective reconciliation occurs at 
the end of the performance year, so an ACO participant will not know 
with certainty whether it has to be exclusive to a single ACO during a 
particular performance year if the requirement were dependent on which 
beneficiaries ultimately got assigned to the ACO. Rather, an ACO 
participant that submits claims to Medicare for primary care services 
must be exclusive to a single ACO because the claims for primary care 
services submitted by the ACO participant are used to determine 
beneficiary assignment to the ACO. Additionally, the exclusivity 
requirement is not affected by whether or not the primary care services 
for which the ACO participant submits claims are services furnished by 
primary care physicians, specialist physicians, or NPs, PAs, and CNSs. 
Furthermore, this exclusivity requirement applies only to the ACO 
participant TIN and not to individual practitioners, and only for 
purposes of assignment. For example, if a two person group submitted 
claims for services furnished by a physician specialist excluded from 
assignment and also submitted claims for primary care services 
furnished by a PA, then this group will still need to be exclusive to 
one ACO since the group's claims are being used for assignment. 
Individual practitioners are free to participate in multiple ACOs, 
provided they are billing under a different Medicare-enrolled TIN for 
each ACO in which they participate. (See 76 FR 67810 through 67811). 
For example, there may be practitioners who work in multiple settings 
and bill Medicare for primary care services through several different 
TINs, depending on the setting. If each of these TINs represents an ACO 
participant in a different ACO, then the practitioner will be an ACO 
professional in more than one ACO.
    Previously, we also issued guidance on how Medicare-enrolled TINs 
could join with multiple ACOs as ``other entities'' (see FAQ numbers 8 
through 13 at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/sharedsavingsprogram/FAQ.html#ACO_Participant_TIN_Exclusivity_and_Other_Entities). ``Other 
entities'' do not appear on the certified list of ACO participants and 
they are not used for program operations such as assignment. Therefore, 
they are not required to be exclusive to a single Shared Savings 
Program ACO. Entities that are not ACO participants or ACO providers/
suppliers may share in an ACO's savings if the arrangement advances the 
ACO's goals of increased care coordination, improved quality, and more 
efficient care delivery. ACOs and ACO participants negotiate these 
arrangements individually. Although we are not providing additional 
guidance in this final rule regarding such other entities, we will 
continue to review this issue and intend to develop additional 
educational material to address specific questions raised as needed.
    Comment: A commenter stated that assignment of beneficiaries to an 
ACO violates the beneficiary's freedom of choice of provider. A few 
other commenters recommended that CMS clearly explain to beneficiaries 
that alignment (that is, assignment) to an ACO does not alter a 
beneficiary's Medicare rights or consumer protections, including the 
freedom to choose a Medicare-enrolled provider that is outside the ACO.
    Response: As noted previously, the statute requires the Secretary 
to determine an appropriate method to assign beneficiaries to ACOs on 
the basis of primary care services furnished to them by physicians. The 
term ``assignment'' for purposes of the Shared Savings Program in no 
way implies any limits, restrictions, or diminishment of the rights of 
Medicare FFS beneficiaries to exercise freedom of choice in the 
physicians and other health care providers and suppliers from whom they 
receive their services. Likewise, the requirement that ACO participants 
that furnish primary care services used for assignment must be 
exclusive to a single ACO does not in any way imply that beneficiaries 
are locked into receiving services or referrals from specific ACO 
providers/suppliers. This point is also emphasized in educational 
materials for ACOs and beneficiaries.
    Comment: A number of commenters suggested a very wide variety of 
alternative beneficiary assignment approaches for CMS to consider that 
would allow for ACO and provider choice. Some commenters suggested that 
CMS create a process by which each individual ACO could specifically 
identify the specialty/subspecialty physicians to include in its 
beneficiary assignment. A commenter suggested a different approach to 
determining the

[[Page 32753]]

inclusion and exclusion of certain providers in which we would 
delineate new criteria that more accurately pinpoint high cost, high 
risk, high need patients for whom continuity with certain providers is 
important. In the spirit of beneficiary empowerment and to support the 
concept of continuity of care, a commenter suggested that CMS should 
consider implementing a way for beneficiaries to affirm up front, that 
is to attest, the individual they believe to be ``their doctor.'' This 
would not limit patients from exercising provider choice going forward, 
but would allow patients to influence at least some part of patient 
attribution to the extent they have a relationship that is important to 
them.
    A few other commenters suggested that assignment should be based on 
an alternative precedence or a weighting of the specific services 
included within the definition of primary care services. For example, a 
commenter suggested the first tier assignment should be with the use of 
the welcome to Medicare visit (G0402), the initial wellness exam 
(G0438), subsequent wellness exam (G0439), the CCM codes (99490) and 
TCM codes (99495 and 99496). Another the commenter suggested that 
assignment should be based on the number of ``touches'' the ACO has 
with the beneficiary which would outweigh the cumulative cost of 
services (that is, allowed charges) as the methodology for determining 
the plurality of primary care services for assignment purposes. The 
commenter indicated commercial payers have developed an ACO attribution 
methodology with which CMS should consider aligning, where the 
preponderance of care services (not necessarily cumulative cost) is 
used to assign patients.
    Response: We appreciate these suggestions. However, in some cases, 
we do not believe that these suggestions are operationally feasible as 
it is not possible to implement the new processes that would be 
necessary to allow for individual ACO or provider choice or both at 
this time. We believe it would be burdensome on both ACOs and CMS to 
collect and maintain this information. Also, we have gained experience 
with our current method in the Physician Group Practice Demonstration, 
where it was well accepted (see https://www.cms.gov/Medicare/Demonstration-Projects/DemoProjectsEvalRpts/Medicare-Demonstrations-Items/CMS1198992.html). Furthermore, we have adopted a similar 
beneficiary assignment approach for some other major programs, 
including the PQRS Group Practice Reporting Option via the GPRO web 
interface (77 FR 69195 through 69196) and the Value Modifier (VM) (79 
FR 67790 and 79 FR 67962). In addition, the effect of these alternative 
approaches on ACOs, ACO participants, and ACO providers/suppliers is 
uncertain. However, we note that we plan for future rulemaking to allow 
for a method to incorporate beneficiary attestation into the assignment 
methodology as described in section II.F.7.b.(1). of this final rule.
    We believe the revisions to the assignment methodology that we are 
finalizing in this rule will result in more accurate assignment of 
beneficiaries to ACOs based on where beneficiaries receive the 
plurality of true primary care services, while continuing to recognize 
that in some cases specialist physicians often take the role of primary 
care physicians in the overall treatment of the beneficiaries if there 
is no primary care physician or non-physician practitioner serving in 
that role.
    FINAL ACTION: We are modifying our proposal to exclude services 
provided by certain physician specialties based on public comment, as 
follows:
     To include pediatric medicine (specialty code 37) in step 
1 assignment.
     To include osteopathic manipulative medicine (specialty 
code 12) and psychiatry specialties (specialty codes 26, 27, 79, 86) in 
step 2 assignment.
     To exclude allergy and immunology (specialty code 03), 
gastroenterology (specialty code 10), hospice and palliative medicine 
(specialty code 17), infectious diseases (specialty code 44), 
rheumatology (specialty code 66), and interventional cardiology (C3) 
from step 2 assignment.
    More specifically, the following four tables display the specific 
CMS physician specialty codes that are now included and excluded for 
beneficiary assignment purposes under the Shared Savings Program.
     Table 2 of this final rule shows the CMS physician 
specialty codes that are included in step 1 under the final policy.
     Table 3 of this final rule shows the CMS specialty codes 
for NPs, PAs, and CNSs that are included in beneficiary assignment step 
1 under the final policy.
     Table 4 of this final rule lists the physician specialties 
that are included in step 2 under the final policy.
     Table 5 of this final rule lists the physician specialties 
that are excluded from the beneficiary assignment methodology under 
step 2 under the final policy. Services furnished by these physician 
specialties are also excluded for purposes of determining if a 
beneficiary has received a primary care service from a physician who is 
an ACO professional, which under Sec.  425.402(a) is a precondition for 
assignment to an ACO.

         Table 2--Specialty Codes Included in Assignment Step 1
------------------------------------------------------------------------
                   Code                            Specialty name
------------------------------------------------------------------------
01........................................  General Practice.
08........................................  Family Practice.
11........................................  Internal Medicine.
37........................................  Pediatric Medicine.
38........................................  Geriatric Medicine.
------------------------------------------------------------------------


Table 3--CMS Non-Physician Specialty Codes Included in Assignment Step 1
------------------------------------------------------------------------
                   Code                            Specialty name
------------------------------------------------------------------------
50........................................  Nurse practitioner.
89........................................  Clinical nurse specialist.
97........................................  Physician assistant.
------------------------------------------------------------------------


    Table 4--Physician Specialty Codes-Included in Assignment Step 2
------------------------------------------------------------------------
                   Code                            Specialty name
------------------------------------------------------------------------
06........................................  Cardiology.
12........................................  Osteopathic manipulative
                                             medicine.
13........................................  Neurology.
16........................................  Obstetrics/gynecology.
23........................................  Sports medicine.
25........................................  Physical medicine and
                                             rehabilitation.
26........................................  Psychiatry.
27........................................  Geriatric psychiatry.
29........................................  Pulmonary disease.
39........................................  Nephrology.
46........................................  Endocrinology.
70........................................  Multispecialty clinic or
                                             group practice.
79........................................  Addiction medicine.
82........................................  Hematology.
83........................................  Hematology/oncology.
84........................................  Preventive medicine.
86........................................  Neuro-psychiatry.
90........................................  Medical oncology.
98........................................  Gynecology/oncology.
------------------------------------------------------------------------


   Table 5--Physician Specialty Codes Excluded From Assignment Step 2
------------------------------------------------------------------------
                   Code                            Specialty name
------------------------------------------------------------------------
02........................................  General surgery.
03........................................  Allergy/immunology.
04........................................  Otolaryngology.
05........................................  Anesthesiology.
07........................................  Dermatology.
09........................................  Interventional pain
                                             management.
10........................................  Gastroenterology.
14........................................  Neurosurgery.

[[Page 32754]]

 
17........................................  Hospice and Palliative Care.
18........................................  Ophthalmology.
20........................................  Orthopedic surgery.
21........................................  Cardiac electrophysiology.
22........................................  Pathology.
24........................................  Plastic and reconstructive
                                             surgery.
28........................................  Colorectal surgery.
30........................................  Diagnostic radiology.
33........................................  Thoracic surgery.
34........................................  Urology.
36........................................  Nuclear medicine.
40........................................  Hand surgery.
44........................................  Infectious disease.
66........................................  Rheumatology.
72........................................  Pain management.
76........................................  Peripheral vascular disease.
77........................................  Vascular surgery.
78........................................  Cardiac surgery.
81........................................  Critical care
                                             (intensivists).
85........................................  Maxillofacial surgery.
91........................................  Surgical oncology.
92........................................  Radiation oncology.
93........................................  Emergency medicine.
94........................................  Interventional radiology.
99........................................  Unknown physician specialty.
C0........................................  Sleep medicine.
C3........................................  Interventional Cardiology.
------------------------------------------------------------------------

    We are finalizing our proposal to amend Sec.  425.402 by adding a 
new paragraph (c) to identify the physician specialty designations that 
will be considered in step 2 of the assignment process, with the 
modifications noted previously. We are also finalizing the proposed 
modification to the exclusivity requirement at Sec.  425.306(b) to 
clarify how the exclusivity rules will be affected by our final policy 
of excluding certain specialists from step 2 of the assignment 
methodology. Specifically, we are revising Sec.  425.306(b) to clarify 
that each ACO participant who submits claims for primary care services 
used to determine the ACO's assigned population must be exclusive to 
one Shared Savings Program ACO.
    The current assignment methodology will continue to be used for PY 
2015, including the final retrospective reconciliation which will occur 
in mid-2016, while the new methodology will be used for operations 
related to PY 2016, including during application review for ACOs that 
are applying or renewing for a 2016 start date. Thus, we have retained 
the rules for the current methodology under Sec.  425.402(a) and the 
methodology that will be applicable for performance years beginning in 
2016 has been designated under Sec.  425.402(b) and (c). We did not 
receive any comments that directly addressed our proposal to make 
several conforming and technical changes to Sec.  425.402(a), and we 
are finalizing them with modifications to accommodate the revisions 
necessary to retain the current assignment methodology for PY 2015. 
Therefore, we clarify that the conforming and technical changes are 
reflected in Sec. Sec.  425.402(a) and (b).
(3) Other Assignment Methodology Considerations
    Finally, we note that in the proposed rule we considered another 
alternative approach to assignment. We considered whether it might be 
preferable, after excluding the specialties listed in Table 3 of the 
proposed rule from step 2 of the assignment process, to further 
simplify beneficiary assignment by establishing an assignment process 
that involves only a single step in which the plurality of primary care 
services provided by the physicians listed in Tables 1 and 2 of the 
proposed rule, and the non-physician practitioners in Table 4 of the 
proposed rule, would all be considered in a single step. (See 79 FR 
72798). However, while it had some attractive features, we also 
expressed some important concerns about this approach. For example, 
beneficiaries receiving concurrent care from both primary care 
physicians and specialists could inappropriately be assigned to an ACO 
or other entity that is not responsible for managing their overall 
care. Therefore, we expressed a concern that by establishing an 
assignment methodology based on a single step, we might reduce our 
focus on primary care and ultimately assign some beneficiaries to an 
ACO inappropriately based on specialty care over true primary care. A 
one-step assignment methodology could also introduce additional 
instability into the assignment process. Therefore, we did not propose 
to combine the two steps used under the current assignment methodology.
    Although we did not propose this change, we sought comments as to 
whether it would be preferable, after excluding the physician 
specialties listed in Table 3 (79 FR 72797) from the assignment 
process, to further simplify the assignment methodology by establishing 
an assignment process that involves only a single step.
    We also welcomed any comments about the possible impact these 
potential changes to the assignment methodology might have on other CMS 
programs that use an assignment methodology that is generally aligned 
with the Shared Savings Program, such as PQRS GPRO reporting via the 
GPRO web interface and VM. We noted that, as previously discussed, we 
revised the assignment methodology for PQRS GPRO reporting via the GPRO 
web interface and VM in the CY 2015 PFS final rule with comment period 
that appeared in the November 13, 2014 Federal Register (79 FR 67790 
and 79 FR 67962).
    Comment: A few commenters addressed the desirability of 
establishing a one-step assignment methodology. Most of these supported 
maintaining the current two-step assignment process. These commenters 
were concerned that adopting a one-step assignment process could 
inappropriately reduce the focus on primary care. A few commenters 
supported further examination of the issue for future consideration. A 
commenter suggested that assignment should be solely based on the 
preponderance of ``evaluation and management services'' provided 
regardless of specialty because most doctors are able to bill these 
codes. Otherwise, the commenter noted that the assignment determination 
is arbitrary, because it assumes all services provided by the 
``approved'' specialties and even true primary care physicians are all 
related to primary care services, which they are not. This commenter 
stated that commercial payers are already recognizing this and 
developing attribution methods accordingly.
    Response: We agree with commenters that it is appropriate to 
continue to maintain the current two-step assignment process at this 
time. We do not agree with commenters that believe a two-step 
methodology is arbitrary. We believe that the revisions to the 
beneficiary assignment methodology included in this final rule will 
further strengthen our balanced assignment process, which 
simultaneously maintains the requirement to focus on primary care 
services in beneficiary assignment, while recognizing the necessary and 
appropriate role of specialists in providing primary care services, 
such as in areas with primary care physician shortages.
    Comment: A commenter was in support of the changes to the 
assignment methodology, including removing certain specialists from 
step 2 but recommended that CMS allow an ACO to continue to include 
physician and non-physician providers who are not used in the 
assignment methodology on the ACO's annual, certified list of ACO 
providers/suppliers and consider all TINs and individual providers 
included on the list to meet PQRS GPRO reporting requirements through 
ACO reporting.
    Response: Although not all providers and suppliers may provide 
services that are used to determine the assignment of

[[Page 32755]]

beneficiaries to an ACO, we believe that each of these entities has a 
role to play in the coordination of the care of FFS beneficiaries 
assigned to the ACO. For this reason, as discussed in section II.B.3. 
of this final rule, each NPI that has reassigned his or her billings to 
the TIN of the ACO participant must agree to participate and comply 
with program rules. Additionally, it is required that the ACO maintain 
and submit its list of ACO participants and ACO providers/suppliers in 
accordance with Sec.  425.118. If not all providers and suppliers 
billing through the TIN have agreed to participate in the ACO and to 
comply with the program requirements, the ACO cannot add the ACO 
participant to its list. Therefore, ACOs must include all physicians 
and non-physician providers who bill under the TIN of an ACO 
participant on their annual, certified list of ACO providers/suppliers 
even if their services are not used in the assignment methodology.
    FINAL ACTION: We appreciate the comments and will continue to 
consider them when developing future rules.
5. Assignment of Beneficiaries to ACOs That Include FQHCs, RHCs, CAHs 
or ETA Hospitals
    In this section, we summarize the regulatory policies in Sec.  
425.404 for assignment of beneficiaries to ACOs that include FQHCs and 
RHCs as ACO participants and subsequent operational procedures and 
instructions that we have established in order to allow FQHCs and RHCs 
as well as CAHs billing under section 1834(g)(2) of the Act (referred 
to as Method II), and ETA hospitals to fully participate in the Shared 
Savings Program. These types of providers may submit claims for 
physician and other professional services when certain requirements are 
met, but they do not submit their claims through the standard Part B 
claims payment system. Accordingly, we have established operational 
processes so that we can consider claims for professional services 
submitted by these providers in the process for assigning beneficiaries 
to ACOs. However, each of these four provider types (that is, FQHCs, 
RHCs, CAHs, and ETA hospitals) generally have differing circumstances 
with respect to their provider and medical service code reporting 
requirements, claims forms used, and the payment methodology that 
applies to professional services. Although there are important 
differences between the payment policy and claims processing for FQHCs 
and RHCs, they do share some key characteristics. Therefore, we will 
discuss FQHCs and RHCs jointly, and then address CAHs and ETA hospitals 
separately.
a. Assignment of Beneficiaries to ACOs That Include FQHCs and RHCs
(1) Overview
    FQHCs and RHCs are facilities that furnish services that are 
typically furnished in an outpatient clinic setting. (See the proposed 
rule at 79 FR 72798 and 72799.) They are currently paid an all-
inclusive rate (AIR) per visit for qualified primary and preventive 
health services furnished to Medicare beneficiaries. On October 1, 
2014, FQHCs began to transition to a new FQHC prospective payment 
system (PPS). FQHCs have been required to use HCPCS coding on all their 
claims since January 1, 2011, to inform the development of the PPS and 
for limited other purposes, and will be required to use HCPCS coding 
for payment purposes under the FQHC PPS.
    Based on detailed comments from some FQHC and RHC representatives, 
in the November 2011 final rule, we established a beneficiary 
assignment process that allows primary care services furnished in FQHCs 
and RHCs to be considered in the assignment process for any ACO that 
includes an FQHC or RHC as an ACO participant. This process is codified 
in the regulations at Sec.  425.404. Operationally we assign 
beneficiaries to ACOs that include FQHCs or RHCs in a manner generally 
consistent with how we assign beneficiaries to other ACOs based on 
primary care services performed by physicians as described previously. 
However, to address the requirement under section 1899(c) of the Act 
that beneficiaries be assigned to an ACO based on their use of primary 
care services furnished by physicians, we require ACOs that include 
FQHCs or RHCs to identify, through an attestation (see Sec.  
425.404(a)), the physicians that provide direct patient primary care 
services in their ACO participant FQHCs or RHCs. We use the combination 
of the FQHC or RHC ACO participant TIN (and other unique identifier 
such as CCN, where appropriate) and the NPIs of the FQHC or RHC 
physicians provided to us through an attestation process to identify 
those beneficiaries who received a primary care service from a 
physician in the FQHC or RHC and who are therefore eligible to be 
assigned to the ACO as provided under Sec.  425.402(a)(1). Then, we 
assign those beneficiaries to the ACO, using the step-wise assignment 
methodology under Sec.  425.402(a)(1) and (2), if they received the 
plurality of their primary care services, as determined based on 
allowed charges for the HCPCS codes and revenue center codes included 
in the definition of primary care services at Sec.  425.20, from ACO 
professionals.
    The special procedures that we have established in the November 
2011 final rule and through operational program instructions are 
discussed in detail in the proposed rule (79 FR 72799). FQHC and RHC 
services are billed on an institutional claim form and require special 
handling to incorporate them into the beneficiary assignment process. 
For FQHCs/RHCs that are ACO participants, we treat a FQHC or RHC 
service reported on an institutional claim as a primary care service 
performed by a primary care physician if the claim includes a HCPCS or 
revenue center code that is included in the definition of a primary 
care service at Sec.  425.20 and the service was furnished by a 
physician who was identified as providing direct primary care services 
on the attestation submitted as part of the ACO's application. All such 
physicians are considered primary care physicians for purposes of the 
assignment methodology and no specialty code is required for these 
claims. If the claim is for a primary care service furnished by someone 
other than a physician listed on the attestation, we treat the service 
as a primary care service furnished by a non-physician ACO 
professional.
    For FQHCs/RHCs that are not ACO participants, we assume a primary 
care physician performed all primary care services. We chose to assume 
such primary care services were furnished by primary care physicians so 
that these services would be considered in step 1 of the assignment 
methodology. We established this operational procedure to help make 
sure we do not disrupt established relationships between beneficiaries 
and their care providers in non-ACO participant FQHCs and RHCs by 
inappropriately assigning beneficiaries to ACOs that are not primarily 
responsible for coordinating their overall care.
(2) Proposed Revisions
    As currently drafted, Sec.  425.404(b) conflates the question of 
whether a service billed by an FQHC or RHC is provided by a physician 
with the question of whether the service is a primary care service. As 
a consequence, the provision arguably does not address situations where 
the FQHC/RHC claim is for a primary care service as defined under Sec.  
425.20, but the NPI reported on the claim is not the NPI of a physician 
included in the attestation submitted under Sec.  425.404(a). 
Therefore, we

[[Page 32756]]

proposed to revise Sec.  425.404(b) to better reflect the program rules 
and operational practices as previously outlined. In addition, we 
proposed to revise Sec.  425.404(b) to reflect the proposal discussed 
earlier to revise Sec.  425.402 to include services furnished by NPs, 
PAs, and CNSs as services that will be considered in step 1 of the 
assignment process. Under these proposals, we would assign 
beneficiaries to ACOs that include FQHCs and RHCs in the following 
manner.
    To address the requirement under section 1899(c) of the Act that 
beneficiaries be assigned to an ACO based on their use of primary care 
services furnished by physicians, we would continue to require ACOs 
that include FQHCs and RHCs to identify, through an attestation process 
(see Sec.  425.404(a)), the physicians who provide direct patient 
primary care services in their ACO participant FQHCs or RHCs. Under the 
proposal we would use this attestation information only for purposes of 
determining whether a beneficiary is assignable to an ACO because he or 
she meets the criteria of having received a primary care service from a 
physician the FQHC/RHC has designated on their attestation list. We 
refer to this determination under Sec.  425.402(a) and (b)(1) as being 
the assignment ``pre-step''. If a beneficiary is identified as an 
``assignable'' beneficiary in the assignment pre-step, then we would 
use claims for primary care services furnished by all ACO professionals 
submitted by the FQHC or RHC in determining whether the beneficiary 
received a plurality of his or her primary care services from the ACO 
under Step 1. We proposed to make revisions to Sec.  425.404(b) to 
reflect these policies.
    We have also encountered instances where an assignable beneficiary 
has received primary care services from FQHCs or RHCs that are not 
participants in an ACO. For non-ACO participant FQHCs and RHCs, we have 
previously assumed that all of their primary care services are 
performed by primary care physicians. However, as discussed in the 
proposed rule (see 79 FR 72800) this special assumption for non-ACO 
FQHCs/RHCs would no longer be necessary under the proposed revision to 
the assignment methodology at Sec.  425.402 to consider primary care 
services furnished by NPs, PAs, and CNSs in step 1 of the assignment 
methodology rather than step 2. Under this proposed revision, all 
primary care services furnished by non-ACO FQHCs/RHCs would be 
considered in step 1 of the assignment methodology, and there would no 
longer be a need to assume such primary care services were provided by 
primary care physicians in order to achieve this result.
    We welcomed comments on our proposed revisions to Sec.  425.404(b) 
and our current procedures for using claims submitted by FQHCs and RHCs 
in the assignment methodology and suggestions on how we might further 
support participation of FQHCs and RHCs in the Shared Savings Program 
in a manner that is consistent with the statutory requirements.
    Comment: Commenters agreed that CMS should recognize all FQHC/RHC 
care provided by PAs, NPs and CNSs as primary care. Commenters also 
agreed that if a beneficiary is identified as an ``assignable'' 
beneficiary in the assignment pre-step, then it is appropriate to 
recognize FQHC/RHC care provided by all ACO professionals under Step 1 
assignment.
    Response: We agree with these commenters. We believe it is 
important to clarify the rules to better reflect current operating 
procedures, and also to revise them to reflect the final policy 
discussed earlier to include services furnished by non-physician 
practitioners in step 1 of the assignment process.
    Comment: A commenter supported including all ACO participant non-
physician practitioners in the assignment process in step 1 but 
excluding any non-ACO participant non-physician practitioners during 
step 1 in order to facilitate assignment of beneficiaries receiving 
services at FQHCs/RHCs.
    We disagree with the suggestion to include ACO participant non-
physician practitioners during step 1 but to exclude claims billed 
under a non-ACO participant TIN by non-physician practitioners during 
step 1. We are concerned that this approach could lead to beneficiaries 
being assigned to an ACO, even if some other entity is primarily 
responsible for managing their care. This result would be contrary to 
our policy goal of assigning beneficiaries to the entity that is 
primarily responsible for their overall care.
    Comment: A few commenters objected to the statutory requirement 
that beneficiaries be assigned on the basis of primary care services 
furnished by physicians, a requirement that is satisfied by the pre-
step in CMS' assignment methodology.
    Response: As discussed earlier in this section, the pre-step is 
designed to satisfy the statutory requirement under section 1899(c) of 
the Act that beneficiaries be assigned to an ACO based on their use of 
primary care services furnished by physicians. We refer to this 
determination under Sec.  425.402(a)(1) and (b)(1) as being the 
assignment ``pre step''. We must retain the pre-step as part of the 
assignment methodology in order to comply with the requirements of 
section 1899(c) of the Act.
    FINAL ACTION: We are finalizing our proposal to amend Sec.  425.404 
to use FQHC/RHC physician attestation information only for purposes of 
determining whether a beneficiary is eligible to be assigned to an ACO. 
If a beneficiary is identified as ``assignable'' then we will use 
claims for primary care services furnished by all ACO professionals 
submitted by the FQHC or RHC to determine whether the beneficiary 
received a plurality of his or her primary care services from the ACO 
under Step 1. We recognize the unique needs and challenges of rural 
communities and the importance of rural providers in assuring access to 
health care. FQHCs, RHCs and other rural providers play an important 
role in the nation's health care delivery system by serving as safety 
net providers of primary care and other health care services in rural 
and other underserved areas and for low-income beneficiaries. We have 
attempted to develop and implement regulatory and operational policies 
to facilitate full participation of rural providers in the Shared 
Savings Program, within the statutory requirements for the program.
b. Assignment of Beneficiaries to ACOs That Include CAHs
    In the proposed rule (see 79 FR 72801) we briefly addressed certain 
issues regarding ACOs that include CAHs billing under section 
1834(g)(2) of the Act (referred to as method II). Professional services 
billed by method II CAHs are reported using HCPCS/CPT codes and are 
paid using a methodology based on the PFS. However, method II CAH 
claims that include professional services require special processing 
because they are submitted as part of institutional claims. Therefore, 
we have developed operational procedures that allow these claims to be 
considered in the assignment process under Sec.  425.402. Although we 
did not make any new proposals regarding the use of services billed by 
method II CAHs in the assignment process, we noted that our procedures 
for incorporating claims billed by method II CAHs into the assignment 
methodology are available on our Web site at https://www.cms.gov/
Medicare/Medicare-Fee-for-Service-Payment/sharedsavingsprogram/

[[Page 32757]]

Downloads/Shared-Savings-Losses-Assignment-Spec-v2.pdf (see section 
3.3.)
    Comment: A few commenters supported the process for using claims 
billed by method II CAHs in the assignment methodology.
    Response: We appreciate the supportive comments. We did not make 
any new proposals regarding the assignment of beneficiaries receiving 
primary care services furnished by method II CAHs but included this 
discussion in the proposed rule to promote understanding of our 
processes.
    FINAL ACTION: We will continue including claims for primary care 
services billed by method II CAHs in the beneficiary assignment process 
under Sec.  425.402 using established procedures.
c. Assignment of Beneficiaries to ACOs That Include ETA Hospitals
    In the proposed rule (79 FR 72801 and 72802), we discussed in 
detail the operational procedures that we have established in order to 
include primary care services performed by physicians at ETA hospitals 
in the assignment of beneficiaries to ACOs. ETA hospitals are hospitals 
that, under section 1861(b)(7) of the Act and Sec.  415.160 of our 
regulations, have voluntarily elected to receive payment on a 
reasonable cost basis for the direct medical and surgical services of 
their physicians in lieu of Medicare PFS payments that might otherwise 
be made for these services. We have developed special operational 
instructions and processes (see 79 FR 72801 and 72802) that enable us 
to include primary care services performed by physicians at ETA 
hospitals in the assignment of beneficiaries to ACOs under Sec.  
425.402.
    In summary, we use institutional claims submitted by ETA hospitals 
in the assignment process because ETA hospitals are paid for physician 
professional services on a reasonable cost basis through their cost 
reports and no other claim is submitted for such services. However, ETA 
hospitals bill us for their separate facility services when physicians 
and other practitioners provide services in the ETA hospital and the 
institutional claims submitted by ETA hospitals include the HCPCS code 
for the services provided. We use the HCPCS code included on this 
institutional claim to identify whether a primary care service was 
rendered to a beneficiary in the same way as for any other claim. These 
institutional claims do not include allowed charges, which are 
necessary to determine where a beneficiary received the plurality of 
primary care services as part of the assignment process. Accordingly, 
we use the amount that would otherwise be payable under the PFS for the 
applicable HCPCS code, in the applicable geographic area as a proxy for 
the allowed charges for the service.
    In the proposed rule, we explained that we believe it is 
appropriate that ETA hospitals and their patients benefit from the 
opportunity for ETA hospitals to fully participate in the Shared 
Savings Program to the extent feasible. Therefore, we proposed to 
revise Sec.  425.402 by adding a new paragraph (c) to provide that when 
considering services furnished by physicians in ETA hospitals in the 
assignment methodology, we would use the amount payable under the PFS 
for the specified HCPCS code as a proxy for the amount of the allowed 
charges for the service. In addition, because we are able to consider 
claims submitted by ETA hospitals as part of the assignment process, we 
also proposed to amend Sec.  425.102(a) to add ETA hospitals to the 
list of ACO participants that are eligible to form an ACO that may 
apply to participate in the Shared Savings Program.
    We sought comments on the use of institutional claims submitted by 
ETA hospitals for purposes of identifying primary care services 
furnished by physicians in order to allow these services to be 
considered in the assignment of beneficiaries to ACOs. We also sought 
comments on whether there are any other types of potential ACO 
participants that submit claims representing primary care services that 
CMS should also consider including in (or excluding from) its 
methodology for assigning beneficiaries to ACOs participating in the 
Shared Savings Program.
    Comment: A few commenters supported the proposal, pointing out that 
beneficiaries in medically underserved populations could benefit from 
the improved care coordination ACOs with ETA hospitals may provide. A 
commenter opposed the proposal but offered little explanation. A 
commenter requested clarification of how CMS would be modifying its 
operational processes for including primary care services performed by 
physicians in ETA hospitals to reflect a change in coding policy under 
the OPPS effective for services furnished on or after January 1, 2014. 
Effective January 1, 2014, CMS will recognize HCPCS code G0463 
(Hospital outpatient clinic visit for assessment and management of a 
patient) for payment under the OPPS for outpatient hospital clinic 
visits. Also, effective January 1, 2014, CPT codes 99201 through 99205 
and 99211 through 99215 are no longer recognized for payment under the 
OPPS. Under the OPPS, outpatient hospitals were instructed to use HCPCS 
code G0493 in place of 99201 through 99205 and 99211 through 99215.
    Response: Since the December 2014 proposed rule was issued, new 
information has come to light about how clinic visits are billed under 
OPPS, effective January 1, 2014. This change affects our operational 
processes for considering ETA hospital claims in the assignment 
methodology for the Shared Savings Program because under OPPS, 
outpatient hospitals including ETA hospitals, no longer report CPT 
codes in the range 99201 through 99205 and 99211 through 99215. 
Instead, as noted by the commenter, outpatient hospitals report all 
such services using a single HCPCS code, G0463. That is, for ETA 
hospitals, G0463 is a replacement code for CPT codes in the range 99201 
through 99205 and 99211 through 99215. Therefore, we need to further 
consider our ETA proposal and will address this coding issue in future 
rulemaking. We continue to believe that it is appropriate to use ETA 
institutional claims for purposes of identifying primary care services 
furnished by physicians in ETA hospitals in order to allow these 
services to be included in the stepwise methodology for assigning 
beneficiaries to ACOs. We believe that including these claims increases 
the accuracy of the assignment process by helping to ensure that 
beneficiaries are assigned to the ACO or other entity that is actually 
managing the beneficiary's care. ETA hospitals are often located in 
underserved areas and serve as providers of primary care for the 
beneficiaries they serve.
    FINAL ACTION: We will further consider the operational processes 
necessary in order to allow ETA hospital outpatient claims to continue 
to be considered in the assignment methodology and will address these 
issues in future rulemaking
6. Applicability Date for Changes to the Assignment Algorithm
    As indicated in the DATES section of this final rule, the effective 
date for the final rule will be 60 days after the final rule is 
published. However, we proposed that any final policies that affect 
beneficiary assignment would be applicable starting at the beginning of 
the next performance year. We stated that implementing any revisions to 
the assignment methodology at the beginning of a performance year is 
reasonable and appropriate because it would permit time for us to make 
the necessary programming changes and

[[Page 32758]]

would not disrupt the assessment of ACOs for the current performance 
year. Moreover, we proposed to adjust all benchmarks at the start of 
the first performance year in which the new assignment rules are 
applied so that the benchmark for an ACO reflects the use of the same 
assignment rules as would apply in the performance year. For example, 
any new beneficiary assignment policies that might be included in a 
final rule issued in 2015 would apply to beneficiary assignment 
starting at the beginning of the following performance year, which in 
this example would be January 1, 2016. In this hypothetical example, we 
would also adjust performance benchmarks that apply for the 2016 and 
subsequent performance years, as applicable, to reflect changes in our 
assignment methodology.
    In addition, under the proposal we would not retroactively apply 
any new beneficiary assignment policies to a previous performance year. 
For example, if the assignment methodology is applied beginning in 
2016, we would not use it in mid-2016 to reconcile the 2015 performance 
year. Accordingly, the assignment methodology used at the start of a 
performance year would also be used to conduct the final reconciliation 
for that performance year.
    Comment: Commenters agreed with the proposal to adjust benchmarks 
at the start of the first performance year in which the new assignment 
rules are applied so that the benchmark for the ACO reflects the use of 
the same assignment rules as would apply in the performance year.
    Response: We agree and believe uniformly applying any change to the 
assignment methodology at the beginning of a performance year will 
mitigate disruptions in implementing changes in the beneficiary 
assignment policies.
    FINAL ACTION: We are finalizing our proposal to adjust all 
benchmarks at the start of the first performance year in which the new 
assignment rules are applied so that the benchmark for the ACO reflects 
the use of the same assignment rules as will apply in the performance 
year. Additionally, we will not retroactively apply the new beneficiary 
assignment methodology to the previous performance year. In other 
words, when conducting the final retrospective reconciliation of 
beneficiary assignment for PY 2015 during mid-2016, we will use the 
assignment methodology that was applicable at the start of 2015.

F. Shared Savings and Losses

1. Background
    Section 1899(d) of the Act establishes the general requirements for 
payments to participating ACOs. Specifically, section 1899(d)(1)(A) of 
the Act provides that ACO participants will continue to receive payment 
``under the original Medicare fee-for-service program under parts A and 
B in the same manner as they would otherwise be made,'' and that an ACO 
is eligible to receive payment for shared Medicare savings provided 
that the ACO meets both the quality performance standards established 
by the Secretary, and demonstrates that it has achieved savings against 
a benchmark of expected average per capita Medicare FFS expenditures. 
Additionally, section 1899(i)(3) of the Act authorizes the Secretary to 
use other payment models in place of the one-sided model outlined in 
section 1899(d) of the Act as long as the Secretary determines these 
other payment models will improve the quality and efficiency of items 
and services furnished to Medicare beneficiaries without additional 
program expenditures.
    In our November 2011 final rule (76 FR 67904 through 67909) 
establishing the Shared Savings Program, we considered a number of 
options for using this authority. For example, commenters suggested we 
consider such options as blended FFS payments, prospective payments, 
episode/case rate payments, bundled payments, patient centered medical 
homes or surgical homes payment models, payments based on global 
budgets, full or partial capitation, and enhanced FFS payments for care 
management. However, in the November 2011 final rule (76 FR 67905), we 
opted not to use our authority under section 1899(i) of the Act to 
integrate these kinds of alternative payment models at that time, 
noting that many of the suggested payment models were untested. We 
expressed concern that immediately adopting untested and/or unproven 
models with which we had little experience on a national scale could 
lead to unintended consequences for the FFS beneficiaries we serve or 
for the health care system more broadly. We also noted that the 
Affordable Care Act had established a new Center for Medicare and 
Medicaid Innovation (Innovation Center) at CMS. The Innovation Center 
is charged with developing, testing, and evaluating innovative payment 
and service delivery models in accordance with the requirements of 
section 1115A of the Act. Many of the approaches suggested by 
stakeholders and commenters on the Shared Savings Program rule are the 
subject of ongoing testing and evaluation by the Innovation Center. In 
the November 2011 final rule (76 FR 67905), we noted that while we did 
not yet have enough experience with novel payment models to be 
comfortable integrating them into the Shared Savings Program at the 
time, we anticipated that what we learned from these models might be 
incorporated into the program in the future. Since publication of the 
December 2014 proposed rule, the Innovation Center has announced 
several important developments related to its testing of ACO models. In 
May 2015, the Secretary announced that an independent evaluation report 
for CMS found that the Pioneer ACO Model generated over $384 million in 
savings to Medicare over its first 2 years--an average of approximately 
$300 per assigned beneficiary per year--while continuing to deliver 
high-quality patient care. The CMS Office of the Actuary certified the 
Pioneer ACO model, as tested during the first 2 performance years of 
the Model, to have met the criteria for expansion to a larger 
population of Medicare beneficiaries. See News release ``Affordable 
Care Act payment model saves more than $384 million in 2 years, meets 
criteria for first-ever expansion'' (May 4, 2015) available online at 
https://www.hhs.gov/news/press/2015pres/05/20150504a.html. In March 
2015, the Innovation Center announced the launch of the Next Generation 
ACO Model, whose first performance year begins January 1, 2016, 
building upon experiences from the Pioneer ACO Model and the Medicare 
Shared Savings Program. The Next Generation ACO Model uses refined 
benchmarking methods that reward both attainment and improvement in 
cost containment, and that ultimately transition away from comparisons 
to an ACO's historical expenditures. The Model also offers a selection 
of payment mechanisms to enable ACOs to progress from FFS 
reimbursements to capitation. Central to the Next Generation ACO Model 
are several ``benefit enhancement'' tools to help ACOs improve 
engagement with beneficiaries, including:
     Greater access to home visits, telehealth services, and 
skilled nursing facility services;
     Opportunities to receive a reward payment for receiving 
care from the ACO and certain affiliated providers;
     A process that allows beneficiaries to confirm their care 
relationship with ACO providers; and
     Greater collaboration between CMS and ACOs to improve 
communication

[[Page 32759]]

with beneficiaries about the characteristics and potential benefits of 
ACOs in relation to their care.
    In the November 2011 final rule establishing the Shared Savings 
Program (76 FR 67909), we created two tracks from which ACOs could 
choose to participate: A one-sided risk model (Track 1) that 
incorporates the statutory payment methodology under section 1899(d) of 
the Act and a two-sided model (Track 2) that is also based on the 
payment methodology under section 1899(d) of the Act, but incorporates 
performance-based risk using the authority under section 1899(i)(3) of 
the Act to use other payment models. Under the one-sided model, ACOs 
qualify to share in savings but are not responsible for losses. Under 
the two-sided model, ACOs qualify to share in savings with an increased 
sharing rate, but also must take on risk for sharing in losses.
    In the November 2011 final rule (76 FR 67904), we explained that 
offering these two tracks would create an on ramp for the program to 
attract both providers and suppliers that are new to value-based 
purchasing as well as more experienced entities that are ready to share 
in losses. We stated our belief that a one-sided model would have the 
potential to attract a large number of participants to the program and 
introduce value-based purchasing broadly to providers and suppliers, 
many of whom may never have participated in a value-based purchasing 
initiative before. Another reason we included the option for a one-
sided track with no downside risk was that this model would be 
accessible to and attract small, rural, safety net, and physician-only 
ACOs.
    However, we also noted that while a one-sided model could provide 
incentives for participants to improve quality, it might not be 
sufficient incentive for participants to improve the efficiency and 
cost of health care delivery (76 FR 67904). Therefore, we used our 
authority under section 1899(i)(3) of the Act to create a performance-
based risk option, Track 2, where ACOs would not only be eligible to 
share in savings, but also must share in losses. We believe a 
performance-based risk option would have the advantage of providing 
more experienced ACOs an opportunity to enter a sharing arrangement 
that provides greater reward for greater responsibility. During our 
initial rulemaking, we explained that both CMS and stakeholders believe 
that models where ACOs bear a degree of financial risk hold the 
potential to induce more meaningful systematic change. Therefore, the 
program's policies were initially designed to offer a pathway for ACOs 
to transition from the one-sided model to risk-based arrangements. 
Therefore, we required that ACOs who participate in Track 1 during 
their first agreement period must transition to Track 2 for all 
subsequent agreement periods. We believe that offering the two tracks, 
but requiring a transition to Track 2 in subsequent agreement periods, 
would increase interest in the Shared Savings Program by providing a 
gentler ``on ramp'' while maintaining the flexibility for more advanced 
ACOs to take on greater performance-based risk in return for a greater 
share of savings immediately upon entering the program (76 FR 67907).
    Although most of the program requirements that apply to ACOs in 
Track 1 and Track 2 are the same, the financial reconciliation 
methodology was designed so that ACOs that accept performance-based 
risk under Track 2 would have the opportunity to earn a greater share 
of savings. Thus, the same eligibility criteria, beneficiary assignment 
methodology, benchmark and update methodology, quality performance 
standards, data reporting requirements, data sharing provisions, 
monitoring for avoidance of at-risk beneficiaries, provider screening, 
and transparency requirements apply to ACOs under both models. However, 
the financial reconciliation methodology was modified for Track 2 in 
order to allow an opportunity for ACOs to earn a greater share of 
savings, in exchange for their willingness to accept performance-based 
risk. Specific differences between the two tracks include the minimum 
savings rate (MSR), the sharing rate based on quality performance, and 
the performance payment limit.
    In the December 2014 proposed rule, we reiterated our intent to 
continue to encourage ACOs' forward movement up the ramp from the one-
sided model to performance-based risk. The proposed rule discussed 
policy changes that would both allow ACOs not yet ready to transition 
to performance-based risk a second agreement period under the one-sided 
model, while also encouraging ACOs to enter performance-based risk 
models by lowering the risk under the existing Track 2, and offering an 
additional two-sided model (Track 3). As proposed, Track 3 would be 
based on the current payment methodology under Track 2, but would also 
incorporate some different elements that may make it more attractive 
for entities to accept increased performance-based risk, including: 
Prospective beneficiary assignment, and greater risk for greater reward 
(as compared to the current Track 2). We proposed modifications to the 
requirements for ACOs to establish an adequate repayment mechanism as a 
condition to participate under the two-sided model, including changes 
to address concerns that the existing requirements tie up capital that 
otherwise could be used to implement the care processes necessary to 
succeed in the program. We also sought comment on other ways to 
encourage ACO participation in performance-based risk arrangements, 
including the following:
     Waiving certain payment and program requirements.
     Incorporating beneficiary attestation, under which an 
eligible beneficiary would have the opportunity to voluntarily align 
with the ACO in which their primary healthcare provider participates.
     ACO participant arrangements which would allow ACOs to 
make a step-wise transition to performance-based risk arrangements.
    Further, we sought comment on alternative methodologies for 
establishing, updating, and resetting ACO benchmarks based on concerns 
about the sustainability of the program under the current policies.
    In this section, we discuss our final actions on the proposals for 
modifying the program's financial models, as well as the options on 
which we sought comment, including alternative benchmarking 
methodologies and potential policies to further encourage ACO 
participation in performance-based risk arrangements (for example, by 
waiving certain payment and program requirements and adopting 
beneficiary attestation). Table 8 summarizes the differences between 
the one-sided and two-sided models and specifies the characteristics of 
the Tracks as finalized under the November 2011 final rule and with 
this final rule.
    2. Modifications to the Existing Payment Tracks
a. Overview
    In the November 2011 final rule, we established policies to 
encourage ACOs not only to enter the program, but also to progress to 
increased risk based on the believe that payment models where ACOs bear 
a degree of financial risk have the potential to induce more meaningful 
systematic change in the behavior of providers and suppliers. 
Therefore, we established a requirement that an ACO entering the 
program under Track 1 may only operate under the one-sided model for 
its first agreement period. For subsequent agreement periods, an ACO 
would not be

[[Page 32760]]

permitted to operate under the one-sided model (Sec.  425.600(b)). If 
the ACO wishes to participate in the program for a second agreement 
period, it must do so under Track 2 (shared savings/losses). 
Additionally, an ACO experiencing a net loss during its initial 
agreement period may reapply to participate in the program, but the ACO 
must identify in its application the cause(s) for the net loss and 
specify what safeguards are in place to enable the ACO to potentially 
achieve savings in its next agreement period (Sec.  425.600(c)). In our 
view, this allowance for a full first agreement period under the one-
sided model and required transition to performance-based risk in the 
subsequent agreement period struck a balance between our intent to 
encourage program participation by small, rural, or physician-only ACOs 
with the need to ensure that ACOs quickly transition to taking downside 
risk.
    We are encouraged by the popularity of the Shared Savings Program, 
particularly the popularity of the one-sided model. Most ACOs 
participating in the Shared Savings Program have chosen Track 1, with 
only 5 ACOs participating under Track 2 as a starting option. About 
half of the ACOs participating in the program are small, each having 
less than 10,000 assigned beneficiaries. In the December 2014 proposed 
rule we explained that we believe that one 3-year agreement period 
under Track 1 is sufficient for many organizations to progress along 
the on-ramp to performance-based risk. We reiterated that we continue 
to encourage forward movement up the ramp because we believe, as 
discussed in the November 2011 final rule (76 FR 67907), that payment 
models where ACOs bear a degree of financial risk have the potential to 
induce more meaningful systematic change in providers' and suppliers' 
behavior. However, based on our experience with the program, we 
recognized that many of the organizations that are currently 
participating in the program are risk averse and lack the 
infrastructure and readiness to manage increased performance-based 
risk. We explained that given the short time period between 
finalization of the November 2011 final rule and the first application 
cycles, it is our impression that many ACOs, particularly smaller ACOs, 
focused initially on developing their operational capacities rather 
than on the implementation of care redesign processes. We expressed 
some concerns about the slope of the on-ramp to performance-based risk 
created by the two existing tracks and the policy that requires ACOs in 
Track 1 (shared savings only) to transition to Track 2 (shared savings/
losses) for their second agreement period. In particular we explained 
our concern that the current transition from one- to two-sided risk may 
be too steep for some organizations, putting them into a situation 
where they must choose between taking on more risk than they can manage 
or dropping out of program participation altogether. For instance, some 
smaller and less experienced ACOs will likely drop out of the program 
when faced with this choice, because the smaller an ACO's assigned 
beneficiary population, the greater the chances that shared losses 
could result from normal variation. Also, we explained the concern, as 
expressed by some stakeholders, that one agreement period under the 
one-sided model may be not be a sufficient amount of time for some ACOs 
to gain the level of experience with population management or program 
participation needed for them to be comfortable taking on performance-
based risk. For some organizations, having additional experience in the 
Shared Savings Program under Track 1 could help them to be in a better 
position to take on performance-based risk over time. We also expressed 
concern that the existing features of Track 2 may not be sufficiently 
attractive to ACOs contemplating entering a risk-based arrangement.
    In the December 2014 proposed rule we revisited our policies 
related to Tracks 1 and 2 in order to smooth the on ramp for 
organizations participating in the Shared Savings Program. First, we 
proposed to remove the requirement at Sec.  425.600(b) for Track 1 ACOs 
to transition to Track 2 after their first agreement period. Second, we 
proposed to modify the financial thresholds under Track 2 to reduce the 
level of risk that ACOs must be willing to accept. We explained that we 
believe there are a number of advantages to smoothing the on ramp by 
implementing these proposed policies as follows:
     Removing the requirement that ACOs transition to a two-
sided model in their second agreement period would provide 
organizations, especially newly formed, less experienced, and smaller 
organizations, more time to gain experience in the program before 
accepting performance-based risk, thereby encouraging continued 
participation in the program by potentially successful ACOs that would 
otherwise drop out because of the requirement to transition to the two-
sided model in their second agreement period.
     Allowing organizations to gain more experience under a 
one-sided model before moving forward to a two-sided model would 
encourage earlier adoption of the shared savings model by organizations 
concerned about being required to transition to performance-based risk 
before realizing savings under a one-sided model.
     Incorporating the opportunity for ACOs to remain in Track 
1 after their first agreement period could have a beneficial effect 
with respect to the care that beneficiaries receive. Specifically, to 
the extent that more ACOs are able to remain in the program, a 
potentially broader group of beneficiaries will have access to better 
coordinated care through an ACO.
     Allowing ACOs additional time to make the transition to 
performance-based risk would reduce the chances that a high-performing 
ACO, which believe that it is not yet ready to assume greater financial 
risk, will either cease to participate in the program to avoid risk or 
find it necessary to engage in behaviors primarily intended to minimize 
that risk rather than improve patient care.
    Further, we explained our expectation that ACOs participating in 
the Shared Savings Program move in the direction of accepting 
performance-based risk. Thus, while we proposed to offer additional 
time for ACOs under a one-sided model, we also indicated there should 
be incentives for participants to voluntarily take on additional 
financial risk and disincentives to discourage organizations from 
persisting in a shared savings only risk track indefinitely. To signal 
to ACOs the importance of moving toward performance-based risk and 
encourage ACOs to voluntarily enter the two-sided model as soon as they 
are able, we proposed to distinguish the financial attractiveness of 
the one-sided model from the two-sided model by dropping the sharing 
rate in Track 1 for ACOs participating in Track 1 for a subsequent 
agreement period and modifying the risk inherent in Track 2. Finally, 
we explained that adopting restrictions to prevent organizations that 
have not achieved certain minimum performance requirements with respect 
to cost and quality of care, based on their experience to date, from 
obtaining additional agreement periods under Track 1 would serve as an 
appropriate program safeguard against entities remaining in the program 
that are not fully committed to improving the quality and efficiency of 
health care service delivery. We received many comments regarding the 
overall framework we outlined in the proposed

[[Page 32761]]

rule for modifying the existing payment tracks under the Shared Savings 
Program.
    Comment: Some commenters urged CMS to strengthen the program's 
existing financial tracks, suggesting alternatives that went beyond the 
modifications discussed in the December 2014 proposed rule. Some 
commenters pointed out that as designed, the program's existing 
financial models inadequately reward ACOs for the savings they 
generate, discourage ACOs who are working to achieve program goals, and 
pose hardships for ACOs who rely on shared savings payments to support 
their operational costs needed to sustain their participation in the 
program.
    Some commenters explained that increasing the opportunity for 
savings under Track 1 is a means of encouraging continued program 
growth and sustainability of ACOs, and is a means for ensuring ACOs 
become ready to enter the two-sided model. Some commenters specifically 
addressed how to make performance-based risk arrangements under the 
program more attractive and to encourage ACOs to transition to risk, 
citing the importance of certain factors such as:
     Enhanced financial rewards, for example through a lower/
fixed MSR, or eliminating the MSR, or revising the MSR methodology; 
higher sharing rates; and policies to reward ACOs who are trending 
positive (whose expenditures are lower than their benchmarks but who 
have not met or exceeded their MSR).
     Reduced liability for risk under the two-sided model, for 
example through a higher MLR, or lower loss sharing rates (that is, a 
phase-in to higher loss sharing rates over time), and lower loss limits 
(that is, a gentler phase-in of the loss limit by starting at zero and 
progressing to 10 percent).
     Tools to enable ACOs to more effectively control and 
manage their patient population, for example through prospective 
beneficiary assignment, beneficiary attestation, improved data sharing, 
and regulatory and programmatic flexibilities.
     Additional safeguards against risk, for instance in the 
form of CMS-subsidized stop loss insurance and funding for ACOs seeking 
to move to risk to make sure they have adequate cash reserves.
    Commenters typically recommended a combination of these factors. 
Some commenters' recommendations were specific to certain types of 
entities. In particular, commenters recommended improving the financial 
incentives for smaller ACOs, rural ACOs, and existing low-cost ACOs.
    Several commenters underscored the need for ACOs to be successful 
in Track 1 before moving to two-sided risk. A commenter explained that 
ACOs should not be expected to participate in the Shared Savings 
Program with upside risk under Track 1 with one set of rules, but then 
undertake downside risk under a different set of rules. Along these 
lines, some commenters urged CMS to apply the same assignment 
methodology and allow the same regulatory and programmatic 
flexibilities under the one-sided model that apply to the two-sided 
model, explaining that doing so could: (1) allow Track 1 ACOs to gain 
experience with these program features before accepting risk under the 
same terms; (2) stimulate success within the program by Track 1 ACOs 
and allow them to more quickly move to a two-sided risk track; and (3) 
reduce administrative burden on CMS for implementing the program.
    Some commenters supported policies that would allow ACOs to move 
from the one-sided to two-sided risk within a given agreement period. 
Several commenters suggested allowing ACOs to move from Track 1 to a 
two-sided risk track annually, so that ACOs ready to assume more risk 
do not have to wait until a new agreement period to change tracks. 
Several commenters recommending CMS move to 5 or 6 year agreements for 
ACOs suggested that ACOs have the opportunity to move to a performance-
based risk model during their first agreement period, for example, 
after their first 3 years under the one-sided model. A commenter 
suggested encouraging ACOs to transition to two-sided risk by offering 
lower loss sharing rates for ACOs that move from Track 1 to the two-
sided model during the course of an agreement period, and phasing-in 
loss sharing rates for these ACOs (for example, 15 percent in year 1, 
30 percent in year 2, 60 percent in year 3). Another commenter 
suggested that CMS allow all ACOs (regardless of Track) the option to 
increase their level of risk annually during the agreement period.
    Response: In the December 2014 proposed rule we did not propose or 
seek comment on modifications to the design of Track 1 to increase the 
opportunity for reward under this model, such as revisions to the Track 
1 MSR methodology. Although we appreciate commenters' thoughtful 
recommendations for improving the rewards under Track 1, we consider 
these suggestions beyond the scope of this final rule and we decline at 
this time to adopt commenters' recommendations. Further, we continue to 
believe it is important to maintain the MSR under the one-sided model 
to protect against paying shared savings based on changes in cost that 
result from normal variation in expenditures. We also remain committed 
to the belief that ACOs who accept financial responsibility for the 
care of beneficiaries have the greatest beneficial effects for the 
Medicare program and its beneficiaries. Keeping with the initial design 
of the program, the differences between the tracks encourage ACOs to 
transition from one-sided risk to two-sided risk by providing greater 
reward to those who accept greater risk. We believe that adjusting the 
sharing rate and the other aspects of the Track 1 financial model to 
match more closely, or exactly, the up-side available under the two-
sided risk tracks would undermine our effort to encourage ACOs to 
transition to performance-based risk.
    We appreciate commenters' thoughtful considerations on how to 
encourage ACOs to transition to performance-based risk. As indicated in 
other sections of this final rule, we are finalizing certain 
modifications to program policies to encourage ACOs to enter 
performance-based risk arrangements. These modifications respond to 
commenters' recommendations for improving the financial incentives 
under the program and allowing ACOs a range of options with respect to 
features of the tracks they may select from (for example, prospective 
versus retrospective assignment methodology and level of risk in 
relation to opportunity for reward). Although we are not adopting the 
additional suggestions recommended by some commenters in this rule, we 
will further consider these suggestions and may propose additional 
revisions to encourage ACOs to enter performance-based risk 
arrangements through future notice and comment rulemaking.
b. Transition From the One-Sided to Two-Sided Model
(1) Second Agreement Period Under Track 1
    We considered several options to better balance both our intent to 
encourage continued participation by ACOs that entered the program 
under the one-sided model but that are not ready to accept performance-
based risk after 3 years of program participation with our concern that 
allowing a shared savings only option will discourage ACOs capable of 
taking risk from moving to a two-sided model. We considered the 
following options:

[[Page 32762]]

     Revising the regulations to allow ACOs that enter the 
program under the one-sided model to continue participation in Track 1 
for more than one agreement period.
     Extending the initial 3-year agreement period for an 
additional 2 years for ACOs that enter the program under Track 1, but 
that do not believe that they are ready to advance to a risk-based 
track.
     Allowing ACOs to continue participation in Track 1 for 
more than one agreement period, but revising the one-sided model to 
decrease the financial attractiveness of the model, so as to encourage 
ACOs ready to accept performance-based risk to transition to a two-
sided model. Among these options, we expressed our belief that the 
third option offered a good balance of encouraging continued 
participation in addition to encouraging progression along the on-ramp 
to performance-based risk. Therefore, we proposed to remove the 
requirement at Sec.  425.600(b) that ACOs that enter the program under 
Track 1 (one-sided model) must transition to Track 2 (two-sided model) 
after one agreement period, if they wish to continue participating in 
the Shared Savings Program. Instead, we proposed to revise the 
regulation to permit ACOs that have completed a 3-year agreement under 
Track 1 to enter into one additional 3-year agreement under Track 1.
    Comment: Most commenters generally supported policies that would 
allow Track 1 ACOs to continue in the program under the one-sided 
model, with many commenters addressing the specifics of the proposed 
policies and offering alternative suggestions.
    Most commenters generally and strongly supported policies that 
would permit ACOs to participate in the Shared Savings Program under a 
one-sided model for a longer period of time, indicating that the 
transition to performance-based risk under the current rule is too soon 
and steep for most ACOs. A commenter indicated that the progression to 
risk outlined in the current rule was too aggressive in light of the 
challenges ACOs and CMS faced during the initial program startup 
period.
    The majority of commenters strongly supported our specific proposal 
to permit one additional agreement period under Track 1. Generally 
commenters agreed with CMS' concern about the transition to risk posed 
by the existing rule, which could require organizations to choose 
between taking on more risk and exiting the program after one agreement 
period. Commenters pointed to a variety of benefits from allowing ACOs 
additional time under the one-sided model:
     Allows ACOs more than 3 years to mature and develop the 
necessary infrastructure and capabilities, in which they have invested 
significant time and capital, to meet the program's goals, including: 
testing patient-centered approaches, providing care management 
services, implementation of electronic medical records (EMRs), and 
performing data analytics and risk assessment.
     Affords ACOs additional time needed to develop the 
infrastructure and experience needed to assume greater risk. Comments 
explained that ACOs need more than 3 years to develop the necessary 
infrastructure and competencies to effectively manage down-side risk. A 
commenter explained that past experience from the PGP demonstration and 
the Pioneer ACO Model indicates that providers need more than 3 years 
to produce meaningful savings and to develop sufficient skills to 
manage downside risk. Indeed, several commenters explained that some 
Track 1 ACOs may not be risk averse, but rather are reluctant to enter 
a performance-based risk arrangement given concerns, such as the 
financial viability of shared savings for ACOs in low-cost regions, and 
the risk of program participation posed by the significant and 
incremental operational costs for ACOs.
     Encourages continued participation by existing ACOs and 
makes the program more attractive to prospective ACOs. Commenters 
emphasized the importance of giving ACOs the opportunity to generate 
savings to further fund their operations without risk of accountability 
for losses, for the success of ACOs and the program. Commenters 
indicated this issue may be especially relevant for smaller 
organizations and those less experienced with care redesign processes 
and with performance-based risk, existing low-cost ACOs (which may need 
additional time to further their care management efforts to achieve 
additional savings), and ACOs led by academic medical centers (which 
tend to treat sicker and more complex patient populations than other 
providers). A commenter indicated the importance of continued 
participation by Advance Payment Model ACOs under Track 1, in order for 
CMS to recoup pre-paid shared savings from these organizations.
    Some commenters opposed the proposal to allow ACOs to continue 
under the program for only one additional agreement period, favoring a 
slower transition to risk than was proposed. These commenters suggested 
that CMS offer multiple agreement periods under Track 1 (for instance 
two full agreement periods and part of a third agreement period). 
Others recommended alternatives such as permitting select types of 
ACOs, such as rural- or physician-only ACOs, or existing low-cost ACOs, 
to continue under Track 1 for more than two agreement periods. A 
commenter suggested allowing ACOs to remain in Track 1 as long as they 
meet program requirements or until additional risk-bearing payment 
models, such as full capitation, risk-adjusted capitations, and 
prepayment, are available under the program or both. A commenter 
suggested that any exemptions for ACOs from the requirement to 
transition to two-sided risk arrangements should be limited to those 
states where state law does not allow for contracts between payer and 
provider that incorporate downside risk.
    On the other hand, a few commenters were opposed to this proposal, 
stating that ACOs should be capable of moving to risk in a more 
aggressive timeframe, and that eliminating the requirement to move to 
risk after the first agreement period sends the wrong signal. Several 
commenters pointed to private sector ACO initiatives to illustrate that 
organizations can be ready for two-sided risk within a few years. These 
commenters urged CMS to hasten the transition to performance-based risk 
by Track 1 ACOs, for instance by allowing them less than a full second 
agreement period under Track 1, or no additional time under Track 1.
    More generally, some commenters stated their agreement with CMS' 
emphasis on the importance of two-sided risk as a driver of more 
meaningful change. A commenter explained: two-sided risk creates a 
greater onus of accountability, and ultimately encourages providers to 
respond to what patients need. It also injects greater momentum into 
the pace of change in the development of the care processes that are 
needed to achieve success in a risk environment. If there is no risk, 
the system may reward providers that are ACOs in name only.
    However, in the drive to move ACOs to the two-sided model, other 
commenters urged CMS not to lose sight of the benefits of having robust 
participation under the one-sided model. Several commenters urged CMS 
not to overlook or withdraw its support from Track 1 ACOs, for instance 
pointing out that the Track 1 serves as the primary model for the vast 
majority of existing ACOs, and urging CMS to recognize the value that 
Track 1 brings to Medicare in capturing savings and serving as a 
vehicle for advancing new

[[Page 32763]]

models of care that create value for Medicare beneficiaries. A 
commenter was critical of the overall policy direction of the proposed 
rule, to encourage ACOs to move to performance-based risk, explaining 
that this was unjustified given that CMS is receiving substantial 
savings from ACOs participating under the one-sided model. A commenter 
cautioned CMS that the goal to incentivize ACOs to move into two-sided 
risk models should not overshadow the underlying statutory intent of 
the Shared Savings Program, which is to drive improvements in patient 
care and reductions in overall health care costs. A commenter noted the 
need for CMS to support Track 1 ACOs until they evolve into 
organizations that can better coordinate care of beneficiaries and take 
on additional risk. Another commenter noted that the perceived rush to 
move all ACOs to two-sided risk models undermines other CMS pilot 
programs, such as the Bundled Payments for Care Improvement (BPCI) and 
the Pioneer ACO Model.
    Response: We are finalizing our proposal to permit ACOs to 
participate in an additional 3-year agreement period under Track 1, for 
a total of two agreement periods under the one-sided model. We believe 
giving ACOs one additional agreement under Track 1 is responsive to the 
many comments we received that some ACOs require additional time before 
moving to a two-sided risk arrangement. In particular, we are persuaded 
by commenters' urging of the need for ACOs to gain additional 
experience under accountable care models before transitioning to 
performance-based risk, as well as the benefits to CMS and Medicare 
beneficiaries of encouraging continued participation by ACOs--including 
those who received Advanced Payments from the Innovation Center--in 
light of the alternative that these ACOs would terminate their 
participation altogether. We continue to believe that ACOs who accept 
responsibility for the quality and cost of the care furnished to 
beneficiaries have the greatest positive effect on the Medicare program 
and its beneficiaries. We believe that allowing ACOs a second 3-year 
agreement period under the one-sided model strikes a reasonable balance 
between permitting ACOs additional time under Track 1 and maintaining a 
clear timeframe for when ACOs must transition to performance-based 
risk. We disagree with commenters' suggestions to allow select ACOs 
(based on their geographic location, historical cost or provider 
composition) to remain under the one-sided model indefinitely. We 
believe such a policy design would encourage ACOs to languish under the 
one-sided model. We also disagree with commenters who suggest that ACOs 
should be pushed to transition to performance-based risk in a shorter 
time, given the volume of concerns we heard as we developed the 
proposal to allow ACOs additional time under the one-sided model and 
from comments received in response to the proposed rule. We believe 
that a requirement for ACOs to immediately transition to risk after the 
conclusion of their first agreement period, or before the end of their 
second agreement period could result in significant attrition from the 
program, particularly by ACOs that are newly formed or underfunded.
    Comment: Some commenters identified the most immediate challenges 
faced by ACOs with 2012 and 2013 agreement start dates who are 
considering renewing their agreement period for the 2016 performance 
year. For example, a commenter indicated that ACOs may lack the 
performance data needed at the time of agreement renewal (based on 2 
performance years) to make an informed decision between a second 
agreement period under Track 1 or entering a performance-based risk 
arrangement. In addition, some commenters further pointed out they 
could have a relatively short period in which to make this decision 
given the short timeline CMS faces in issuing a final rule that would 
be effective for the 2016 performance year and implementing the 
finalized policies. In light of these factors, some commenters 
recommended that CMS allow current ACOs the option to extend their 
current contracts by 1, 2 or 3 years, or if they choose, to enter into 
a new agreement period under the two-sided model. These commenters 
explained that extension of the ACOs' existing agreements would allow 
certain ACOs more time to determine their readiness to change tracks 
and assume risk, while those that are prepared to accept new contract 
terms and shift to greater risk at this time could do so.
    Some other commenters recommended instead that CMS extend the 
current ACO participation agreement from its current 3 years to a 5-
year agreement, for all tracks, including not only the initial 
agreement, but all subsequent agreements. These commenters explained 
that this would make the program more attractive by increasing program 
stability and providing ACOs with the necessary time to achieve the 
desired quality and financial outcomes. However, a commenter expressed 
concern that rebasing every 5 years (as opposed to rebasing with each 
3-year agreement) may not be authorized under section 1899(d) of the 
Act.
    Response: Section 1899(d)(1)(B)(ii) of the Act specifies the 
benchmark shall be reset at the start of each agreement period, while 
section 1899(b)(2)(B) specifies the ACO shall enter into an agreement 
to participate in the program for not less than a 3-year period. While 
we have the authority under section 1899(b) of the Act to establish 
agreements for periods longer than a term of three years, we decline to 
take commenters' suggestions regarding extending the first agreement 
period for ACOs. We believe it is appropriate to maintain a 3-year 
agreement period to provide continuity with the design of the program 
finalized with the November 2011 final rule. Furthermore, we do not 
believe an extension of ACO's first agreement period is necessary, 
particularly to address the situation of ACOs whose agreements conclude 
December 31, 2015, given the modifications to the program's current 
rules that we are making in this final rule. For one, we are finalizing 
our proposal to permit ACOs to participate in an additional agreement 
period under Track 1. This change should alleviate concerns of 
commenters who favored extending the agreement period to make the 
program more attractive to Track 1 ACOs, particularly those who need 
additional time in Track 1 to become experienced with the accountable 
care model before transitioning to performance-based risk. Second, as 
explained in greater detail elsewhere in this final rule, we are 
modifying the rebasing methodology to make continued participation in 
the program more attractive to ACOs, particularly by equally weighting 
the benchmark years and accounting for savings generated under the 
ACO's prior agreement period. These modifications address commenters' 
concerns regarding the need for extended agreement periods to provide 
greater stability to ACO benchmarks. Further, we recognize that the 
longer the agreement period, the greater an ACO's chance to build on 
the success or continue the failure of its current agreement. Therefore 
we believe rebasing every 3 years, at the start of each agreement 
period, is important to protect both the Trust Funds and ACOs.
    FINAL ACTION: We are finalizing our proposal to remove the 
requirement at Sec.  425.600(b) that ACOs that enter the program under 
Track 1 (one-sided model) must transition to Track 2 (two-sided model) 
after one agreement period if they wish to continue participating in 
the Shared Savings Program. We are

[[Page 32764]]

revising the regulation to permit ACOs that have completed a 3-year 
agreement under Track 1 to enter into one additional 3-year agreement 
under Track 1. We have also made some minor revisions to the proposed 
language at Sec.  425.600(b) to further clarify that ACOs may operate 
under the one-sided model for a maximum of two agreement periods.
(2) Eligibility Criteria for Continued Participation in Track 1
    In section II.C.3. of this final rule, we discuss criteria for 
determining whether to allow ACOs that are currently participating in 
the program to renew their participation agreements for subsequent 
agreement periods. We proposed to make the option of participating in 
Track 1 for a second agreement period available to only those Track 1 
ACOs that: (1) Meet the criteria established for ACOs seeking to renew 
their agreements (as discussed in section II.C.3. of this final rule, 
including demonstrating to CMS that they met the quality performance 
standard during at least 1 of the first 2 years of the previous 
agreement period); and (2) did not generate losses in excess of the 
negative MSR in at least 1 of the first 2 performance years of the 
previous agreement period. We explained that if the ACO's financial 
performance results in expenditures in excess of the negative MSR in 
only 1 of the first 2 performance years, then we would accept the ACO's 
request to renew its participation agreement under the one-sided model, 
provided all other requirements for renewal were satisfied. Through 
this proposed policy we aimed to encourage the continued participation 
of ACOs that are successful and have the potential to move toward 
accepting greater responsibility for the care of their beneficiaries. 
Further, we explained that the proposed policy would prevent 
consistently poor performers from being able to seamlessly continue in 
program participation under the one-sided model while permitting some 
leeway for ACOs that are new to the program and may have had some 
difficulty in cost or quality performance in 1 of the first 2 
performance years. We further explained that these additional 
eligibility criteria would serve as an important safeguard to reduce 
the potential for ACOs to participate in the program for reasons other 
than a commitment to improving the value of health care services. We 
also recognized that because our assessment would be based on only 2 
years of data, we would not have a complete picture of the ACO's 
performance during the agreement period. That is, an ACO may 
financially perform very poorly, exceeding the negative MSR in its 
first and second performance years, but demonstrate a trend in a 
direction that could ultimately lead to better performance in the third 
year. Under our proposal this ACO would not be permitted to renew its 
agreement under Track 1 for a second agreement period. However, we 
acknowledged that an argument could be made that this ACO simply needed 
the additional time under a one-sided model to gain experience and 
start improving. Therefore, we sought comment on whether we should also 
consider the direction the ACO's performance is trending when 
determining whether to permit renewal of an ACO's participation 
agreement under Track 1. We also sought comment on whether other 
options for such ACOs, short of refusing their participation in a 
second agreement period under Track 1, would better serve program 
goals. We noted that such ACOs would not be precluded from renewing 
their participation agreement in order to participate under a two-sided 
risk track, consistent with Sec.  425.600(c). We also emphasized that 
in addition to meeting the specific criteria to be eligible to continue 
in Track 1, the ACO must also demonstrate that it meets the 
requirements to renew its agreement under proposed Sec.  425.224, which 
would include the requirement that the ACO establish that it is in 
compliance with the eligibility and other requirements of the Shared 
Savings Program. While the eligibility criteria for renewing ACOs are 
discussed in detail in section II.C.3. of this final rule, the 
following discussion is limited only to the additional financial 
performance criterion proposed for determining the eligibility of Track 
1 ACOs to continue under the one-sided model for a second agreement 
period.
    Comment: Several commenters agreed with the proposed criteria for 
evaluating whether an ACO could continue under Track 1, for example 
indicating that the proposed criteria would reasonably hold ACOs 
accountable for noticeable improvement in their first agreement period. 
A commenter explained that it is important that failing organizations 
not continue ``free-riding'' the benefits of the program without 
showing clear signs of improving quality and controlling health care 
costs. Several other commenters also expressed direct support for the 
financial performance criterion as proposed.
    However, several others recommended more stringent requirements 
than those we proposed, for instance suggesting CMS terminate the 
following categories of ACOs from the program:
     ACOs who do not demonstrate year-to-year improvements in 
controlling costs and improving quality.
     ACOs who failed to meet their benchmark under their first 
agreement period (or allow these ACOs to participate for a second 
agreement period only under a reduced sharing rate).
    On the other hand, many commenters were opposed to using an ACO's 
prior financial performance, as proposed, to determine whether it 
should be permitted to continue under Track 1. Commenters offered a 
number of reasons for opposing a requirement that ACOs must not have 
generated losses in excess of their negative MSR in at least 1 of the 
first 2 performance years to be eligible to continue in Track 1:
     The policy may disadvantage certain ACOs that need more 
time to fully implement strategies in care management that consistently 
yield savings, such as newly formed, smaller and rural ACOs, and those 
with certain provider compositions (such as those that include teaching 
hospital participants).
     The policy may discourage providers from participating in 
ACOs because it sends a signal that CMS will ``pull the plug'' on 
underperforming ACOs, and seems not to recognize the significant start-
up costs and learning curve to establish a successful ACO.
     It may be premature to judge an ACO's ability to perform 
on data from only 2 years of program participation, particularly as 
some ACOs have faced a steep learning curve.
    Several commenters pointed to publicly available performance 
results in explaining that variation in generating savings and losses 
relates more to an ACO's benchmark per capita spending than to the 
ACO's number of assigned beneficiaries (and therefore its MSR under the 
one-sided model). In light of this information, commenters suggested 
that CMS reconsider the proposed financial performance requirement for 
continued participation in Track 1.
    Some commenters requested greater leniency in determining whether 
ACOs can continue participating in Track 1 based on their past 
financial performance and suggested various alternatives to the 
proposed criteria which include the following:
     Removing the financial performance criterion altogether 
from the determination of whether an ACO is eligible to renew under 
Track 1, with some commenters suggesting CMS focus

[[Page 32765]]

more on ACO quality performance in determining their eligibility to 
renew their agreements.
     A case-by-case assessment of each ACO not meeting the 
criterion or a reconsideration process, or both, so that CMS can review 
any compelling reasons why the organization generated losses outside 
its negative MSR in its first 2 years and consider any mitigating 
factors (for example, patterns of performance improvement or changes in 
ACO composition).
     Consideration of the ACO's performance trend over the 
first 2 years, and if the ACO's financial or quality data showed 
improvement from the first to the second year, then it would be 
permitted to renew under Track 1, or permitting ACOs to continue in 
Track 1 under probationary status for 1 or 2 years to allow them time 
to demonstrate a change in trends.
     Permitting ACOs that exhibit bona fide efforts to pursue 
the program's goals to continue under Track 1.
    A commenter indicated that entities should only be permitted the 
opportunity to renew under the one-sided model for one additional 3-
year agreement, and entities that are unable to demonstrate adequate 
performance within 6 years should not be permitted to remain in the 
Shared Savings Program.
    Several comments seemed to reflect commenters' misunderstanding of 
the proposed policy, interpreting it to mean that an ACO who either 
failed to satisfy the quality performance requirements in one of its 
first 2 performance years, or generated losses in excess of its 
negative MSR in one of its first 2 performance years would be 
ineligible to continue in Track 1 for a second agreement period. 
Another commenter seems not to have understood the proposed policy, 
believing CMS indicated that only ACOs with losses outside their 
negative MSR would be eligible to continue in Track 1 for a second 
agreement period.
    Response: As discussed in section II.C.3. of this final rule, we 
are finalizing general criteria that will apply to all renewing ACOs, 
including the requirement that an ACO meet the quality performance 
standard during at least 1 of the first 2 years of its previous 
agreement period. We are persuaded by commenters' concerns that 
application of the additional proposed financial performance criterion 
for continued participation in Track 1 may come too early for ACOs who 
initially struggle to demonstrate cost savings in their first years in 
the program. Therefore, we are modifying our proposed criteria for an 
ACO to qualify for an additional agreement period under Track 1. We are 
not finalizing an additional renewal criterion for ACOs seeking to 
renew for a second agreement period under Track 1 that would consider 
the ACO's financial performance during its first 2 performance years in 
its prior agreement period. We believe that the general criteria that 
would apply to all renewing ACOs (see section II.C.3. of this final 
rule) are sufficient to address program integrity and program 
compliance concerns that failing organizations or those lacking a bona 
fide interest in the program would be allowed to continue their 
participation. Further, we believe our authority to monitor ACOs 
(Sec. Sec.  425.316) allows us to take action to address ACOs who are 
outliers on financial performance by placing poorly performing ACOs on 
a special monitoring plan. Furthermore, if our monitoring reveals that 
the ACO is out of compliance with any of the requirements of the Shared 
Savings Program, we may request a corrective action plan and, if the 
required corrective action is not taken or satisfactorily implemented, 
we may terminate the ACO's participation in the program.
    Comment: Several commenters made suggestions that CMS focus on 
establishing criteria for determining an ACO's readiness to transition 
to performance-based risk. Generally, some comments suggested that ACOs 
should be encouraged to adopt two-sided risk payment models as soon as 
they have the capacity to do so. Commenters offered a variety of 
suggestions on how CMS could determine an ACO's readiness to accept 
performance-based risk. A commenter suggested Track 1 ACOs whose 
performance year expenditures are lower than their benchmarks should 
move into the two-sided model. A commenter suggested requiring ACOs to 
achieve shared savings under Track 1 before being permitted to move to 
a two-sided model; another commenter suggested that ACOs transition to 
the two-sided model once they demonstrate success in the program by 
earning a shared savings payment in 2 consecutive performance years. A 
commenter suggested looking at the ACO's performance trends and whether 
it is accredited by NCQA or URAC in determining its readiness to 
transition to performance-based risk, and, if not, allowing an annual 
renewal process for up to 3 additional years under Track 1 beyond the 
first agreement period. A few commenters suggested that ACOs with a 
certain composition of ACO participants be required to transition to 
two-sided risk sooner, for instance suggesting that hospital/health 
system-led or sponsored ACOs should be pushed towards two-sided risk 
based on the belief that these ACOs are more entrenched in volume-based 
(as opposed to value-based) incentives. A commenter suggested that an 
ACO's risk sharing should vary based on its data sharing capabilities 
in relation to the availability of data sharing infrastructure in the 
state where it is located. According to this commenter, this approach 
would recognize the disparities in states' capabilities to share data 
through health information exchanges, and the higher costs for ACOs to 
develop data sharing infrastructure in states without robust, 
preexisting data sharing infrastructure.
    More generally, a few commenters recommended allowing ACOs to 
remain in Track 1 until they can demonstrate readiness to accept 
performance-based risk. A commenter recommended that CMS continue to 
explore additional ways to provide Track 1 ACOs with a glide path to 
two-sided risk and articulate a defined point at which Track 1 ACOs 
must move into Track 2 or 3.
    Response: Under the general framework of the Shared Savings 
Program, as modified by this final rule, ACOs participating under the 
one-sided model will be required to transition to the two-sided model 
or terminate their participation after the conclusion of their second 
agreement period under Track 1. As previously discussed, this policy 
balances the need for ACOs to gain more experience in the program under 
the one-sided model with the importance of ACOs transitioning to 
performance-based risk. We appreciate the suggestions around 
establishing criteria for determining ACO readiness to accept risk. 
However, we consider these comments beyond the scope of the proposals 
and other issues on which we sought comment in the December 2014 
proposed rule, and decline at this time to implement additional 
requirements for determining an ACO's readiness to enter performance-
based risk arrangements. As comments discussed elsewhere in this final 
rule indicate, the decision to enter performance-based risk is highly 
specific to each organization, and its perceived readiness to bear 
performance-based risk in relation to various other factors including 
(among others) its provider composition and historical cost performance 
and financial trends, assigned beneficiary population, and the 
benchmarking and shared savings/losses methodology under the Shared 
Savings Program.
    FINAL ACTION: The general criteria described in section II.C.3. of 
this final rule apply to all renewing ACOs,

[[Page 32766]]

including Track 1 ACOs applying for a second agreement period under the 
one-sided model. Under Sec.  425.224(b), CMS will evaluate an ACO's 
participation agreement renewal based on all of the following factors:
     Whether the ACO satisfies the criteria for operating under 
the selected risk model.
     The ACO's history of compliance with the requirements of 
the Shared Savings Program.
     Whether the ACO has established that it is in compliance 
with the eligibility and other requirements of the Shared Savings 
Program, including the ability to repay losses, if applicable.
     Whether the ACO met the quality performance standards 
during at least 1 of the first 2 years of the previous agreement 
period.
     For an ACO under a two-sided model, whether the ACO has 
repaid losses owed to the program that it generated during the first 2 
years of the previous agreement period.
     The results of a program integrity screening of the ACO, 
its ACO participants, and its ACO providers/suppliers (conducted in 
accordance with Sec.  425.304(b)).
    We are not finalizing any additional financial performance criteria 
for determining the eligibility for Track 1 ACOs to continue under the 
one-sided model for a second agreement period. We have modified the 
proposed revisions to Sec.  425.600(b) to reflect this final policy. 
Additionally we are making conforming changes to Sec.  425.600(c). This 
provision currently specifies that an ACO with net losses in its 
initial agreement period that reapplies to participate under the 
program must identify in its application the cause(s) for the net loss 
and what safeguards are in place to enable the ACO to potentially 
achieve savings in the next agreement period. Specifically, we are 
revising the provision to apply to ACOs seeking to renew their 
participation agreements for a second or subsequent agreement period.
(3) Maximum Sharing Rate for ACOs in a Second Agreement Period Under 
Track 1
    As part of our proposal to allow ACOs to participate in a second 
agreement period under the one-sided model, we proposed to reduce the 
sharing rate by 10 percentage points for ACOs in a second agreement 
period under Track 1 to make staying in the one-sided model less 
attractive than moving forward along the risk continuum. As a result, 
the maximum sharing rate for an ACO in a second agreement period under 
Track 1 would be 40 percent. Accordingly, in addition to our proposed 
change to Sec.  425.600(b) to allow ACOs to participate under Track 1 
for a second agreement period, we proposed to modify Sec.  425.604(d) 
to provide that the maximum sharing rate during a second agreement 
period under Track 1 would be 40 percent.
    We sought comment on this proposal. In particular, we requested 
input on whether a 40 percent sharing rate in a second agreement period 
under the one-sided model is sufficient to incentivize an ACO that may 
need more time to prepare to take on two-sided performance-based risk 
while also encouraging ACOs that are ready to take on performance-based 
risk to choose to continue participation in the Shared Savings Program 
under a two-sided model.
    We also considered other variations and options for allowing ACOs 
additional time in the one-sided model. For example, we considered 
allowing ACOs to continue under Track 1 for a second agreement period 
without any changes to the sharing rate (that is, retaining the 50 
percent sharing rate in the second agreement period). However, we 
expressed our concern that if ACOs are able to continue to receive up 
to 50 percent of savings in a second agreement period there may be 
insufficient incentive for many ACOs that may be ready to take on two-
sided risk to move to a track with two-sided risk after their first 
agreement period. We specifically sought comments on the other options 
we considered, including extending an ACO's Track 1 agreement period 
for an additional 2-years rather than permitting two 3-year agreement 
periods under Track 1, permitting ACOs to participate in a second 
agreement period under Track 1 with no change to the sharing rate, and 
offering multiple agreement periods under Track 1 while reducing the 
sharing rate by 10 percentage points for each subsequent agreement.
    Comment: Some commenters, including MedPAC, were in favor of 
reducing the sharing rate for ACOs in a second agreement period under 
Track 1. Several commenters noted the importance of moving ACOs to 
performance-based risk for driving meaningful changes by providers in 
health care quality and spending, and a commenter recognized that not 
all ACOs will be able to make this transition. In this commenter's 
view, CMS should not be focused on maximizing the number of ACOs in the 
program, rather it should be encouraging ACOs with robust ability to 
improve quality and control spending growth to be in the program and to 
reward them appropriately. Several commenters indicated that the 
proposed reduction of the sharing rate by 10 percentage points in the 
second agreement period strikes a reasonable balance between allowing 
promising ACOs to continue for a limited time without bearing risk and 
encouraging ACOs to transition to two-sided risk. Another commenter 
explained that the lower sharing rate would provide an incentive to 
entities that may be on the cusp of considering moving to a two-sided 
risk model. Several suggested dropping the rate to 45 percent for ACOs 
continuing under the one-sided model after their first agreement period 
in combination with increasing the sharing rate (for example, by at 
least 5 percentage points) under the two-sided model to serve as an 
incentive for ACOs to transition to performance-based risk. At the same 
time, several other commenters recommended dropping the sharing rate 
under the one-sided model even further, for example to 20 percent, 25 
percent or 30 percent under the second agreement period, or making a 5 
percentage point reduction for each year under the second agreement 
period. These commenters expressed concern that the proposed 10 
percentage point reduction in the sharing rate for ACOs that continue 
in Track 1 may not be sufficient to encourage ACOs to more quickly 
accept performance-based risk.
    However, a majority of the commenters were strongly opposed to 
reducing the sharing rate under a subsequent Track 1 agreement. These 
commenters cautioned that such a policy could have adverse effects on 
program participation, suggesting the reduction in sharing rate would 
be a significant disincentive for ACOs to continue in the program and 
may discourage ACOs from forming. In particular, ACOs may choose to 
leave the program, or not enter the program at all, if they determine 
they are not prepared to transition to performance-based risk tracks, 
which offer higher sharing rates, and the proposed 40 percent sharing 
rate under Track 1 is insufficient to justify the cost and effort 
required to reach and maintain the high level of performance needed to 
achieve success. Others stated their belief that reducing the sharing 
rate under the one-sided model is merely punitive. Commenters provided 
a variety of reasons why a reduction in sharing rate disadvantages ACOs 
and the program. Many pointed to the financial risk of ACO formation 
and participation in the program under the one-sided model due to the 
significant upfront investments necessary for ACO formation and ongoing 
operational costs to support

[[Page 32767]]

infrastructure (such as IT solutions) and process development, 
staffing, population management, care coordination, quality reporting, 
and patient education. Some explained that the existing sharing rate of 
50 percent is too low, and a further reduction in the sharing rate 
would ratchet down the potential for ACOs to realize return on 
investment, which is the key for some organizations to continue funding 
their operations. Some commenters pointed to the phase-in of pay for 
performance for quality measures as a factor that will further reduce 
the sharing rate for Track 1 ACOs. Others pointed to the MSR as already 
providing an additional hurdle for Track 1 ACOs to cross before they 
may share in savings they generate. Others pointed to the program's 
first year financial performance results and the limited number of ACOs 
that shared in savings, indicating it is too soon to reduce the sharing 
rate since so few ACOs have begun to see any return on investment. 
Another commenter pointed out that a reduced sharing rate would impair 
ACOs' ability to appropriately reward participating providers. Taken 
together, commenters explained their belief that this level of return 
on investment is not sustainable for ACOs and could result in ACOs 
leaving the program. A few commenters noted the particular importance 
of maintaining the sharing rate for small, provider-based and rural 
ACOs. A commenter suggested sustaining the sharing rate at 50 percent 
under the one-sided model could encourage small, rural ACOs to enter 
and remain in the program, explaining that these types of entities may 
face a steeper learning curve in developing the capacity to meet the 
program's goals (for instance needing more time to fully implement 
strategies in care management that consistently yield savings and 
developing collaborations across providers to enable effective care 
management), and require additional capital and human resources to 
succeed. Several commenters explained that a reduced sharing rate under 
the one-sided model does not improve the attractiveness of the two-
sided model. Others explained that maintaining the current sharing rate 
could provide ACOs with the funds needed to support the ACO and to 
prepare for managing increased performance-based risk.
    In the alternative, some commenters recommended the following 
different approaches that would maintain the Track 1 sharing rate at 50 
percent, slow the reduction of the sharing rate, or increase the 
sharing rate for ACOs that continue under Track 1 after their first 
agreement period:
     Increase the sharing rate, for example, to over 80 
percent.
     Allow ACOs to continue in Track 1 indefinitely with no 
reduction in sharing rate.
     Allow ACOs to continue in Track 1 for more than 2 
agreement periods with a continued reduction in sharing rate (for 
example, a 10 percentage point decrease) for each subsequent agreement. 
Several commenters suggested a slower phase-in of the reduction of the 
sharing rate, for example by reducing the sharing rate below 50 percent 
starting in the third agreement period.
     Allow Track 1 ACOs the opportunity to extend their initial 
3 year agreement by 2 or 3 additional years, and to maintain the 50 
percent sharing rate during these additional years.
     Decreasing the sharing rate only for select ACOs as a 
means of encouraging these ACOs to move to the two-sided model while 
providing sufficient incentive for ACOs with less success to continue 
to innovate in a subsequent agreement period under Track 1. For 
instance, decreasing the sharing rate for ACOs that demonstrated shared 
savings in their first agreement period, or decreasing the sharing rate 
for higher-cost ACOs (or requiring these ACOs to accept performance-
based risk) while increasing the sharing rate for lower-cost ACOs.
    A few commenters suggested that certain types of ACOs should be 
exempt from the reduction in sharing rate, such as rural ACOs, and ACOs 
comprised largely of practicing physicians or primary care physicians 
(as opposed to ACOs that include a hospital or health system as an ACO 
participant).
    Response: We were influenced by the comments indicating that a 
reduced sharing rate under the one-sided model does not necessarily 
increase the attractiveness of the two-sided model, but rather could 
impede the progression to risk by ACOs needing additional experience 
with the accountable care model. Specifically, we are persuaded by 
comments suggesting that maintaining the sharing rate at a maximum of 
50 percent for Track 1 may result in payments to ACOs that in turn can 
be used by ACOs to prepare their infrastructure and financial reserves 
for transitioning to performance-based risk. We further believe this 
policy helps address concerns of commenters about the need for ACOs to 
achieve a return on investment through shared savings, and in 
particular, could encourage continued participation by ACOs who have 
not yet been eligible for a performance payment by the time they must 
determine whether to continue in the program for a second agreement 
period. Further, since we are only permitting one additional agreement 
period under the one-sided model, as opposed to multiple additional 
agreement periods, we believe it is reasonable to sustain the maximum 
sharing rate at 50 percent. In light of this determination, we decline 
to accept the suggestions by commenters to further reduce the sharing 
rate for ACOs who continue under Track 1 (to lower than 40 percent). 
Given our interest in ACOs progressing to performance-based risk, we 
decline to accept the recommendations to more slowly transition ACOs to 
performance-based risk arrangements, such as the suggestions to allow 
multiple agreement periods under Track 1 with the same or a 
progressively decreasing sharing rate. We also decline to select 
certain ACOs for eligibility for a reduced sharing rate, based on past 
performance, composition or geography, because we believe the 
previously noted considerations that support maintaining the sharing 
rate at 50 percent are applicable to ACOs of varying forms and 
locations. At the same time, we believe that decreasing the sharing 
rate for ACOs who remain under the one-sided model would provide little 
if no incentive for ACOs to eventually transition to performance-based 
risk, and could result in ACOs languishing under the one-sided model. 
Therefore, we are finalizing a policy that would offer continuation of 
the 50 percent sharing rate to ACOs participating in a second agreement 
under Track 1.
    FINAL ACTION: We are not finalizing our proposed amendment to 
section 425.604(d) to reduce the maximum sharing rate during an ACO's 
second agreement period under Track 1. Therefore, an ACO participating 
under Track 1 for a second agreement period that meets all the 
requirements for receiving shared savings payments under the one-sided 
model will receive a shared savings payment of up to 50 percent of all 
savings, as determined on the basis of its quality performance, as 
currently specified under Sec.  425.604(d).
(4) Eligibility for Continued Participation in Track 1 by Previously 
Terminated ACOs
    In light of our proposed revisions to Sec.  425.600 to permit an 
ACO to participate under Track 1 for a second agreement period, we 
proposed conforming changes to Sec.  425.222(c) to permit previously 
terminated Track 1 ACOs to reapply under the one-sided model. We 
proposed that, consistent

[[Page 32768]]

with our existing policy under Sec.  425.222(c), an ACO whose agreement 
was terminated less than half way through the term of its participation 
agreement under Track 1 would be permitted to reapply to the one-sided 
model as if it were applying for its first agreement period. If the ACO 
were accepted to reenter the program, the maximum sharing rate would be 
50 percent. However, in the case of an ACO that was terminated more 
than half way through its initial agreement under the one-sided model, 
we proposed to revise Sec.  425.222(c) to permit this ACO to reapply 
for participation under the one-sided model, but to provide that the 
ACO would be treated as if it were applying for a second agreement 
period under Track 1. Thus, if the ACO were approved to participate in 
the program again, the reduced sharing rate of 40 percent would apply. 
An ACO whose prior agreement under Track 2 was terminated would still 
be precluded from applying to participate under Track 1. We sought 
comment on these proposals.
    We further noted in December 2014 proposed rule that the option to 
participate under the one-sided model agreement in a subsequent 
agreement period is only available to ACOs that have completed or are 
in the process of completing an agreement under the one-sided model. 
That is, we would not permit an ACO that had participated under a two-
sided model to subsequently participate under a one-sided model.
    Comment: We received very few comments on these proposals. A 
commenter supported the proposal to allow previously terminated ACOs to 
reapply to Track 1 if they can still meet the necessary eligibility 
requirements and demonstrate the capability to meet program financial 
and quality targets.
    Several commenters disagreed with the policy that an ACO that was 
previously terminated from Track 2 would not be allowed to reapply to 
Track 1. These commenters explained that it may be more prudent for 
these organizations to reapply for Track 1 and then move to Track 2 
when they are ready. A commenter specifically suggested that CMS should 
allow any ACO, regardless of what track it entered the program under 
and when it was terminated, to reapply for Track 1 at a 50 percent 
sharing rate. A commenter suggested that an ACO that was terminated 
from Track 2 should be allowed to enter into Track 1; however, under 
these circumstances the ACO should be required, as part of its 
application, to provide detailed plans for correcting the deficiencies 
noted under the prior agreement.
    A commenter expressed support for an existing program policy 
specified at Sec.  425.222(a) of the regulations, under which an ACO 
that has been terminated from the Shared Savings Program under 
Sec. Sec.  425.218 or 425.220 may participate in the Shared Savings 
Program again only after the date on which the term of the original 
participation agreement would have expired if the ACO had not been 
terminated. The commenter explained that it is important to recognize 
that not all ACOs are immediately able to assume the full 
responsibility of shared savings. The onboarding process of becoming an 
ACO and developing the capabilities to achieve shared savings takes 
some organizations longer than anticipated, especially given some of 
the uncertainties of a new program. The commenter recommended that 
those ACOs that re-enroll in the program should be required to 
demonstrate improvement in the capabilities necessary to succeed under 
a shared savings model. The commenter recommended that CMS revisit at a 
later time the issue of whether and under what conditions previously 
terminated ACOs should be allowed to reapply.
    Response: Under our final policy to allow Track 1 ACOs who continue 
under the one-sided model for a second agreement period to be eligible 
for a maximum sharing rate of 50 percent based on quality performance, 
the issue of when to apply a reduced sharing rate for previously 
terminated ACOs who reapply to Track 1 is superseded. However, we are 
finalizing our proposed approach for determining whether an ACO 
previously terminated from Track 1 is re-entering the program under its 
first or second agreement period under Track 1, specifically an ACO 
whose agreement was terminated--
     Less than half way through its first agreement under the 
one-sided model will be permitted to reapply to the one-sided model as 
if it were applying for its first agreement period; or
     More than half way through its first agreement under the 
one-sided model will be permitted to reapply to the one-sided model and 
would be treated as if it were applying for a second agreement period 
under Track 1.
    Since we are finalizing a policy under which ACOs may continue to 
participate in the one-sided model for a second agreement period, we 
believe it is important to clarify the choice of financial models for 
ACOs whose participation is terminated under their second agreement 
period and reapply to participate in the program. In addressing this 
issue, we believe it is important to align with the approach 
established by the original policy: To give an ACO whose participation 
was terminated before completing half of its agreement period the 
opportunity to reapply to enter the financial model it was 
participating under at the time of termination. Specifically:
     An ACO whose agreement was terminated less than half way 
through its second agreement period under the one-sided model will be 
permitted to reapply to the one-sided model and would be treated as if 
it were applying for a second agreement period under Track 1.
     An ACO whose agreement was terminated more than half way 
through its second agreement under the one-sided model will only be 
permitted to reapply for participation under the two-sided model.
    We are revising the regulation at Sec.  425.222(c) to reflect this 
clarification.
    We will not at this time to modify our current policy that 
prohibits an ACO whose prior agreement under Track 2 was terminated 
from applying to participate under Track 1. Commenters presented 
reasons for why ACOs who terminate from the two-sided model should be 
allowed to reenter the program under the one-sided model. However, in 
light of our decision to extend participation under Track 1 for a 
second agreement period, we believe it is especially important to 
establish policies to support an earnest transition to performance-
based risk by Track 1 ACOs. Should we finalize a policy that allows 
terminated two-sided model ACOs to reapply to Track 1, we are concerned 
this would create an opportunity for Track 1 ACOs to enter the two-
sided model and quickly terminate in an effort to reset the clock on 
the participation in the one-sided model.
    Further, we appreciate commenter's suggestions about the need for 
terminated ACOs reapplying to the program to demonstrate their capacity 
to achieve program goals. As we established in the 2011 final rule, a 
terminated ACO reapplying to the program must describe the reason for 
termination of its initial agreement and explain what safeguards are 
now in place to enable the prospective ACO to participate in the 
program for the full term of its participation agreement. We continue 
to believe it is an important beneficiary and program protection to 
limit participation in the program to providers and suppliers who are 
dedicated to the goals of the program.
    We appreciate the commenters' support for the existing policy under

[[Page 32769]]

which a previously terminated ACO may participate in the Shared Savings 
Program again only after the date on which the term of the original 
participation agreement would have expired if the ACO had not been 
terminated. As we explained in the 2011 final rule (76 FR 67961), we 
continue to believe that in order to ensure protection for 
beneficiaries and the program, ACOs should not be allowed to re-enter 
the Shared Savings Program before the conclusion of their initial 
agreement period.
    FINAL ACTION: We are finalizing our proposal to permit previously 
terminated Track 1 ACOs to reapply under the one-sided or two-sided 
model and to differentiate between whether the ACO will be applying for 
its first or second agreement period under Track 1 based on when the 
ACO terminated its previous agreement. Accordingly, we are finalizing 
the proposed changes to Sec.  425.222(c), but are making additional 
revisions to clarify the treatment of previously terminated Track 1 
ACOs that were in their second agreement period at the time of 
termination.
c. Modifications to the Track 2 Financial Model
    To complement the proposals to extend ACOs' participation under 
Track 1 for a second agreement period to smooth the on ramp to risk, we 
proposed to modify the financial model under Track 2 for ACOs choosing 
this two-sided option to further encourage ACOs to accept increased 
performance-based risk. Specifically, we proposed to retain the 
existing features of Track 2 with the exception of modifying the 
threshold that Track 2 ACOs must meet or exceed in order to share in 
savings (minimum savings rate (MSR)) or losses (minimum loss rate 
(MLR)) from the current flat 2 percent to vary based upon the size of 
the ACO's assigned beneficiary population, as determined based on the 
methodology for setting the MSR under the one-sided model in Sec.  
425.604(b) as shown in Table 8. We explained in the December 2014 
proposed rule that, as compared to the MSR used for Track 1, the flat 2 
percent MSR/MLR generally offers a lower savings threshold for Track 2 
ACOs to meet in order to share in savings, and was established in 
recognition of the Track 2 ACOs' willingness to assume the risk of 
incurring shared losses (79 FR 72807). The proposal to vary the Track 2 
MSR/MLR based on the number of beneficiaries assigned to the ACO would 
reduce risk for smaller ACOs by increasing the threshold before they 
would have to share in additional costs that they incur for the 
program. In turn, smaller ACOs would also have to achieve a greater 
level of savings under a higher MSR in order to share in savings (79 FR 
72807). We explained our belief that by building in greater downside 
protection, this proposal might help smooth the on-ramp to performance-
based risk for ACOs, particularly ACOs with smaller assigned 
populations and those with less experience with population management, 
making the transition to a two-sided model more attractive. With the 
proposed addition of Track 3 to the program, discussed later in this 
section, we explained that Track 2 could be viewed as a first step for 
some organizations to accepting performance-based risk.

Table 6--Proposed Minimum Savings Rate and Minimum Loss Rate for Track 2
------------------------------------------------------------------------
                                     MSR/MLR (low end  MSR/MLR (high end
                                       of assigned        of assigned
      Number of beneficiaries         beneficiaries)     beneficiaries)
                                           (%)                (%)
------------------------------------------------------------------------
5,000-5,999.......................                3.9                3.6
6,000-6,999.......................                3.6                3.4
7,000-7,999.......................                3.4                3.2
8,000-8,999.......................                3.2                3.1
9,000-9,999.......................                3.1                3.0
10,000-14,999.....................                3.0                2.7
15,000-19,999.....................                2.7                2.5
20,000-49,999.....................                2.5                2.2
50,000-59,999.....................                2.2                2.0
60,000 +..........................                  2.0%
------------------------------------------------------------------------

    We explored other ways to reduce financial risk for ACOs 
participating under Track 2, such as increasing the MSR/MLR using a 
fixed percent. For example, we considered using an MSR and MLR 
threshold of 3 or 4 percent that would apply to all ACOs participating 
in Track 2. We sought comments on this proposal as well as other 
options that could potentially make Track 2 more financially attractive 
to ACOs. We requested that commenters indicate why they believe an 
alternative option would be more attractive to ACOs than the one 
proposed and the specific reason why the option would be beneficial. We 
also requested that commenters consider whether additional safeguards 
should be implemented to appropriately protect the Medicare Trust 
Funds, if an alternative approach were to be adopted.
    Comment: Commenters generally agreed with our concern that the 
existing Track 2 features may not be sufficiently attractive for ACOs 
to take on performance-based risk. In particular, some commenters 
favored protecting Track 2 ACOs with smaller patient populations from 
losses, and for this reason supported higher MLRs for these ACOs. 
Several commenters, who favored limiting ACOs' exposure to risk, seemed 
to misunderstand the function of a higher MLR as being more protective 
of ACOs against financial risk.
    Commenters for and against the proposed modification were fairly 
evenly divided. Some commenters supported our proposal to modify both 
the MSR and MLR to vary based on the size of the ACO's assigned 
population, stating that the variable rate would add protection from 
losses for smaller ACOs and encourage participation in Track 2. Several 
commenters suggested that if a variable rate were to be used in Track 
2, the range be narrowed, for example to a range of 1.5 through 2.5 
percent (or no more than 2 percent) based upon the size of the ACO's 
assigned population. A commenter, who supported the proposal, explained 
that the proposed methodology based on standard inferential statistics 
reduces the probability of rewarding or punishing changes in 
expenditures which could be attributed to normal variation.

[[Page 32770]]

    Others opposed changes to current policy which would increase the 
MSR/MLR and recommended that we retain the flat 2 percent MSR/MLR for 
Track 2 ACOs. A commenter explained that ACO participants willing to 
take on risk should be rewarded with a lower MSR, not one that is the 
same as the MSR used in a non-risk track. Several commenters explained 
the need to keep the MSR/MLR low to motivate Track 1 ACOs to make the 
transition to Track 2, suggesting that a variable MSR could make the 
track very unattractive relative to Track 1 and act as a disincentive 
for ACOs to move into performance-based risk. Several commenters 
explained that many small and rural ACOs believe they are disadvantaged 
by being held to a MSR of 3.9 percent when larger ACOs have a MSR of 
2.0 percent. These commenters indicated that CMS' proposal provided 
strong disincentives for small and rural entities to move into Track 2, 
as they would need to achieve almost twice the amount of savings as 
larger ACOs in order to receive a shared savings bonus.
    Still others recommended alternative modifications to the MSR/MLR 
under Track 2, with some commenters' suggestions about modifying the 
MSR/MLR emerging from their descriptions of alternatives to make 
performance-based risk more attractive under Tracks 2 and 3 as opposed 
to comments specifically on the proposed revisions to the Track 2 MSR/
MLR. Suggestions included--
     Permitting the ACO to choose its own MSR/MLR. Many 
commenters favored an approach that would allow ACOs a choice of 
options including: A fixed MSR/MLR of 2.0 percent, no MSR/MLR, or a 
variable MSR/MLR (for example, between 2-3.9 percent based upon number 
of assigned beneficiaries). Commenters explained that each organization 
is in the best place to determine the level of risk for which it is 
prepared, and thus should be given options to choose from, rather than 
being required to have a specific fixed or variable MSR and MLR. 
Several commenters indicated that allowing ACOs the choice of MSR/MLR 
would encourage ACOs to transition to the two-sided model and encourage 
participation in the program generally. Several commenters explained 
that a MSR/MLR are not necessary as normal variation will result in 
inaccuracies both above and below the benchmark that will balance each 
other out. However, a commenter--
     Favored not lowering the MSR/MLR below 1 percent, 
concerned it could result in savings or losses based on normal 
variation in utilization instead of changes in care for beneficiaries;
     Using a lower flat percent MSR/MLR, such as 1 percent; and
     Making the MLR variable (ranging from 2.0-3.9 percent) 
while using the flat 2 percent for the MSR. In this way, the ACO would 
be better protected from sharing in losses while enjoying a greater 
opportunity to share in savings.
    Another commenter suggested that the MLR range be broadened to be 
higher, such as 4 percent; and setting the MLR higher, for example, at 
5 percent, and allowing for a gradual reduction in the MLR over the 
course of time (for example, 1 percentage point per year) to ease the 
transition into risk.
    A few commenters responded to CMS' request for feedback on whether 
additional safeguards should be implemented to appropriately protect 
the Medicare Trust Funds, if an alternative approach were to be 
adopted. A commenter specified that additional provisions are not 
needed to safeguard the Medicare Trust Funds because Medicare stands to 
benefit more from the participation of ACOs compared to the lack of 
participation by these organizations in the program altogether. Another 
commenter explained that the preservation of symmetry in the MSR/MLR 
creates protection for CMS.
    Another commenter generally urged caution in making significant 
changes to the MSR/MLR rates going forward as such changes could 
negatively impact organizational planning. A commenter emphasized the 
importance of making the MSR/MLR the same under Track 2 and 3, to 
ensure equity across all ACOs assuming two-sided risk.
    Response: We are persuaded by commenters' statements that ACOs are 
best positioned to determine the level of risk which they are prepared 
to accept. We also agree with commenters that ACOs under the two-sided 
model should be allowed to select from a range of MSR/MLR options. 
Given the relatively even divide among commenters favoring and 
disfavoring the proposal to vary the Track 2 MSR/MLR by the number of 
assigned beneficiaries, we are also convinced this methodology is one 
of several options that ACOs should be allowed to choose from. However, 
we disagree with the options suggested by commenters to modify the 
range (for example, to lower the minimum or increase the maximum) based 
upon the ACO's number of assigned beneficiaries. We developed this 
range based on the range established for Track 1 ACOs in the initial 
rulemaking establishing the Shared Savings Program, and as a commenter 
pointed out, it was established based on standard inferential 
statistics. This approach reduces the probability of rewarding or 
punishing changes in expenditures which could be attributed to normal 
variation. We believe some ACOs want to have their MSR/MLR set based on 
this methodology. We also believe that increasing the MLR much higher 
above 3.9 percent may provide too great of a shield for ACOs entering 
the two-sided model. Therefore, it could foster the transition to risk 
by ACOs who have no intention of driving meaningful change in the 
quality and cost of the care furnished to their Medicare FFS 
beneficiaries.
    In defining the other MSR/MLR options for ACOs to choose from, as 
ae commenter pointed out, we believe it is important to preserve a 
symmetrical up- and down-side. We also agree with the comment that ACOs 
accepting performance-based risk should have the option to choose an 
MSR/MLR as low as 0 percent, since an ACO in this position would have a 
significant incentive to make meaningful changes in the quality and 
cost of care for its beneficiaries since it would be liable for risk 
beginning at the first dollar. To maximize flexibility on the MSR/MLR 
in response to comments expressing concerns that the MSR is too 
onerous, we believe it is also appropriate to offer ACOs a choice of a 
symmetrical MSR/MLR in increments of 0.5 percent between 0.5 percent 
and 2.0 percent.
    Therefore, we are modifying our proposal in order to give an ACO in 
Track 2 the ability to choose from a menu of options for setting its 
MSR and MLR for the duration of its agreement period. The menu of 
choices, reflecting our desire to retain symmetry between upside and 
downside risk, includes--
     Remove the MSR/MLR (the ACO shares in savings/losses from 
the first dollar);
     Select a symmetrical MSR/MLR in a 0.5 percent increment 
between 0.5-2.0 percent; and
     Implement a MSR/MLR that varies based on the size of the 
ACO's assigned population according to the methodology established 
under the one-sided model.
    Track 2 ACOs would have the opportunity to select their MSR/MLR 
prior to the start of their agreement period, as part their initial 
program application or agreement renewal application. No modifications 
to this selection would be permitted during the course of the agreement 
period.
    We believe that allowing Track 2 ACOs to customize their 
symmetrical MSR/MLR threshold for risk vs reward,

[[Page 32771]]

and implementing an identical approach under Track 3, is responsive to 
commenters' requests for greater flexibility in setting the threshold 
the ACO must meet before the ACO is eligible to share in savings or be 
accountable for losses. Further, we believe offering ACOs a choice of 
MSR/MLR will encourage ACOs to move to two-sided risk. For instance, 
ACOs who are more hesitant to enter a performance-based risk 
arrangement may choose a higher MSR/MLR, to have the protection of a 
higher threshold on downside risk, although they would in turn have a 
higher threshold to meet before being eligible to share in savings. 
ACOs who are comfortable with a lower threshold to protect them against 
risk of losses, may select a lower MSR/MLR to benefit from a 
corresponding lower threshold for sharing in savings. We also believe 
that applying the same MSR/MLR methodology in both of the two risk-
based tracks reduces complexity for CMS' operations and establishes 
more equal footing between the risk models.
    FINAL ACTION: We will retain the existing features of Track 2 with 
the exception of revising Sec.  425.606(b) to allow ACOs entering Track 
2 for agreement periods beginning January 2016 or later a choice among 
several options for establishing their MSR/MLR: (1) 0 percent MSR/MLR; 
(2) symmetrical MSR/MLR in a 0.5 percent increment between 0.5-2.0 
percent; and (3) symmetrical MSR/MLR that varies based on the ACO's 
number of assigned beneficiaries according to the methodology 
established under the one-sided model. Regarding this third option, the 
MSR for an ACO under Track 2 will be the same as the MSR that would 
apply in the one-sided model under Sec.  425.604(b) and is based on the 
number of beneficiaries assigned to the ACO, and the MLR must be equal 
to the negative MSR. We are also adopting a requirement that ACOs must 
select their MSR/MLR prior to the start of each agreement period in 
which they participate under Track 2 and this selection may not be 
changed during the course of the agreement period.
3. Creating Options for ACOs That Participate in Risk-Based 
Arrangements
a. Overview
    We proposed to develop a new risk-based Track 3 under Sec.  425.610 
which would be based on the current payment methodology under Track 2, 
but would also incorporate some different elements that may make it 
more attractive for entities to accept increased performance-based 
risk. We structured the features of Track 3 in light of our experience 
with the Shared Savings Program, comments from stakeholders, and early 
responses to the Pioneer ACO Model. In developing this new track, we 
aimed to encourage organizations to take on increasing financial risk 
in order to motivate even greater improvements in care and also to 
minimize the barriers faced by some ACOs that limit their willingness 
to accept performance-based risk. In evaluating what features might 
encourage ACOs to take on increasing financial risk, we considered 
several options, including modifying Track 1, modifying or eliminating 
Track 2, adding a new Track 3 to supplement the existing tracks, or a 
combination of these options.
    In general, unless otherwise stated, we proposed to model Track 3 
off the current provisions governing Track 2, which in turn are modeled 
on Track 1, and specifically to have the same general eligibility 
requirements, quality performance standards, data sharing requirements, 
monitoring rules, and transparency requirements. However, as we discuss 
later in this section, we proposed certain discrete features for Track 
3 that differentiate it from Track 2. Specifically, we proposed to make 
modifications to the beneficiary assignment methodology, sharing rate, 
and performance payment and loss sharing limits.
    Establishing Track 3 would require us to exercise our authority 
under section 1899(i)(3) of the Act, which requires that we determine 
that this policy: (1) ``. . . does not result in spending more for such 
ACO for such beneficiaries than would otherwise be expended . . . if 
the model were not implemented;'' and (2) ``. . . will improve the 
quality and efficiency of items and services furnished under this 
title.'' We applied this authority when proposing a two-sided risk-
based model in our April 2011 proposed rule (76 FR 19603), which was 
modified and made final in in our November 2011 final rule (76 FR 
67909). As discussed in our final rule (76 FR 67904), we stated our 
belief that Track 2 would provide an opportunity for organizations more 
experienced with care coordination and risk models that are ready to 
accept performance-based risk to enter a sharing arrangement that 
provides greater reward for greater responsibility. In the December 
2014 proposed rule (see 79 FR 72809), we expressed our belief that 
proposed Track 3 would offer an additional opportunity for ACOs to 
accept greater responsibility for beneficiary care in exchange for the 
possibility of greater reward. Moreover, we explained our belief that 
adding a second two-sided risk model would not result in an increase in 
spending beyond what would otherwise occur. As discussed later in our 
Regulatory Impact Analysis of this final rule, our initial estimates 
suggested that the inclusion of Track 3 along with the other 
modifications to the program regulations would improve savings for the 
Trust Funds resulting from this program. Further, in the December 2014 
proposed rule we explained our belief that adding Track 3 would improve 
the quality of care furnished to Medicare FFS beneficiaries because 
ACOs participating under Track 3 would have an even greater incentive 
to perform well on the quality measures in order to maximize the 
percentage of savings they may receive, while limiting their liability 
for any losses that might be incurred.
    In this section we discuss our final actions on our proposed 
policies related to the creation of Track 3.
    Comment: The majority of commenters providing feedback on the 
proposed Track 3 generally supported the addition of the new 
performance-based risk model based on prospective beneficiary 
assignment and offering ACOs multiple paths toward more accountable 
care. Many commenters supported the additional risk for greater reward 
that was offered under proposed Track 3 in relation to Track 2, with 
some commenters indicating that the addition of Track 3 will help 
beneficiaries realize the benefits of better care faster. A commenter 
specified the importance of allowing multiple risk-bearing tracks to 
enable ACOs to match their infrastructure and maturity to the 
appropriate regulatory framework. However, some commenters suggested 
modifications to Track 2 to make it closely match Track 3 (such as the 
balance of risk and reward, assignment, and availability of waivers, 
beneficiary attestation), calling into question the role of Track 2 in 
the program. A commenter suggested CMS eliminate Track 2 and offer only 
Tracks 1 and 3 to encourage transition to performance-based risk.
    A few commenters were critical of the need for CMS to establish 
Track 3. A commenter supported CMS' interest in developing additional 
risk-based options, but suggested that actual implementation of Track 3 
was premature, pointing out that few ACOs have entered Track 2. 
Therefore, few ACOs may be ready to take on the additional risk under 
Track 3. This commenter encouraged CMS to continue to gather and 
incorporate stakeholder feedback into the design of a Track 3. A 
commenter supported creation of a Track 3 generally, but suggested that 
it may not be needed if

[[Page 32772]]

much broader modifications were made to the design of the program's 
financial methodology.
    Response: We appreciate commenters' support for Track 3 as a new 
option for a two-sided model under which ACOs have the opportunity to 
share in greater reward for accepting higher levels of risk. We agree 
with commenters who suggested the need to maintain Track 2 in addition 
to implementing Track 3 and to distinguish the features of these two-
sided risk tracks to offer ACOs options, particularly with regard to 
assignment methodology and their level of risk and reward. As discussed 
in detail in the following sections, we are finalizing Track 3 with 
features that distinguish it from Tracks 1 and 2.
b. Assignment of Beneficiaries Under Track 3
    Having considered the relative advantages and disadvantages of 
prospective and retrospective assignment methodologies for achieving 
improvements in the cost and quality of the care furnished to FFS 
beneficiaries, we proposed to implement a prospective assignment 
methodology, but only for Track 3 ACOs. The proposed design features 
were as follows:
     Using the same stepwise assignment methodology under Sec.  
425.402 to assign beneficiaries to ACOs participating under Track 3 as 
is currently used to assign beneficiaries to ACOs participating under 
Track 1 and Track 2. The result would be a prospective list of 
beneficiaries.
     Retrospectively excluding only those beneficiaries that 
appeared on the prospective assignment list that no longer meet 
eligibility criteria for assignment. The net effect would be to hold 
Track 3 ACOs accountable for beneficiaries who were prospectively 
assigned to the ACO based on having received primary care services from 
ACO professionals in the past, which would include beneficiaries that 
have received care from ACO professionals in the past, but who do not 
receive care from ACO participants during the performance year. This 
proposal reduces our concern that ACOs in Track 3 may avoid at-risk 
beneficiaries that appear on their prospective assignment list because 
they would be held accountable for the care of those beneficiaries, 
regardless of whether or not they choose to receive a plurality of 
their primary care services from ACO professionals.
     Basing prospective assignment on a 12-month assignment 
window (offset from the calendar year) prior to the start of the 
performance year. We further proposed to define an ``assignment 
window'' as the 12-month period used to assign beneficiaries to an ACO 
and to make conforming changes to the regulations to refer to the 
assignment window where appropriate.
     Prohibiting beneficiaries that are prospectively assigned 
to a Track 3 ACO from being assigned to any other Shared Savings 
Program ACO as part of the retrospective reconciliation for Track 1 and 
Track 2 ACOs.
(1) Prospective Versus Retrospective Assignment
    In the November 2011 final rule that established the Shared Savings 
Program, we adopted a preliminary prospective assignment model with 
retrospective reconciliation because it would provide ACOs with 
adequate information to redesign their care processes while also 
encouraging ACOs to standardize these care processes for all Medicare 
FFS beneficiaries instead of focusing care management activities on a 
small subset of their FFS population. Further, we expressed our view 
that this approach would provide sufficient incentives for each ACO to 
provide quality care to its entire beneficiary population (76 FR 
67864).
    As an alternative, beneficiaries could be prospectively assigned to 
an ACO prior to the start of the performance year. In the December 2014 
proposed rule, we discussed the use of prospective alignment in the 
Pioneer ACO Model, where beneficiaries are aligned to Pioneer ACOs 
prior to the start of each performance year. Under the Pioneer ACO 
Model, the list of prospectively aligned beneficiaries is reconciled at 
the end of the year to exclude certain beneficiaries from the list, for 
example, beneficiaries who were not eligible for alignment during the 
performance year; however, no new beneficiaries are added to the list. 
We explained that this alternative assignment methodology arguably 
provides Pioneer ACOs with a more targeted set of FFS beneficiaries on 
whom to focus their care redesign efforts during the performance year. 
Further, we noted that this improved certainty may be an important 
factor in an ACO's willingness to take on greater performance-based 
risk because the ACO may be better positioned to make decisions 
regarding where to make investments in infrastructure to deliver 
enhanced services.
    We proposed to implement a prospective assignment methodology for 
Track 3 ACOs using the assignment algorithm that is specified in 
Subpart E of the Shared Savings Program regulations, and described in 
more detail in section II.E. of this final rule. This prospective 
assignment methodology would use the same stepwise assignment 
methodology under Sec.  425.402 to assign beneficiaries to ACOs in 
Track 3 as is used to assign beneficiaries to ACOs participating under 
Track 1 and Track 2. The major difference would be that beneficiaries 
would be assigned to Track 3 ACOs prospectively, at the start of the 
performance year, and there would be no retrospective reconciliation 
resulting in the addition of new beneficiaries at the end of the 
performance year. The only adjustments that would be made at the end of 
the performance year would be to exclude beneficiaries that appeared on 
the prospective assignment list provided to the ACO at the start of the 
performance year that no longer meet eligibility criteria. For the 
reasons discussed in the November 2011 final rule (76 FR 67851), we 
explained that this proposed prospective assignment methodology meets 
the requirement under section 1899(c) of the Act that assignment be 
based on the ``utilization of primary care services'' provided by 
physicians that are ACO professionals. We also proposed to amend the 
regulations at Sec.  425.400(a) by adding a new paragraph (3) to 
reflect this new prospective assignment methodology for Track 3.
    We also sought comment on whether we should consider implementing 
the prospective assignment approach proposed for Track 3 under Track 2 
and whether doing so would enhance or erode the incentives for 
organizations to take on risk.
    Comment: Only a few commenters expressed reservations about moving 
to a prospective assignment model. A commenter strongly opposed 
implementing a prospective approach to assignment under any 
circumstances, expressing concerns that such an approach would result 
in inequalities of care by inappropriately shifting the ACO's focus to 
specific patients. Instead, the commenter stated that the current 
assignment methodology reduces potential inequalities in care by 
encouraging ACOs to redesign care processes to provide high quality and 
lower cost care to all FFS patients equally.
    Nearly all commenters were generally supportive of implementing a 
prospective approach to assignment under Track 3. Commenters suggested 
that a prospective approach will permit ACOs to focus on specific 
beneficiaries and more generally on a stable assigned population, and 
consequently provide some certainty regarding where the ACO should 
focus its quality and cost efforts.

[[Page 32773]]

Commenters specifically detailed the following perceived benefits of 
prospective assignment:
     Allows ACOs to better apply population management 
techniques, including developing more effective systems to actively 
manage care for patients and engage patients.
     Gives providers stronger incentives to engage 
beneficiaries and their caregivers in care management activities; 
enables providers to focus on building long term relationships with 
patients.
     Allows ACOs to establish stabilized financial targets.
     Encourages transparency with assigned beneficiaries 
compared to retrospective assignment. Specifically, prospective 
assignment enables patients to be fully aware of any incentives 
providers may have in delivering their care and allows them to 
incorporate this understanding into the interactions they have with 
their care providers. Absent this information, patients may develop 
distrust in the system and unnecessarily switch physicians in order to 
opt-out of a program in which they may not even be included.
    Other commenters pointed to challenges with the program's current 
preliminary prospective assignment methodology with retrospective 
reconciliation noting that it could stand in the way of ACOs achieving 
program goals and discourage participation in the program. In 
particular, commenters pointed to the quarterly churn of beneficiaries 
under the present assignment methodology as creating uncertainty for 
planning and implementing population health strategies and services and 
posing challenges for ACOs to accurately gauge the impact of new care 
programs and protocols. Given these challenges, a few other commenters 
expressed strongly that retrospective assignment should be eliminated 
from the program.
    A comment reflected the commenter's misunderstanding that 
prospective assignment would limit beneficiaries to seeking care within 
the ACO. The commenter, supporting prospective assignment, explained 
that the current retrospective assignment methodology makes managing 
the cost and care of patients difficult because patients can seek 
primary care services from multiple providers, which can result in the 
patient no longer being assigned to an ACO.
    Many commenters generally encouraged CMS to extend the option for 
prospective assignment beyond Track 3 to Tracks 1 and 2. Commenters 
emphasized the need for ACOs to know in advance the populations for 
which they are responsible to most effectively coordinate care for such 
individuals and benefit from the other perceived advantages of 
prospective assignment (previously noted). Some commenters expressed 
the need for ACOs in Track 1 to become familiar with prospective 
assignment, and other features considered for Track 3, to prepare them 
to enter performance-based risk arrangements that include these 
features. Others explained that for Track 2 ACOs to be successful, they 
should have the benefit of the Track 3 features, including prospective 
assignment, to give them greater certainty over their assigned 
populations.
    Other commenters saw the value in both assignment methodologies--
knowing upfront who the ACO's assigned population is under prospective 
assignment versus accountability for a population that is retroactively 
determined to have actually received the plurality of its care from ACO 
providers/suppliers--and encouraged CMS to allow all ACOs (Tracks 1, 2, 
and 3) a choice of prospective and retrospective assignment. Several 
commenters suggested CMS allow ACOs a choice of retrospective or 
prospective assignment annually, within the ACO's 3-year agreement 
period. A commenter suggested allowing rural ACOs the option to elect 
prospective assignment.
    Several commenters emphasized the importance of beneficiary 
attestation in relation to assignment. A commenter, responding to the 
request for comment about extending prospective assignment to Track 2, 
explained that prospective assignment would not necessarily be 
preferable to the current retrospective assignment under Track 2, 
unless a methodology was implemented whereby a beneficiary would attest 
to affirm his or her prospective assignment to the ACO prior to being 
assigned to the ACO, and the ACO was able to offer incentives, such as 
reduced cost sharing, to the beneficiary for receiving services within 
the ACO's network. Another commenter suggested that CMS allow ACOs the 
option to have patients assigned exclusively based on patient 
designation (attestation) instead of based on retrospective or 
prospective assignment.
    Several comments reflect the need to better analyze the impact of 
assignment on beneficiaries' care. A commenter encouraged CMS to 
compare beneficiary awareness and satisfaction scores between the 
different assignment models (retrospective and prospective) to test the 
theory that prospective assignment increases beneficiary awareness, 
which in turn improves patient satisfaction. If either or both of these 
increase, the commenter encouraged CMS to expand the prospective 
assignment methodology to the other Tracks. A commenter disagreed with 
CMS' belief that retrospective assignment offers strong incentives for 
health system redesign to impact the care for all FFS beneficiaries 
that receive care from ACO providers/suppliers, and that retrospective 
assignment limits the potential for gaming and reduces the motivation 
to target beneficiaries for avoidance. The commenter suggested ACOs 
should be encouraged to pilot innovative approaches on a subset of 
beneficiaries to determine their efficacy prior to full-scale 
implementation.
    Response: We appreciate commenters' support generally for 
incorporating prospective assignment into the Shared Savings Program 
under a new performance-based risk option, Track 3. We continue to 
believe that the preliminary prospective assignment methodology with 
retrospective reconciliation currently used under Tracks 1 and 2 of the 
Shared Savings Program offers strong incentives for health system 
redesign to impact the care for all FFS beneficiaries receiving care 
from ACO providers/suppliers, as indicated in a commenter's remarks. We 
also continue to believe that the preliminary prospective assignment 
methodology with retrospective reconciliation limits the potential for 
gaming and reduces the motivation to target beneficiaries for 
avoidance. While comments indicate strong support for prospective 
assignment, and incorporating prospective assignment across all tracks 
of the program, we are also convinced by comments encouraging us to 
allow ACOs a choice of assignment methodology. We also acknowledge 
there is operational complexity and administrative burden to 
implementing an approach under which ACOs in any track may choose 
either prospective or retrospective assignment, with an opportunity to 
switch their selection on an annual basis. Therefore, we decline at 
this time to implement prospective assignment in Track 1 and Track 2, 
and we also decline to give ACOs in Track 3 a choice of either 
prospective or retrospective assignment. Further, we believe 
implementing prospective assignment in a two-sided model track may 
encourage Track 1 ACOs who prefer this assignment methodology, and the 
other features of Track 3, to more quickly transition to performance-
based risk. We note that while prospective assignment will provide an 
ACO with the

[[Page 32774]]

knowledge at the beginning of each performance year of the population 
for which it will be accountable, this methodology does not eliminate 
the issues underlying beneficiary churn in an ACO's population. 
Specifically, Medicare fee-for-service beneficiaries retain their 
freedom to seek care from the Medicare-enrolled providers and suppliers 
of their choosing, including providers and suppliers within and outside 
an ACO. As the performance year progresses, the ACO or the provider/
supplier that has provided the plurality of a beneficiary's primary 
care services may change. In the case of ACOs participating under Track 
3, these changes will not affect their prospectively assigned 
population for the particular performance year, but will likely 
influence assignment of beneficiaries in the next performance year.
    FINAL ACTION: We are finalizing our proposal to codify at Sec.  
425.400(a)(3) a prospective assignment methodology that would use the 
stepwise assignment methodology under Sec.  425.402 to assign 
beneficiaries to ACOs in Track 3. Although beneficiaries will be 
assigned prospectively to Track 3 ACOs, the assignment methodology 
itself (specified under Sec.  425.402) will be the same as is used to 
assign beneficiaries to ACOs participating under Track 1 and Track 2, 
with the limited exceptions that are discussed in this section such as 
the assignment window.
(2) Exclusion Criteria for Prospectively Assigned Beneficiaries
    In the December 2014 proposed rule, we noted that changes in 
circumstance may cause prospectively assigned beneficiaries to no 
longer be eligible for assignment to an ACO at the end of a performance 
year. We explained that it is appropriate to exclude from an ACO's 
prospectively assigned population beneficiaries that are no longer 
eligible to be assigned to an ACO. We proposed to perform a limited 
reconciliation where beneficiaries would only be removed from the 
prospective assignment list at the end of the year if they were not 
eligible for assignment at that time under the criteria in proposed 
Sec.  425.401(b). For example, if a prospectively assigned beneficiary 
chose to enroll in Medicare Advantage (MA) at the beginning of the 
performance year, that beneficiary would be removed from the 
beneficiary assignment list at the end of the year and the 
beneficiary's expenditures would not be used in determining the ACO's 
financial performance for that year. We noted that under this proposal, 
beneficiaries would be removed from the prospective assignment list, 
but would not be added as they are in the retrospective reconciliation 
used under Tracks 1 and 2. We also explained that unlike the 
preliminary prospective assignment methodology with retrospective 
reconciliation used in Tracks 1 and 2, under this proposal, 
beneficiaries would not be removed from the prospective beneficiary 
assignment list because the beneficiary chose to receive the plurality 
of his or her primary care services during the performance year from 
practitioners other than those participating in the ACO. In other 
words, the ACO would be held accountable for all beneficiaries that 
appear on the prospective assignment list, with the narrow exception of 
those beneficiaries who are not eligible for assignment at the time of 
reconciliation based on the limited set of proposed exclusion criteria 
under proposed Sec.  425.401(b). We explained that this methodology 
would help to mitigate concerns that ACOs may attempt to avoid caring 
for high risk beneficiaries that appear on their prospective 
beneficiary assignment list because the ACO will continue to be held 
accountable for the quality and cost of the care furnished to these 
beneficiaries even if the ACO providers/suppliers are not directly 
involved in their care. We also noted that this may mean that ACOs will 
be held accountable for beneficiaries with whom their ACO providers/
suppliers have had little contact during the year. Therefore they may 
have limited opportunity to affect their care. We sought comment on our 
proposal to apply limited exclusion criteria to reconcile the 
prospective beneficiary assignment lists for ACOs under Track 3 at the 
end of the performance year.
    Comment: Some commenters specifically expressed support for the 
proposed exclusion criteria. Many commenters offered suggestions on how 
to expand the proposed assignment exclusion criteria and their 
suggestions often included the exclusion of beneficiaries--
     Who opt out of data sharing.
     Who are cared for in long-term care (post-acute) 
facilities such as skilled nursing facilities or assisted living 
facilities.
     Who reside in the ACO's service region but receive care 
outside the ACO; for instance excluding beneficiaries who seek care 
from non-ACO providers/suppliers and in particular from distant 
tertiary/quaternary care facilities.
     Who move out of the ACO's service region.
     Based on the ACO's recommendation.
    Some commenters specifically supported the exclusion of 
beneficiaries who enroll in Medicare Advantage at the beginning of the 
year, as indicated in the proposed exclusion criteria.
    Several commenters suggested revisions to the assignment algorithm 
in relation to prospective assignment. A commenter suggested CMS should 
also adjust the assignment methodology to increase stability in the 
prospectively assigned population. For instance, if a beneficiary is 
initially assigned to an ACO in 1 year, the methodology should make it 
more likely for the beneficiary to be assigned to the ACO in subsequent 
years. Another commenter suggested that a beneficiary should remain 
assigned to a Track 3 ACO unless the beneficiary receives no primary 
care services during the performance year from an ACO professional 
within the Track 3 ACO whose services are considered at step 1 of the 
assignment methodology, and receives at least one primary care service 
from a primary care provider who is not an ACO professional in the 
Track 3 ACO whose services are considered at step1 of the assignment 
methodology. A commenter suggested modifying the program's assignment 
methodology to limit assignment to beneficiaries living in the ACO's 
pre-defined service area.
    Commenters provided the following operational considerations 
related to the limited reconciliation of the Track 3 ACOs' prospective 
assignment lists:
     Provide ACOs with notification, during the performance 
period, when beneficiaries are excluded.
     Remove beneficiaries who are excluded from the ACO's 
quality sample for the year.
    Response: We are finalizing with modification our proposal to 
reconcile Track 3 ACOs' preliminary assignment lists based on the 
limited set of proposed exclusion criteria under Sec.  425.401(b). 
While we appreciate the varied suggestions for additional assignment 
exclusion criteria suggested by commenters, we decline to adopt 
commenters' suggestions because we believe adding such exclusions would 
dilute the request for a prospective understanding of the population 
assigned to the ACO, lessen the distinction between a prospective 
approach and our current methodology, and raise concerns regarding 
avoidance of at-risk beneficiaries. We did, however, explore some of 
the commenters' suggestions. In particular, we performed an initial 
analysis on the suggestion for removal of beneficiaries who move out of 
the ACO's service area, based on the experience of the Pioneer ACO 
Model, and determined there is a

[[Page 32775]]

very small number (on average less than 2 percent) of beneficiaries who 
would meet the criteria for exclusion on this basis, and would not 
represent a significant portion of the ACO's assignment list. We 
believe that continuing to include these beneficiaries on the ACO's 
prospective assignment list during the performance year in which the 
move occurs provides an opportunity for ACOs to make sure beneficiaries 
who move from the ACO's service area have a seamless transition in care 
to the new primary care provider of their choice. We intend to monitor 
and assess the potential impact of these additional exclusion criteria 
suggestions made by commenters and, if appropriate, will propose 
adjustments in future rulemaking.
    We also decline to adopt at this time revisions to the program's 
assignment algorithm, as suggested by commenters, to improve ACO's 
retention of assigned beneficiaries from year to year or to remove 
certain beneficiaries based on the type of providers who furnished 
their care.
    We appreciate commenters' support for the proposal to annually 
remove beneficiaries from the Track 3 ACO's prospective assignment 
list, based on the proposed exclusion criteria, at the end of each 
benchmark and performance year. We also appreciate the comments on 
operational issues associated with performing only an annual 
reconciliation of the Track 3 ACO's assignment list. We agree that 
there may be circumstances where we need to perform this assignment 
list reconciliation more frequently than annually, for instance to 
facilitate feedback to ACOs on their quarterly program reports (which 
currently include a list of excluded beneficiaries) as well as in 
developing ACOs' quality reporting samples. Accordingly, we are 
modifying our proposal to perform an annual reconciliation of the Track 
3 ACO's assignment list, to exclude beneficiaries ineligible for 
assignment under the proposed exclusion criteria, to provide for 
reconciliation of the Track 3 ACO's assignment list on a quarterly 
basis, to coincide with the provision of quarterly reports to ACOs. In 
addition, consistent with the approach currently used under Tracks 1 
and 2, we expect to use recently available assignment data in 
determining the ACO's quality reporting sample, in order for the ACO to 
know in advance of the quality reporting period the beneficiaries for 
whom it must report quality measures.
    Comment: A commenter suggested that CMS allow ACOs an opportunity 
for a reconsideration review of their assignment list with respect to 
any beneficiaries the ACO believes were assigned in error.
    Response: As discussed in the November 2011 final rule, certain 
actions specified in section 1899(g) of the Act are precluded from 
judicial and administrative review, including the assignment of 
Medicare fee-for-service beneficiaries to an ACO under subsection 
1899(c) of the Act. Because beneficiary assignment under all tracks is 
under this authority, we are unable to offer a reconsideration review 
of beneficiary assignment lists.
    FINAL ACTION: We are finalizing our proposed policy of excluding 
beneficiaries from the prospective assignment list for an ACO 
participating under Track 3, who meet the exclusion criteria, as 
specified at Sec.  425.401(b), at the end of a performance or benchmark 
year. However, we are adopting a modification to this policy under 
which we will also perform this exclusion on a quarterly basis during 
each performance year, and incorporate these exclusions into quarterly 
reports provided to Track 3 ACOs. We have revised Sec.  425.401(b) to 
reflect this change. In addition, we will use recently available 
assignment data when determining the ACO's quality reporting sample.
(3) Timing of Prospective Assignment
    We proposed to base prospective assignment on a 12-month assignment 
window (off-set from the calendar year) prior to the start of the 
performance year. We further proposed to define an ``assignment 
window'' at Sec.  425.20 as the 12-month period used to assign 
beneficiaries to an ACO. The assignment window for Tracks 1 and 2 would 
be based on a calendar year while the assignment window for Track 3 
would be based on the most recent 12 months for which data are 
available, and which would be off-set from the calendar year. We 
proposed to make conforming changes to the regulations to refer to the 
assignment window where appropriate. We explained that this approach 
best balances the availability of claims data with the following 
operational considerations that affect the timing of when we would 
perform prospective assignment and make the assignment lists available 
to the ACOs:
     The importance of providing ACOs their assignment lists 
close to the start of each performance year.
     Operationally, the time needed to generate these lists.
     Aligning the timing of prospective assignment with the 
timing of annual acceptance of new ACOs into the program.
    We also considered the option of using complete claims data for the 
calendar year prior to the performance year. Under this option, 
assignment would synchronize with the timing of the financial 
calculations for setting the ACO's benchmark, and would occur more than 
3 months after the start of the performance year. However, under these 
parameters, Track 3 ACOs would not receive their prospective assignment 
lists until after the first quarter of each performance year. We 
believe that Track 3 ACOs would find such a delay in the receipt of 
their prospective assignment list burdensome for carrying out their 
health care operations, including care coordination processes and data 
analysis.
    Comment: Commenters addressing these issues supported CMS' proposal 
to base prospective assignment on a 12-month assignment window (off-set 
from the calendar year), to balance the timely delivery of the ACO's 
assignment list against the availability of complete data for the 
calendar year prior to the start of the performance year. Some 
commenters expressed concern that CMS did not specify in the proposed 
rule the exact timeline it would use to determine prospective 
assignment, and urged CMS to provide this specificity in the final 
rule.
    Several commenters explicitly stated support for the proposal to 
define an ``assignment window'' under Sec.  425.20 as the 12-month 
period used to assign beneficiaries to an ACO.
    Response: We appreciate the commenters' support of the proposal to 
base prospective assignment under Track 3 on a 12-month assignment 
window (off-set from the calendar year). In the proposed rule we 
provided an example of the timing of the 12 month period, which would 
span October through September of the prior calendar year. 
Specifically, to establish the assignment list for the performance year 
beginning January 1, 2016, we could use an assignment window from 
October 1, 2014 through September 30, 2015. We intentionally did not 
specify the precise months that would be used as part of the assignment 
window in the regulatory text to provide us operational flexibility in 
implementing assignment.
    FINAL ACTION: We are finalizing our proposal regarding the timing 
of beneficiary assignment under Track 3, and will base prospective 
assignment on a 12-month assignment window (off-set from the calendar 
year) prior to the start of the performance year. Accordingly, we are 
finalizing the provision at Sec.  425.400(a)(3) as proposed. In 
addition, we are finalizing our proposal, to define an ``assignment 
window'' at Sec.  425.20 as

[[Page 32776]]

the 12-month period used to assign beneficiaries to an ACO.
(4) Interactions Between Prospective and Retrospective Assignment 
Models
    Under the Shared Savings Program, a beneficiary may only be 
assigned to a single ACO for purposes of determining the ACO's 
financial and quality performance during a performance year. In the 
December 2014 proposed rule we explained that because there are markets 
in which there are multiple ACOs, there would likely be interactions 
between prospective assignment for Track 3 ACOs and preliminary 
prospective assignment with retrospective reconciliation for Track 1 
and Track 2 ACOs. Accordingly, we proposed the following:
     A beneficiary that is prospectively assigned to a Track 3 
ACO would remain assigned to the Track 3 ACO for the performance year 
even if the beneficiary chose to receive a plurality of his or her care 
outside the ACO.
     A beneficiary would remain assigned to the Track 3 ACO 
even if we determine as part of the retrospective reconciliation for 
Track 1 and Track 2 ACOs that the beneficiary actually received the 
plurality of his or her primary care from ACO professionals in another 
ACO.
     A beneficiary prospectively assigned to a Track 3 ACO 
would remain assigned to that ACO even if we subsequently determine the 
beneficiary actually received the plurality of his or her primary care 
from ACO professionals participating in another Track 3 ACO.
    In other words, we proposed that once a beneficiary is 
prospectively assigned to a Track 3 ACO, the beneficiary will not be 
eligible for assignment to a different ACO, even if the beneficiary 
chose to receive a plurality of his or her primary care services from 
ACO professionals in that ACO during the relevant performance year.
    Comment: Commenters were generally supportive of the proposal that 
a beneficiary prospectively assigned to a Track 3 ACO at the start of a 
performance year would not be eligible for assignment to a different 
ACO for that performance year. Several commenters suggesting additional 
assignment exclusion criteria (previously discussed) further suggested 
that some beneficiaries excluded from a prospective assignment list 
should become eligible for assignment to other ACOs (for example, in 
the case of a beneficiary who moved out of the ACO's area).
    Several commenters suggested that CMS use the following hierarchy 
to determine the order of precedence for beneficiary assignment:
     Beneficiary choice through attestation at any time during 
the year.
     Prospective assignment.
     Retrospective assignment.
    Commenters explained that this hierarchy creates the most stable 
population for the ACOs, while first honoring beneficiary choice.
    Response: We appreciate commenters' suggestions on the proposal 
concerning interactions between prospective assignment for Track 3 ACOs 
and preliminary prospective assignment with retrospective 
reconciliation for Track 1 and Track 2 ACOs. We are finalizing, as 
proposed, the policy establishing that a beneficiary prospectively 
assigned to a Track 3 ACO will not be eligible for assignment to a 
different ACO, even if the beneficiary chooses to receive a plurality 
of his or her primary care services from ACO professionals in that ACO 
during the relevant performance year. Specifically a beneficiary--
     That is prospectively assigned to a Track 3 ACO would 
remain assigned to the Track 3 ACO for the performance year even if the 
beneficiary chose to receive a plurality of his or her care outside the 
ACO;
     Would remain assigned to the Track 3 ACO even if we 
determine as part of the retrospective reconciliation for Track 1 and 
Track 2 ACOs that the beneficiary actually received the plurality of 
his or her care from ACO professionals in another ACO; or
     That is prospectively assigned to a Track 3 ACO would 
remain assigned to that ACO even if we subsequently determine the 
beneficiary actually received the plurality of his or her primary care 
from ACO professionals participating in another Track 3 ACO.
    Since we are finalizing prospective assignment exclusion criteria 
for Track 3 consistent with the exclusion criteria used in Tracks 1 and 
2, there is no opportunity for beneficiaries removed from Track 3 ACOs' 
assignment lists to be eligible for assignment to Track 1 or 2 ACOs.
    We also wish to clarify that this policy on interactions between 
the prospective and retrospective assignment models would apply to 
assignment for benchmark years as well as assignment for performance 
years. Applying the same policies to benchmark year calculations as are 
applied to performance year calculations will reduce the chances of 
introducing unwanted bias.
    As discussed elsewhere in this final rule, we will be proposing the 
procedures for beneficiary attestation in rulemaking for the 2017 
Physician Fee Schedule. However, our future considerations on how to 
incorporate beneficiary attestation into the Shared Savings Program 
will include commenters' suggestions about the need for an assignment 
hierarchy (accounting for attestation in relation to prospective and 
retrospective assignment).
    FINAL ACTION: We are finalizing the policy that once a beneficiary 
is prospectively assigned to a Track 3 ACO for a benchmark or 
performance year the beneficiary will not be eligible for assignment to 
a different ACO, even if the beneficiary chose to receive a plurality 
of his or her primary care services from ACO professionals in that ACO 
during the relevant benchmark or performance year.
c. Determining Benchmark and Performance Year Expenditures Under Track 
3
    We proposed to use the same general methodology for determining 
benchmark and performance year expenditures under Track 3 as is 
currently used for Tracks 1 and 2, with the exception of certain 
modifications to account for the timing of beneficiary assignment under 
the prospective assignment methodology. Specifically, under Sec.  
425.602 we would establish the historical benchmark for all ACOs by 
determining the per capita Parts A and B fee-for-service expenditures 
for beneficiaries that would have been assigned to the ACO in any of 
the 3 most recent years prior to the start of the agreement period 
using the ACO participant TINs identified at the start of the agreement 
period (Sec.  425.602(a)). For each benchmark year that corresponds to 
a calendar year, this includes calculating the payment amounts included 
in Parts A and B fee-for-service claims using claims received within 3 
months following the end of the calendar year (referred to as a ``3 
month claims run out'') with a completion factor, excluding IME and DSH 
payments and considering individually beneficiary-identifiable payments 
made under a demonstration, pilot or time limited program (Sec.  
425.602(a)(1)).
    We proposed that in establishing the historical benchmark for Track 
3 ACOs, we would determine the beneficiaries that would have been 
prospectively assigned to the ACO during each of the 3 most recent 
years prior to the start of the agreement period; basing benchmark year 
assignment on a 12-month assignment window offset from the calendar 
year prior to the start of each benchmark year. We also proposed to add 
a new regulation at Sec.  425.610 to

[[Page 32777]]

address the calculation of shared savings and losses under Track 3.
    We further proposed that we would still determine the Parts A and B 
fee-for-service expenditures for each calendar year, whether it is a 
benchmark year or a performance year, using a 3-month claims run out 
with a completion factor for the prospectively assigned beneficiaries. 
We would exclude IME and DSH payments and account for individually 
beneficiary-identifiable payments made under a demonstration, pilot or 
time limited program during the calendar year that corresponds to the 
benchmark or performance year. For example, for an ACO entering Track 3 
beginning January 1, 2016, we would determine the benchmark based on 
CYs 2013, 2014, and 2015. We would determine a prospective list of 
beneficiaries using the assignment window for each year (based on an 
off-set 12 month period such as October 1, 2011 through September 30, 
2012 for BY1). However, the claims used to determine the per capita 
expenditures for BY1 would be based on claims submitted during the 
calendar year from January 1, 2013 through December 31, 2013. The same 
pattern would be used to determine assignment and per capita 
expenditures for BY2 and BY3. We would apply the same pattern going 
forward to calculate per capita expenditures for the performance years.
    We noted that the timing of the generation of historical benchmark 
reports for Track 3 ACOs would also be consistent with the current 
schedule for generating these reports for ACOs in Tracks 1 and 2. That 
is, for an ACO that begins under Track 3 in 2016, the prospective 
beneficiary assignment list would be available immediately at the 
beginning of the performance year and the historical benchmark report 
would be available following the 3-month claims run out, sometime after 
the first quarter of 2016.
    Comment: Commenters supported CMS' proposal to use the calendar 
year to calculate benchmark and performance year expenditures for 
beneficiaries assigned to ACOs under Track 3, and explained advantages 
of this approach: (1) Aligns with the actuarial analyses that calculate 
the risk scores and the data inputs based on national FFS expenditures 
(for example, the national trend factors) and (2) allows CMS to 
maintain consistent timing for the generation of the historical 
benchmark reports across all 3 tracks.
    Response: We appreciate commenters' support of the proposed 
policies. We are finalizing as proposed the policy of using the same 
general benchmarking methodology used under Tracks 1 and 2 for 
determining benchmark and performance year expenditures under Track 3, 
with certain modifications to account for the timing of beneficiary 
assignment under the prospective assignment methodology, as follows:
     In establishing the historical benchmark for Track 3 ACOs, 
determining the beneficiaries that would have been prospectively 
assigned to the ACO during each of the 3 most recent years prior to the 
start of the agreement period by basing assignment on a 12-month 
assignment window offset from the calendar year prior to the start of 
each benchmark year.
     Determining the Parts A and B fee-for-service expenditures 
for prospectively assigned beneficiaries each calendar year, whether it 
is a benchmark year or a performance year; using a 3-month claims run 
out with a completion factor; excluding IME and DSH payments, and 
considering individually beneficiary-identifiable payments made under a 
demonstration, pilot or time limited program.
    FINAL ACTION: We are finalizing our proposal for calculating the 
historical benchmarks for Track 3 ACOs in accordance with Sec.  
425.602, by determining benchmark year expenditures for Track 3 ACOs 
using the calendar year expenditures for prospectively assigned 
beneficiaries, allowing for a 3-month claims run out, excluding IME and 
DSH payments and considering individually beneficiary-identifiable 
payments made under a demonstration, pilot or time limited program. We 
are also finalizing our proposal to add a new regulation at Sec.  
425.610 to address the calculation of shared savings and losses under 
Track 3, including use of a 3-month claims run out with a completion 
factor to calculate an ACO's per capita expenditures for each 
performance year, excluding IME and DSH payments and considering 
individually beneficiary-identifiable payments made under a 
demonstration, pilot or time limited program.
d. Risk Adjusting the Updated Benchmark for Track 3 ACOs
    Currently, under Track 1 and Track 2, the risk adjustment 
methodology differentiates between newly and continuously assigned 
beneficiaries, as defined under Sec.  425.20. A newly assigned 
beneficiary is a beneficiary assigned in the current performance year 
that was neither assigned to nor received a primary care service from 
any of the ACO participants during the most recent prior calendar year. 
A continuously assigned beneficiary is a beneficiary assigned to the 
ACO in the current performance year that was either assigned to or 
received a primary care service from any of the ACO participants during 
the most recent prior calendar year. As specified under Sec. Sec.  
425.604(a), and 425.606(a), we use updated CMS-HCC prospective risk 
scores to account for changes in severity and case mix for newly-
assigned beneficiaries. We use demographic factors to adjust for these 
changes in severity and case mix for continuously assigned 
beneficiaries. However, if the CMS-HCC prospective risk scores for the 
continuously assigned population show a decline, we use the lower risk 
score to adjust for changes in severity and case mix for this 
population.
    In the December 2014 proposed rule we explained that, as expressed 
in the November 2011 final rule (76 FR 67918), this approach to risk 
adjustment strikes a fair balance between accounting for changes in the 
health status of an ACO's population while not encouraging changes in 
coding practices for care provided to beneficiaries who remain 
continuously assigned to the ACO or avoidance of high risk 
beneficiaries. We stated that we believe that the existing risk 
adjustment methodology has been effective in achieving this balance 
under Tracks 1 and 2, which use a retrospective assignment methodology 
for purposes of financial reconciliation, and that it would be 
appropriate to apply a similar approach to risk adjusting the updated 
benchmark for Track 3 ACOs, even though we proposed a prospective 
beneficiary assignment methodology. As in the existing tracks, it is 
important to ensure that ACOs participating under Track 3 are not 
encouraged to modify their coding practices in order to increase the 
likelihood of earning shared savings; rather, shared savings should 
result from actual reductions in Medicare expenditures for assigned 
beneficiaries.
    Therefore, we proposed to apply the same general risk adjustment 
methodology in Track 3, but to make certain refinements to our 
definitions of newly and continuously assigned beneficiaries at Sec.  
425.20 to be consistent with our proposed prospective assignment 
approach for Track 3. Specifically, we proposed to replace the 
reference to ``most recent prior calendar year'' with a reference to 
``the assignment window for the most recent prior benchmark or 
performance year.'' Thus, for Track 3 the reference period for 
determining whether a beneficiary is newly or continuously assigned 
will be most recent prior prospective assignment window (the 12 months 
off set from the calendar year) before the assignment window for the 
current performance year. The reference period

[[Page 32778]]

for determining whether under Track 1 or 2 a beneficiary is newly or 
continuously assigned will continue to be the most recent prior 
assignment window (the most recent calendar year). Our proposed risk 
adjustment methodology for Track 3 was reflected in the proposed new 
regulation at Sec.  425.610(a).
    Comment: Commenters expressed their support for this proposal. 
However, commenters expressed concerns generally about the program's 
risk adjustment methodology.
    Response: We appreciate commenters' support for the proposal to use 
the risk adjustment methodology established under Tracks 1 and 2 for 
updating the historical benchmark for Track 3 ACOs with refinements to 
the definitions of newly and continuously assigned beneficiaries to be 
consistent with the prospective assignment approach proposed for Track 
3. In section II.F.5 of this final rule, we discuss in greater detail 
our response to concerns expressed by commenters about the program's 
existing risk adjustment methodology.
    FINAL ACTION: We are finalizing our proposed risk adjustment 
methodology for updating the historical benchmark for Track 3 ACOs 
under Sec.  425.610(a). We are also finalizing our proposal to modify 
the definitions of newly and continuously assigned beneficiaries at 
Sec.  425.20 to ensure they are consistent with prospective assignment 
under Track 3 and remain relevant to preliminary prospective assignment 
with retrospective reconciliation under Tracks 1 and 2.
e. Final Sharing/Loss Rate and Performance Payment/Loss Recoupment 
Limit Under Track 3
    Currently, an ACO that meets all the requirements for receiving 
shared savings payments under the one-sided (Track 1) model can qualify 
to receive a shared savings payment of up to 50 percent of all savings 
under its updated benchmark, not to exceed 10 percent of its updated 
benchmark, as determined on the basis of its quality performance. 
Likewise, a Track 2 ACO can potentially receive a shared savings 
payment of up to 60 percent of all savings under its updated benchmark, 
not to exceed 15 percent of its updated benchmark. The higher sharing 
rate and performance payment limit under Track 2 were established as 
incentives for ACOs to accept greater financial risk for their assigned 
beneficiaries in exchange for potentially higher financial rewards. 
Additionally, a Track 2 ACO is accountable for between 40 to 60 percent 
of all losses above its updated benchmark, depending on the ACO's 
quality performance. The amount of shared losses for which an ACO is 
liable, however, may not exceed 5 percent of its updated benchmark in 
the first performance year, 7.5 percent in the second performance year, 
and 10 percent in the third performance year and any subsequent 
performance year (Sec.  425.606(g)). In the November 2011 final rule 
(76 FR 67937), we stated that we believe these progressively higher 
caps on losses ``achieve an appropriate balance between providing ACOs 
with security about the limit of their accountability for losses while 
encouraging ACOs to take increasing responsibility for their costs and 
protecting the Medicare Trust Funds.'' In the December 2014 proposed 
rule, we noted that under one of the payment arrangements available 
under the Pioneer ACO Model, a Pioneer ACO can qualify to receive up to 
75 percent of shared savings, not to exceed 15 percent of its 
benchmark. Under this payment arrangement, Pioneer ACOs may also be 
responsible for shared losses of up to 15 percent of their benchmark.
    In the December 2014 proposed rule, we considered options for 
increasing ACO participation in a performance-based risk track by 
improving the attractiveness of the final sharing rate and performance 
payment limit in a risk model. We explained that it is important to 
reward ACOs with a greater level of savings for taking on greater 
levels of risk. Further, we noted that it is important to draw a 
distinction between the sharing rates available under Track 2 and the 
proposed Track 3.
    We discussed several options for increasing potential shared 
savings while also increasing risk for Track 3 ACOs as follows:
     Retaining the symmetry between the shared savings and 
shared losses methodologies under Track 3, such that an ACO with very 
high quality performance would not be allowed to lower its share of 
losses below 25 percent of losses, the equivalent of 1 minus the 
maximum sharing rate of 75 percent, while being eligible for a sharing 
rate of up to 75 percent.
     Holding Track 3 ACOs responsible for the maximum 
percentage of losses, that is, 75 percent, while allowing quality 
performance to protect them only to the same extent it protects Track 2 
ACOs, such that ACOs with very high quality scores would limit their 
percentage of losses to 40 percent.
     Applying the same minimum and maximum shared loss rates 
used under Track 2: That is, the range of 40 percent to 60 percent, 
depending on quality performance, but the maximum shared savings rate 
would be increased to 75 percent in order to encourage participation in 
a model with increased risk.
    After considering these options, we proposed, and sought comment 
on, the following policies under Track 3 (specified under Sec.  
425.610):
     Shared savings rate of up to 75 percent in conjunction 
with accepting risk for up to 75 percent of all losses, depending on 
quality performance similar to Track 2 ACOs. Track 3 ACOs with high 
quality performance would not be permitted to reduce the percentage of 
shared losses below 40 percent.
     Performance payment limit not to exceed 20 percent of the 
Track 3 ACO's updated benchmark, and a loss recoupment limit of 15 
percent of the Track 3 ACO's updated benchmark. We also sought comment 
on whether a shared loss rate of 40 percent was high enough to protect 
the Trust Funds or whether it should be increased, for example, to 50 
percent or 60 percent. We also sought comment on whether our proposal 
to establish a range of 40 percent to 75 percent for shared losses 
should, in turn, impact the amount of shared savings available to Track 
3 ACOs. For example, should we permit Track 3 ACOs to earn a parallel 
range of 40 percent to 75 percent of shared savings. In other words, 
once the ACO has met criteria for sharing in savings, the minimum 
guaranteed amount of shared savings would be 40 percent with a maximum 
of 75 percent.
    We requested comment on the appropriate minimum percentage of 
shared losses under Track 3. We also sought comment on the appropriate 
percentage for the performance payment limit and loss recoupment limit 
and whether there are reasons to set these at 15 percent and 10 percent 
of the updated benchmark respectively, rather than our proposal of 20 
percent and 15 percent respectively.
    Finally, we proposed to make certain technical, conforming changes 
to Sec.  425.606, which governs the calculation of shared savings and 
losses under Track 2, to reflect our proposal to incorporate a second 
two-sided risk model into the Shared Savings Program. We sought 
comments on these proposed changes and on any other technical changes 
to our regulations that may be necessary in order to reflect the 
proposal to add a new Track 3.
    Comment: Several commenters expressed support generally for the 
proposal to ``widen the performance payment and loss sharing limits'' 
under Track 3 as compared to Track 2, specifically the proposal to 
offer Track

[[Page 32779]]

3 ACOs the potential to realize more savings, but also more losses 
compared to Track 2. Some commenters agreed with the mix of risk and 
reward offered to Track 3 ACOs under the proposed policies, while other 
commenters expressed support for some aspects of the proposed policies 
(typically favoring higher reward and lower risk), while others 
suggested a number of alternatives.
    Nearly all commenters were supportive of increasing the sharing 
rate and performance payment limit under Track 3 and establishing a 
maximum loss rate of 75 percent and a minimum loss rate of 40 percent, 
stating this would differentiate Track 3 from Track 2 for ACOs willing 
to take on more risk for greater reward. Some commenters recommended 
increasing the sharing rate, for example, to 85 percent, and some 
commenters suggested lowering the maximum and minimum loss rates (for 
example, to max 40 percent and min 10 percent, respectively). A 
commenter requested clarification and the opportunity to review and 
comment on the quality performance required to reduce the shared loss 
requirement from 75 percent to 40 percent.
    Several commenters favored alternatives to the proposed policies 
that would reduce the total losses Track 3 ACOs would be liable for as 
follows:
     Track 3 loss sharing should match Track 2. A commenter 
generally supported holding Track 3 ACOs to the same level of downside 
risk as Track 2 (rather than less) even with high quality performance.
     Lower the loss sharing rate maximum, for example to 40 
percent. Commenters explained that paying 40 percent of losses is a 
sufficient deterrent to incentivize providers to avoid losses if at all 
possible. Setting the percentage higher could deter participation in 
two-sided risk models.
     Lowering the loss sharing rate minimum, for example to 10 
percent. Commenters suggested that the loss sharing rate under Track 3 
be reduced to a minimum of 10 percent based on quality performance to 
encourage continued investment in quality improvements, which should 
yield longer term cost savings.
    Some commenters specifically supported the proposed performance 
payment limit (20 percent) and loss cap (15 percent). A few commenters 
suggested alternatives to the sharing and loss caps, suggesting a lower 
loss cap (for example, 10 percent), or phasing-in loss caps for Track 1 
ACOs moving to Track 3 with progressively higher caps year to year, or 
using symmetrical caps on savings and losses consistent with those used 
in commercial ACO financial models.
    While it was not uncommon for commenters to acknowledge the current 
low participation in the two-sided model, a commenter cautioned CMS 
about the unattractiveness of the downside of Track 3 given the lack of 
participation in Track 2 with its shared loss rate of up to 60 percent 
and loss limit of 5 percent in year 1, 7.5 percent in year 2 and 10 
percent in year 3. When compared with the level of risk required under 
Track 2, the commenter expressed concerns that the proposal to hold 
Track 3 ACOs accountable for a shared loss rate of up to 75 percent 
with a loss-recoupment limit of 15 percent would be counterproductive.
    Response: We appreciate commenters' support for the proposed 
policies related to the final sharing and loss rates and performance 
payment and loss sharing limitations for Track 3, and are finalizing 
these features of Track 3 as proposed. We continue to believe that the 
proposed policies strike the appropriate balance between risk and 
reward under this new two-sided model Track. We believe that the 
opportunity for greater shared savings as compared to Track 2 will 
encourage ACOs to enter performance-based risk, as well as give an 
opportunity for greater reward for ACOs more experienced with 
population management who are achieving the program's goals. Further, 
offering greater risk and reward under Track 3 as compared to Track 2 
creates another step towards progressively higher risk, which we 
believe is responsive to commenters' requests for additional program 
options. We continue to believe it is important to hold ACOs 
accountable for greater risk in exchange for the opportunity to earn a 
greater reward, particularly considering that we believe ACOs who bear 
financial risk hold the potential to induce more meaningful systematic 
change. For these reasons, we disagree with the suggestions to lower 
the maximum loss sharing rates and the loss limits for Track 3 to 
match, or to be lower than, those currently offered under Track 2.
    As commenters pointed out, participation in the two-sided model has 
been low. We believe the features of the financial model under Track 3, 
as well as opportunities for prospective assignment and additional 
programmatic and regulatory flexibility for Track 3 ACOs will attract 
ACOs to enter this model.
    FINAL ACTION: We are finalizing the following modifications in 
order to implement a new two-sided risk option, Track 3 under Sec.  
425.610:
     Applying a shared savings rate of up to 75 percent in 
conjunction with accepting risk for up to 75 percent of all losses, 
depending on quality performance similar to Track 2 ACOs. Track 3 ACOs 
with high quality performance would not be permitted to reduce the 
percentage of shared losses below 40 percent.
     Applying a performance payment limit such that shared 
savings do not exceed 20 percent of the Track 3 ACO's updated 
benchmark, and a loss recoupment limit of 15 percent of the Track 3 
ACO's updated benchmark.
    We did not receive any comments on the technical, conforming 
changes to Sec.  425.606 to reflect our proposal to incorporate a 
second two-sided risk model into the Shared Savings Program, and we are 
finalizing these changes as proposed.
f. Minimum Savings Rate and Minimum Loss Rate in Track 3
    We proposed to apply the same fixed MSR and MLR of 2 percent under 
Track 3, as was originally established for Track 2 under the November 
2011 final rule. This proposal was reflected in paragraph (b) of the 
proposed new regulation at Sec.  425.610. As described in the December 
2014 proposed rule, we also considered other options for establishing 
the MSR and MLR for Track 3 ACOs, including an option that would remove 
the MSR and MLR entirely. Under this option, ACOs would be subject to 
normal variation around their benchmark so that they would be held 
responsible for all losses when performance year expenditures are above 
the benchmark in addition to sharing in any savings if performance year 
expenditures fall below the benchmark. Another option could be to set 
both the MSR and MLR at 1 percent instead of 2 percent. This would 
serve to increase both risk of sharing losses and savings, but not as 
much as doing away with the MSR and MLR entirely. We specifically 
sought comment on whether it would be desirable to remove the MSR and 
MLR entirely under Track 3 as well as alternative levels at which to 
set the MSR and MLR for ACOs participating under Track 3. We noted that 
we would consider comments received regarding these alternatives in 
determining the final MSR and MLR that would apply under Track 3.
    Comment: Several commenters expressed support for our proposals to 
apply a fixed 2 percent MSR/MLR to Track 3 ACOs, favoring an 
alternative that would differentiate Track 3 from Track 2 (where we 
proposed to revise the MSR/MLR to vary based upon the size of the ACO's 
population) and

[[Page 32780]]

provide a greater opportunity to share savings for Track 3 ACOs. Some 
commenters offered alternatives such as permitting ACOs to choose a 
MSR/MLR that varies by number of assigned beneficiaries, choose their 
own MSR/MLR, use a flat 1 percent MSR/MLR, or eliminate it altogether. 
We consider the comments received in response to the proposed 
modification of the MSR/MLR for Track 2 to be relevant to our proposal 
and the options we sought comment on for setting the MSR/MLR for Track 
3. (See related discussion in section F.2.c of this final rule.)
    Response: As we previously explained in our response to the 
comments on our proposed revisions to the MSR/MLR for Track 2, we are 
persuaded by commenters' statements that ACOs are best positioned to 
determine the level of risk they are prepared to accept. We are 
finalizing the same MSR/MLR methodology for ACOs in both Track 2 and 3. 
Under this methodology, ACOs may select a symmetrical MSR/MLR to apply 
throughout the course of their agreement period from a set of options. 
We believe that applying this same flexibility in symmetrical MSR/MLR 
selection across Tracks 2 and 3 is appropriate, and would allow ACOs to 
have the opportunity to select the risk track to best suit their 
preferences and their readiness to accept performance-based risk. We 
believe commenters supportive of the proposed policy would find this 
policy acceptable, as Track 3 ACOs would have the opportunity to choose 
a flat 2 percent MSR/MLR (as was proposed). Furthermore, we believe 
this approach is responsive to commenters' requests for greater 
flexibility on the thresholds ACOs must meet to be eligible to share in 
savings or be accountable for sharing in losses under Track 3.
    Under this policy, Track 3 ACOs would have the opportunity to 
select a symmetrical MSR/MLR prior to the start of their agreement 
period, as part their initial program application or agreement renewal 
application. No modifications to this selection would be permitted 
during the course of this agreement period.
    FINAL ACTION: We are finalizing a MSR/MLR methodology for Track 3 
under Sec.  425.610(b) that will allow ACOs to choose among several 
options for establishing their symmetrical MSR/MLR: (1) 0 percent MSR/
MLR; (2) symmetrical MSR/MLR in a 0.5 percent increment between 0.5-2.0 
percent; and (3) symmetrical MSR/MLR that varies based on the ACO's 
number of assigned beneficiaries according to the methodology 
established under the one-sided model. Under the third option, the MSR 
for an ACO under Track 3 would be the same as the MSR that would apply 
in the one-sided model under Sec.  425.604(b) and is based on the 
number of beneficiaries assigned to the ACO. The MLR under Track 3 must 
be equal to the negative MSR. We are also finalizing a requirement that 
ACOs must select their MSR/MLR prior to the start of each agreement 
period in which they participate under Track 3 and this selection may 
not be changed during the course of the agreement period.
    Additionally, we are making conforming changes to Sec.  425.100 to 
account for the addition of Track 3. Section 425.100(c) currently 
refers to the application of the minimum loss rate to ACOs that operate 
under the two-sided model. In the December 2014 proposed rule, we 
proposed to make a conforming change to Sec.  425.100(c) to add 
references to the two-sided models under Tracks 2 and 3. In this 
conforming change, we inadvertently included a reference to the one-
sided model (Sec.  425.604). Accordingly, in this final rule, we are 
modifying the conforming change to eliminate the reference to the one-
sided model because ACOs under this model are not accountable for 
shared losses.
g. Monitoring for Gaming and Avoidance of At-Risk Beneficiaries
    In the December 2014 proposed rule we explained that while we have 
concerns that prospective assignment may inadvertently increase 
incentives for gaming and avoidance of at-risk beneficiaries, we have 
taken steps to minimize these incentives by retaining other Shared 
Savings Program policies and procedures such as risk-adjusting 
expenditures and monitoring ACOs to ensure they are not engaging in 
gaming or avoidance of at-risk beneficiaries. We explained further that 
our proposal to exclude only those beneficiaries that no longer meet 
the eligibility criteria for assignment to an ACO should reduce the 
probability that attempts by the ACO to ``cherry pick'' or avoid at-
risk beneficiaries during the performance year would succeed. 
Therefore, the concerns associated with a prospective assignment 
methodology would be balanced by the potential that establishing a new 
Track 3 has to encourage ACOs to accept greater responsibility and 
financial risk for the care provided to their patients in return for 
the possibility of achieving greater rewards. We sought comment on ways 
to mitigate concerns regarding gaming and avoidance of at-risk 
beneficiaries under a prospective assignment methodology, whether 
implementing a prospective approach to assignment would dilute the 
program goals of delivery system redesign, and whether there are 
additional programmatic considerations that should be taken into 
account as a result of our proposal to apply a prospective assignment 
methodology in Track 3.
    Comment: Several commenters expressed general concerns about the 
effect of ACOs undertaking increased financial risk and prospective 
assignment on beneficiaries' freedom of choice of providers and, more 
generally, on access to care. In particular, commenters expressed 
concerns that ACOs that transition to risk-based models have incentives 
to curtail access to care provided in certain settings or by certain 
providers, specifically post-acute and rehabilitation care and care by 
specialty and sub-specialty providers. Some commenters explained that 
performance-based risk could increase the likelihood for care stinting 
and beneficiary steering. A commenter explained that prospective 
assignment may tempt ACOs to treat their assigned beneficiary 
populations as if they are enrolled managed care populations and apply 
more aggressive care management strategies that limit patient choice. A 
commenter generally suggested that ACOs have already implemented more 
aggressive and somewhat questionable practices that require patient 
referrals to remain within ACOs.
    Several commenters explained their concerns were heightened in 
certain circumstances, such as situations in which ACOs do not include 
a broad range of specialists, and, as a result, patients may not have 
access to appropriate specialty care for their clinical needs. Concerns 
were also raised regarding the program's existing quality measurement 
and risk adjustment methodology. Several commenters indicated that the 
program's existing quality measures are not sufficient to assure 
appropriate levels of care even under existing levels of risk. Another 
commenter specified that the Clinician and Group CAHPS for ACOs survey 
used to assess ACO quality performance is not sufficient to demonstrate 
whether beneficiaries are being referred for specialty care at the most 
clinically appropriate point in their disease progression. A commenter 
suggested that avoidance behavior around high-risk beneficiaries could 
be eliminated by including robust risk adjustment that incorporates all 
of beneficiaries' health related characteristics (clinical 
complexities), as well as relevant socioeconomic and socio-demographic 
factors.

[[Page 32781]]

    Some commenters provided the following suggestions on how to 
protect against care stinting, beneficiary steering and avoidance of 
at-risk beneficiaries by ACOs under prospective assignment:
     Examine the referral patterns of ACOs.
     Establish benchmarks that will foster an appropriate level 
of access to and care coordination with specialty medicine providers, 
particularly for beneficiaries with chronic health conditions.
     Require ACOs to include in their applications a summary of 
specialists included in their networks and the methodology used to 
determine that the number of specialists is sufficient to provide 
access to the assigned beneficiary population.
     Require ACOs to include specialists on committees 
responsible for developing and implementing care pathways for the ACO's 
assigned Medicare population.
     Develop formalized guidance for ACOs outlining the types 
of behaviors that are and are not allowed with regard to a 
prospectively assigned patient population.
     Closely monitor whether ACOs are limiting beneficiary 
freedom of choice in light of prospective assignment or discouraging 
high-cost or at-risk beneficiaries from seeking care at the ACO in 
order to avoid assignment of these beneficiaries to the ACO.
     Monitor for a combination of factors, such as quality 
performance, ACO Participant List changes, and utilization trends.
     Ensure beneficiaries understand their right to seek care 
from providers of their choice.
    Response: As we discussed in the December 2014 proposed rule, we 
believe that ACOs will have strong incentives to provide their 
prospectively assigned beneficiaries high-quality, low-cost care in 
order to discourage them from seeking care outside the ACO and that 
beneficiaries that are prospectively assigned to an ACO will continue 
to be protected from concerns related to inappropriate limitations on 
care under traditional FFS Medicare because of their ability to choose 
their providers. Unlike managed care programs, there is no lock-in for 
beneficiaries under the Shared Savings Program. Beneficiaries assigned 
to Shared Savings Program ACOs retain their freedom to choose their 
healthcare providers and suppliers. Therefore, we believe a prospective 
assignment methodology under the Shared Savings Program presents 
limited risks to FFS beneficiaries.
    We appreciate the commenters' sharing their concerns and 
recommendations on this issue. We agree that monitoring is necessary to 
ensure providers do not stint on care or avoid at-risk beneficiaries, 
and we currently monitor ACOs for these circumstances as specified 
under Sec.  425.316(b). Our policies on monitoring and termination will 
help to ensure that ACOs who underperform on the quality standards do 
not continue in the program. Further, we continue to believe the 
program's quality performance standard is rigorous and the quality 
measures are diverse and appropriate, spanning ACO-reported measures, 
claims-based and administrative measures and patient/caregiver 
experience of care measures. We will monitor closely the implementation 
of prospective assignment and the effect of performance-based risk on 
ACOs, and if we identify concerns, we may revise our policies in these 
areas in future rulemaking.
4. Modifications to Repayment Mechanism Requirements
a. Overview
    In the November 2011 final rule (76 FR 67937), we discussed the 
importance of a program requirement that ensures ACOs entering the two-
sided model will be capable of repaying Medicare for shared losses. The 
final rule established a requirement that ACOs applying to participate 
in the two-sided model must establish a repayment mechanism to assure 
CMS that they can repay losses for which they may be liable (Sec.  
425.204(f)). For an ACO's first performance year, the repayment 
mechanism must be equal to at least 1 percent of its total per capita 
Medicare Parts A and B FFS expenditures for its assigned beneficiaries, 
as determined based on expenditures used to establish the ACO's 
benchmark (Sec.  425.204(f)).
    Further, to continue participation in the program, each Track 2 ACO 
must annually demonstrate the adequacy of its repayment mechanism 
before the start of each performance year in which it takes risk (Sec.  
425.204(f)(3)). The repayment mechanism for each performance year must 
be equal to at least 1 percent of the ACO's total per capita Medicare 
Parts A and B FFS expenditures for its assigned beneficiaries, as 
determined based on expenditures for the ACO's most recent performance 
year.
    An ACO may demonstrate its ability to repay losses, or other monies 
determined to be owed upon first year reconciliation, by obtaining 
reinsurance, placing funds in escrow, obtaining surety bonds, 
establishing a line of credit (as evidenced by a letter of credit that 
the Medicare program can draw upon), or establishing another 
appropriate repayment mechanism that will ensure its ability to repay 
the Medicare program (Sec.  425.204(f)(2)). Given our experience in 
implementing the program, we proposed to revisit our requirements to 
simplify them and to address stakeholder concerns regarding the 
transition to risk, as discussed in the previous sections.
b. Amount and Duration of the Repayment Mechanism
    In the proposed rule, we discussed that the practical impact of the 
current rule is to require ACOs to create and maintain two separate 
repayment mechanisms for 2 consecutive performance years, which 
effectively doubles the amount of the repayment mechanism during the 
overlapping time period between the start of a new performance year and 
settlement of the previous performance year. We heard from stakeholders 
that establishing multiple repayment mechanisms during the agreement 
period can be very burdensome and ties up capital that could otherwise 
be used to support ACO operations. Therefore, we considered whether it 
would be possible to streamline the repayment mechanism requirements. 
Specifically, we considered whether it would be feasible for an 
organization to establish a single repayment mechanism to cover the 
entire 3-year agreement period. Initially, we were concerned that 
requiring an organization to establish a single repayment mechanism to 
cover 3 performance years would involve excessive and overly burdensome 
repayment amounts. However, our actuaries determined that this may not 
be the case. Instead, we found that the repayment mechanism that is 
established for the first performance year of an agreement period under 
a two-sided risk model could be rolled over for subsequent performance 
years. In other words, we could create a mechanism for ACOs to 
demonstrate their ability to repay losses by establishing one repayment 
mechanism for the entire 3-year agreement period.
    Thus, we proposed to require an ACO to establish a repayment 
mechanism once at the beginning of a 3-year agreement period. We 
additionally proposed to require an ACO to demonstrate that it would be 
able to repay shared losses incurred at any time within the agreement 
period, that is, upon each performance- year reconciliation and for a 
reasonable

[[Page 32782]]

period of time after the end of each agreement period (the ``tail 
period''). Under our proposal, the tail period provides time for CMS to 
calculate the amount of any shared losses the ACO may owe and to 
collect this amount from the ACO. We proposed to establish the length 
of the tail period in guidance.
    We proposed that an ACO must demonstrate the adequacy of its 
repayment mechanism and maintain the ability to repay 1 percent of the 
ACO's total per capita Medicare Parts A and B FFS expenditures for its 
assigned beneficiaries based on the expenditures used to establish the 
benchmark for the applicable agreement period, as estimated by CMS at 
the time of application or participation agreement renewal. If the ACO 
uses any portion of the repayment mechanism to repay any shared losses 
owed to CMS, the ACO must promptly replenish the amount of funds 
available through the repayment mechanism within 60 days. This would 
ensure continued availability of funds to cover any shared losses 
generated in subsequent performance years. Given that we also proposed, 
as discussed in section II.B. of this final rule, to adjust an ACO's 
benchmark annually to account for changes in the ACO participant list, 
it is possible that an ACO's benchmark could change such that the 
repayment mechanism amount established at the beginning of the 3-year 
agreement period no longer represents 1 percent of the ACO's benchmark 
expenditures. Therefore, we noted in our proposal that we were 
considering whether to require the ACO to adjust the repayment 
mechanism to account for this change, or whether we should establish a 
threshold that triggers a requirement for the ACO to add to its 
repayment mechanism. We sought comment on this issue, including the 
appropriate threshold that should trigger a requirement that the ACO 
increase the amount guaranteed by the repayment mechanism.
    We proposed to modify Sec.  425.204(f) to reflect these changes. We 
noted that the reference to ``other monies determined to be owed'' in 
the current provision relates to the interim payments that were 
available in the first performance year only for ACOs that started 
participating in the program in 2012. Because we no longer offer 
interim payments to ACOs, we also proposed to remove from Sec.  
425.204(f) the reference to ``other monies determined to be owed.''
    Comment: We received several comments on our proposal to require an 
ACO to establish a repayment mechanism once at the beginning of the 
agreement period instead of annually. Most commenters expressed support 
for this change because they believe it would reduce burden on the ACO. 
Few commenters opposed the change, but the ones that did stated that it 
may be more difficult or more expensive for an ACO to obtain a 
repayment mechanism that covers 3-performance years as opposed to one; 
for example, a commenter explained that the duration and size of a 
surety bond may affect whether an ACO can obtain a surety bond. As the 
duration of the bonded obligation becomes longer, the surety must 
predict the strength of the principal's operation for periods of time 
further into the future, and this in turn increases the surety's risk, 
resulting in tightened underwriting standards.
    A commenter pointed out that there is nothing currently in the 
program rules to prohibit an ACO from replacing one repayment mechanism 
with another and suggested that CMS establish a policy to give ACOs 
flexibility to switch from one type of approved repayment mechanism to 
another. This same commenter believes such flexibility would enable the 
ACO to pursue its best option at any given time without jeopardizing 
CMS' possession of a sound repayment mechanism.
    Response: We appreciate these comments and agree with commenters 
that requiring an ACO to establish a repayment mechanism once at the 
beginning of an agreement period instead of annually could relieve 
burden from ACOs that choose to participate under a two-sided model. 
Thus, we anticipate that the proposed policy would be less burdensome 
than the current policy. Specifically, under the existing rule, a two-
sided model ACO must concurrently maintain multiple repayment mechanism 
arrangements. For instance, an ACO must retain the repayment mechanism 
established for the preceding performance year while CMS determines the 
ACO's shared savings or losses for that prior performance year while 
also maintaining a separate repayment mechanism for the current 
performance year. Based on our experience with repayment mechanisms, we 
believe ACOs will be able to work with financial institutions to 
establish the required arrangement to cover the full agreement period 
and tail period. However, we will monitor the use of repayment 
mechanisms and may revisit the issue in future rulemaking if we 
determine that the ability of an ACO to establish an adequate repayment 
mechanism for the entire agreement period and an appropriate tail 
period is constrained by the availability or cost of repayment 
mechanism options. Furthermore, we agree that nothing in our program 
rules currently prohibits an ACO from changing from one acceptable 
repayment mechanism to another during the agreement period. Indeed, we 
worked with an ACO who transitioned from a letter of credit to an 
escrow account, and we anticipate changes where an ACO replaces a 
repayment mechanism with another acceptable repayment mechanism are 
likely to occur in the future. However, we note that these changes can 
be costly and require significant coordination between CMS, the ACO, 
and financial institutions to ensure the ACO remains in compliance with 
the program's repayment mechanism requirements at all times during the 
transition. Therefore, we encourage ACOs to establish and maintain one 
repayment mechanism for the entire 3-year agreement period and tail 
period.
    Comment: A few commenters provided feedback regarding the proposal 
to require ACOs to maintain a repayment mechanism sufficient to repay 1 
percent of the ACO's total per capita Medicare Parts A and B FFS 
expenditures for its assigned beneficiaries based on the expenditures 
used to establish the benchmark for the applicable agreement period, as 
estimated by CMS at the time of application or participation agreement 
renewal. These few commenters found the proposed amount acceptable. A 
few commenters responded to CMS' request for comment on whether a 
threshold should be established that triggers a requirement for the ACO 
to add to its repayment mechanism. Several commenters stated that such 
a trigger should apply, but only when the amount of the required 
payment mechanism would decline. In other words, the repayment 
mechanism should be revised only if the ACO's benchmark declines. A 
commenter suggested that CMS conduct analyses on the magnitude of year-
to-year changes in benchmarks prior to setting a threshold amount or 
trigger. This commenter explained it did not expect it to be common for 
an ACO to make changes to its ACO participant list significant enough 
so that the 1 percent initially estimated is no longer sufficient. 
Several commenters recommended specific triggers for revisions to the 
amount of the repayment mechanism such as changes in the ACO's 
benchmark of 10 or 15 percent or more, or changes to the ACO 
participant list.
    Response: We appreciate these comments and decline at this time to 
establish a trigger or threshold that would require an ACO to add to 
(or remove from) its repayment mechanism

[[Page 32783]]

in the event the ACO's benchmark changes significantly during the 
course of the agreement period. We agree with commenters that CMS 
should conduct the suggested additional analyses prior to implementing 
such a policy. We may revisit this issue in future rulemaking after we 
gain more experience with ACOs under a two-sided model.
    Comment: Several commenters provided comment on the proposal that 
the ACO must promptly replenish the amount of funds available through 
the repayment mechanism within 60 days. Most commenters opposed the 
proposal stating that 60 days may not be enough to raise the necessary 
replenishment funds, particularly in ACOs that had accrued substantial 
losses. Instead, these commenters suggested permitting the ACO 90 days 
to replenish the repayment mechanism. A commenter found 60 days a 
reasonable period of time for replenishment. Other commenters expressed 
concern that ACOs that have used their repayment mechanisms may not be 
in a financial position to replenish the amount at all. These 
commenters suggested that requiring replenishment was unusual, 
particularly in the case of surety bonds, and recommended that CMS 
carefully consider whether such a policy would be necessary.
    Response: We appreciate the comments regarding replenishment of 
repayment mechanism funds when they are used during the agreement 
period. We believe it is important for an ACO that uses a repayment 
mechanism for shared losses to replenish the arrangement so that the 
ACO continues to demonstrate its ability to repay any future losses 
during the agreement period. We disagree that requiring replenishment 
is particularly unusual, but we agree that some ACOs may require 
additional time to replenish funds. Specifically, we believe that ACOs 
who have used their existing repayment mechanism arrangement to repay 
shared losses might need additional time to gather the resources needed 
to replenish their repayment mechanism arrangement. Therefore, we are 
revising our proposal. Instead of requiring ACOs to replenish funds 
within 60 days, we will allow up to 90 days for replenishment. However, 
we will monitor the replenishment process and may revisit the issue in 
future rulemaking if we believe this policy inhibits ACO participation 
in the Shared Savings Program or undermines ACOs' ability to repay 
shared losses.
    FINAL ACTION: We are finalizing our proposal to require an ACO that 
enters a two-sided model to establish a repayment mechanism once at the 
beginning of a 3-year agreement period. We recognize there are a few 
ACOs under existing participation agreements in Track 2 that have 
established repayment mechanisms for the 2014 and 2015 performance 
years (the final 2 years of the ACO's' first' agreement period). We 
note that the repayment mechanisms established by these ACOs are types 
of repayment mechanisms that we are retaining under this final rule. 
Accordingly, we expect these ACOs to maintain their existing repayment 
mechanisms in accordance with the terms set forth in the repayment 
mechanisms. Should these ACOs choose to renew their participation 
agreements for a second agreement period beginning January 1, 2016, 
they will only need to establish a repayment mechanism once at the 
beginning of their new 3-year agreement period. For purposes of this 
final rule, we will treat the existing repayment mechanisms established 
by these ACOs for the 2014 and 2015 performance years as satisfying the 
requirement that the ACO establish a repayment mechanism that is 
sufficient to repay any shared losses it may incur in the current 
agreement period and will apply the revisions to the requirements under 
section Sec.  425.204(f) accordingly.
    Under the new requirements we are finalizing in this rule, ACOs 
must demonstrate that they would be able to repay shared losses 
incurred at any time within the agreement period, and for a reasonable 
period of time after the end of each agreement period (the ``tail 
period''). The tail period shall be sufficient to permit CMS to 
calculate the amount of any shared losses that may be owed by the ACO 
and to collect this amount from the ACO. We will establish the length 
of the tail period in guidance. Additionally, we are finalizing our 
proposal that an ACO must demonstrate the adequacy of its repayment 
mechanism and maintain the ability to repay 1 percent of the ACO's 
total per capita Medicare Parts A and B FFS expenditures for its 
assigned beneficiaries based on the expenditures used to establish the 
benchmark for the applicable agreement period, as estimated by CMS at 
the time of application or participation agreement renewal. We decline 
at this time to adopt a policy to establish a trigger or threshold that 
would require an ACO to increase the value of its repayment mechanism 
in the event of changes to the ACO's benchmark during the agreement 
period.
    We are modifying our proposal regarding the timing of the 
replenishment of the amount of funds available through the repayment 
mechanism. Based on comments, we are finalizing the requirement that if 
an ACO uses its repayment mechanism to repay any portion of shared 
losses owed to CMS, the ACO must promptly replenish the amount of funds 
required to be available through the repayment mechanism within 90 
days.
    Finally, we are finalizing our proposal to modify Sec.  425.204(f) 
to reflect these changes, and to remove the reference to ``other monies 
determined to be owed'' from Sec.  425.204(f).
c. Permissible Repayment Mechanisms
    Under our current rules, ACOs may demonstrate their ability to 
repay shared losses by obtaining reinsurance, placing funds in escrow, 
obtaining surety bonds, establishing a line of credit (as evidenced by 
a letter of credit that the Medicare program can draw upon), or 
establishing another appropriate repayment mechanism that will ensure 
their ability to repay the Medicare program. Based on our experience 
with the program, we proposed to remove the option that permits ACOs to 
demonstrate their ability to pay using reinsurance or an alternative 
mechanism. First, in the proposed rule we explained that no Shared 
Savings Program ACOs had obtained reinsurance to establish their 
repayment mechanism. We noted that ACOs that explored this option had 
told us that it is difficult to obtain reinsurance, in part, because of 
insurers' lack of experience with the Shared Savings Program and the 
ACO model, and because Shared Savings Program ACOs take on performance-
based risk rather than insurance risk. Additionally, the terms of 
reinsurance policies could vary greatly and prove difficult for CMS to 
effectively evaluate. Second, we explained that based on our experience 
to date, a request to use an alternative repayment mechanism increases 
administrative complexity for both ACOs and CMS during the application 
process and is more likely to be rejected by CMS than one of the 
specified repayment mechanisms.
    Therefore, we proposed to revise Sec.  425.204(f)(2) to limit the 
types of repayment mechanisms ACOs may use to demonstrate their ability 
to repay shared losses to the following: Placing funds in escrow; 
establishing a line of credit; or obtaining a surety bond. Under this 
proposed revision, ACOs would retain the flexibility to choose a 
repayment mechanism that best suits their organization. We stated that 
we would be more readily able to evaluate the adequacy of these three 
types of arrangements, as compared to reinsurance policies and other 
alternative repayment mechanisms. For

[[Page 32784]]

instance, escrow account agreements, letters of credit, and surety 
bonds typically have standard terms that CMS can more readily assess as 
compared to the documentation for alternative repayment mechanisms, 
which tends to be highly variable.
    In addition, we proposed to clarify that ACOs may use a combination 
of the designated repayment mechanisms, if needed, such as placing 
certain funds in escrow, obtaining a surety bond for a portion of 
remaining funds, and establishing a line of credit for the remainder. 
Thus, we proposed to revise our rule at Sec.  425.204(f)(2) to indicate 
that an ACO may demonstrate its ability to repay shared losses owed by 
placing funds in escrow, obtaining surety bonds, establishing a line of 
credit, or by using a combination of these mechanisms. We sought 
comment on our proposed modifications to the repayment mechanism 
requirements and also welcomed comments on the availability and 
adequacy of reinsurance as a repayment mechanism.
    Comment: Commenters specific suggestions regarding repayment 
mechanisms that were not addressed directly by our proposals as 
follows:
     ACOs should be required to meet the same rigorous 
financial reserve and solvency requirements as state-regulated risk-
bearing entities such as organizations participating in Medicare 
Advantage.
     CMS should subsidize the ACO's cost for establishing a 
repayment mechanism.
     CMS should establish standards for selecting institutions 
that issue letters of credit or hold funds in escrow, similar to the 
requirements for sureties to be authorized by the Department of 
Treasury.
     CMS should establish standardized forms for ACOs to use, 
for example, a standardized surety bond form.
    Response: We appreciate these comments and will keep them in mind 
when developing future proposed rule changes. We decline at this time 
to adopt more stringent repayment mechanism standards because there are 
very distinct differences between Shared Savings Program ACOs and 
Medicare Advantage plans. Specifically, as noted in our 2011 final 
rule, we believe that organizations participating in the Shared Savings 
Program are taking on performance-based risk and not insurance risk, 
the latter of which is retained by Medicare because ACO participants 
continue to bill and receive FFS payments as they normally would. 
Additionally, we decline at this time to further reduce the burden of 
the repayment mechanism requirement on ACOs, as suggested by 
commenters. We note that ACOs choosing to enter a two-sided model are 
required to accept additional up-front risk in exchange for the greater 
potential for reward. The cost of establishing a repayment mechanism is 
one additional up-front risk for ACOs. As we explained in November 2011 
final rule, we believe that ACOs entering the two-sided model would 
likely be larger and more experienced ACOs or both, and thus have the 
experience, expertise and resources to meet the repayment requirements 
(76 FR 67940). Further, we believe the repayment mechanism requirement 
is an important safeguard against ACOs entering the two-sided model 
when they lack the capacity to bear performance risk. Adopting policies 
whereby CMS would subsidize the ACO's repayment mechanism would 
undermine the objectives of the repayment mechanism policy. We also 
decline at this time to require all ACOs, and their respective 
financial institutions, to use a specified format across all repayment 
mechanism instruments. We issued ``Repayment Mechanism Arrangements 
Guidance,'' available online https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/sharedsavingsprogram/Downloads/Repayment-Mechanism-Guidance.pdf, to explain the terms we would expect to see in various 
repayment mechanism arrangements, but did not go so far as to require 
use of a specified form. Given the newness of the program and our lack 
of experience with these arrangements for ACOs, it was our desire not 
to impede ACOs from working with financial institutions to establish 
the most appropriate repayment mechanism for their circumstance.
    Comment: Several commenters opposed our proposal to limit 
alternative repayment mechanism options for ACOs and encouraged CMS to 
retain flexibility for ACOs to choose the repayment mechanism that best 
suits it. In particular, these commenters stated that they believe it 
is too early to remove alternative repayment mechanisms and reinsurance 
as permitted mechanisms for demonstrating the ability to repay shared 
losses owed to CMS because having as many options for a repayment 
mechanism as possible would align with CMS' desire to encourage 
organizations to take on two-sided risk. Commenters explained that 
reinsurance is a well-established and proven means of managing risk 
that is frequently used by organizations that manage capitated risk in 
commercial insurance contexts and that these policies are likely to 
become more available and standardized as ACOs and insurers gain more 
experience with shared savings models. A commenter went further and 
encouraged CMS to actively promote reinsurance as the best funding 
vehicle for successful ACOs, explaining that ACOs should create 
`captive' insurance companies to holistically manage the emerging 
clinical, financial, and quality risks of the whole ACO enterprise. A 
commenter recommended that CMS retain an alternative repayment 
mechanism that would allow ACOs' shared losses to be carried over to 
subsequent years (for example, through deductions in FFS payments), 
rather than demanding full payment all at once.
    On the other hand, a few commenters expressed specific support for 
the proposal to eliminate alternative repayment mechanisms and 
reinsurance as options for repayment stating that their removal would 
simplify program rules and options.
    Response: As we indicated in our December 2014 proposed rule, based 
on our experience with the program to date, no Shared Savings Program 
ACOs have obtained reinsurance for the purpose of establishing their 
repayment mechanism. ACOs that explored this option told us that it is 
difficult to get reinsurance, in part, because of insurers' lack of 
experience with the Shared Savings Program and Medicare ACOs and 
because Shared Savings Program ACOs take on performance-based risk not 
insurance risk. In the proposed rule, we also explained that the terms 
of reinsurance policies for ACOs could vary greatly and prove difficult 
for CMS to effectively evaluate. In addition, based on our experience 
to date, an alternative repayment mechanism increases administrative 
complexity for both ACOs and CMS during the application process and we 
are more likely to reject it than one of the specified repayment 
mechanisms. However, we agree with stakeholders that reinsurance may 
become a viable option in the future. If it does, we intend to revisit 
this issue and may propose to add reinsurance as an option for ACOs to 
demonstrate their ability to repay shared losses owed to CMS. At this 
time, we continue to believe that CMS would be more readily able to 
evaluate the adequacy of the three remaining types of repayment 
arrangements, as compared to reinsurance policies and other alternative 
repayment mechanisms. In addition, ACOs may use a combination of the 
designated repayment mechanisms, if needed, such as placing

[[Page 32785]]

certain funds in escrow, obtaining a surety bond for a portion of 
remaining funds, and establishing a line of credit for the remainder.
    FINAL ACTION: We are finalizing the revisions to our policy on 
repayment mechanisms. Specifically, we are finalizing the proposed 
revisions to our rule at Sec.  425.204(f)(2) to indicate that an ACO 
may demonstrate its ability to repay shared losses owed by placing 
funds in escrow, obtaining surety bonds, establishing a line of credit, 
or by using a combination of these mechanisms.
5. Methodology for Establishing, Updating, and Resetting the Benchmark
a. Overview
    Section 1899(d)(1)(B)(ii) of the Act addresses how ACO benchmarks 
are to be established and updated. This provision specifies that the 
Secretary shall estimate a benchmark for each agreement period for each 
ACO using the most recent available three years of per beneficiary 
expenditures for parts A and B services for Medicare FFS beneficiaries 
assigned to the ACO. Such benchmark shall 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 fee-for-service program, as estimated by the 
Secretary. Such benchmark shall be reset at the start of each agreement 
period. Accordingly, through the initial rulemaking establishing the 
Shared Savings Program, we adopted policies for establishing, updating 
and resetting ACO benchmarks at Sec.  425.602. Under this methodology, 
we establish ACO-specific benchmarks that account for national FFS 
trends.
    As the statute requires the use of historical expenditures to 
establish an ACO's benchmark, the per capita costs for each benchmark 
year must be trended forward to current year dollars and then a 
weighted average is used to obtain the ACO's historical benchmark for 
the first agreement period. The statute further requires that we update 
the benchmark for each year of the agreement period based on the 
projected absolute amount of growth in national per capita expenditures 
for parts A and B services under the FFS program, as estimated by the 
Secretary. In the April 2011 proposed rule (76 FR 19609 through 19611), 
we considered a variety of options for establishing the trend factors 
used in establishing the historical benchmark and for accounting for 
FFS trends in updating the benchmark during the agreement period.
    The statute outlines the scope of Medicare expenditures to be used 
in calculating ACO benchmarks. Section 1899(d)(1)(B)(ii) of the Act 
specifies that the benchmark is established `` . . . using the most 
recent available 3 years of per-beneficiary expenditures for parts A 
and B services for Medicare fee-for-service beneficiaries assigned to 
the ACO.'' This provision of the Act further specifies: ``Such 
benchmark shall be adjusted for beneficiary characteristics and such 
other factors as the Secretary determines appropriate.''
    In addition to the statutory benchmarking methodology established 
in section 1899(d), section 1899(i)(3) of the Act grants the Secretary 
the authority to use other payment models, including payment models 
that would use alternative benchmarking methodologies, if the Secretary 
determines that doing so would improve the quality and efficiency of 
items and services furnished under this title and the alternative 
methodology would result in program expenditures equal to or lower than 
those that would result under the statutory payment model.
    Under the methodology established by the November 2011 final rule 
(Sec.  425.602) we calculate a benchmark for each ACO using a risk-
adjusted average of per capita Parts A and B expenditures for original 
Medicare fee-for-service (FFS) beneficiaries who would have been 
assigned to the ACO in each of the three calendar years prior to the 
start of the agreement period. We trend forward each of the first 2 
benchmark year's per capita risk adjusted expenditures to third 
benchmark year (BY3) dollars based on the national average growth rate 
in Parts A and B per capita FFS expenditures verified by the CMS Office 
of the Actuary (OACT). The first benchmark year is weighted 10 percent, 
the second benchmark year is weighted 30 percent, and the third 
benchmark year is weighted 60 percent. This weighting creates a 
benchmark that more accurately reflects the latest expenditures and 
health status of the ACO's assigned beneficiary population. In creating 
an updated benchmark we account for changes in beneficiary 
characteristics and update the benchmark by the OACT-verified projected 
absolute amount of growth in national per capita expenditures for Parts 
A and B services under the original fee-for-service program. In 
trending forward, accounting for changes in beneficiary 
characteristics, and updating the benchmark, we make calculations for 
populations of beneficiaries in each of the following Medicare 
enrollment types: ESRD, disabled, aged/dual eligible and aged/non-dual 
eligible. Further, to minimize variation from catastrophically large 
claims, we truncate an assigned beneficiary's total annual Parts A and 
B FFS per capita expenditures at a threshold of the 99th percentile of 
national Medicare FFS expenditures. Under section 1899(d)(1)(B)(ii) of 
the Act and Sec.  425.602(c) of the Shared Savings Program regulations 
an ACO's benchmark must be reset at the start of each agreement period.
    In the December 2014 proposed rule, we considered whether modifying 
the methodology used for establishing, updating, and resetting ACO 
benchmarks to account for factors relevant to ACOs that have 
participated in the program for 3 or more years would help ensure that 
the Shared Savings Program remains attractive to ACOs and continues to 
encourage ACOs to improve their performance, particularly those that 
have achieved shared savings. As discussed later in this section, we 
considered a range of modifications to the benchmarking methodology in 
order to expand the methodology for resetting benchmarks to account for 
factors relevant to continued participation by ACOs in subsequent 
agreement periods and to increase incentives to achieve savings in a 
current agreement period, specifically: (1) Equally weighting the three 
benchmark years; (2) accounting for shared savings payments in 
benchmarks; (3) using regional FFS expenditures (as opposed to national 
FFS expenditures) to trend and update the benchmarks; (4) implementing 
an alternative methodology for resetting ACO benchmarks that would hold 
an ACO's historical costs, as determined for purposes of establishing 
the ACO's initial historical benchmark for its first agreement period, 
constant relative to costs in its region for all of the ACO's 
subsequent agreement periods; and (5) implementing an alternative 
methodology for resetting ACO benchmarks that would transition ACOs to 
benchmarks based only on regional FFS costs, as opposed to the ACO's 
own historical costs, over the course of multiple agreement periods. 
Further, we considered whether to apply these changes broadly to all 
ACOs or to apply these changes only when resetting benchmarks for ACOs 
entering their second or subsequent agreement periods. We also 
considered whether to apply these changes to a subset of ACOs, such as 
ACOs participating

[[Page 32786]]

under a two-sided model (Tracks 2 and 3) or Track 3 ACOs only.
    We considered and sought comment on using combinations of these 
approaches, as opposed to any one approach. Specifically, we considered 
revising the methodology for resetting ACO benchmarks by equally 
weighting the three benchmark years or accounting for shared savings 
payments received by an ACO in its prior agreement period or both, and 
using regional FFS expenditures instead of national FFS expenditures in 
establishing and updating the benchmark.
    In considering these potential options for modifying the 
benchmarking methodology, we noted it is necessary to balance the 
desire to structure the program to provide appropriate financial 
incentives to ACOs with the need to protect the Medicare Trust Funds. 
We also noted the necessity of meeting the requirements for invoking 
our authority under section 1899(i) of the Act, where relevant.
    Comment: Generally, commenters appreciated CMS' interest in 
modifying the program's current benchmarking methodology, particularly 
to improve the sustainability of the program. Commenters generally 
supported changes to the benchmarking methodology that would encourage 
continued participation and improvement by ACOs, thereby improving the 
program's sustainability. Some commenters suggested the need to improve 
the predictability, accuracy and stability of benchmarks over time. A 
commenter indicated that the revisions to the benchmarking methodology 
discussed in the proposed rule do not go far enough to address the 
program's inherent challenges to ACO success under the program, for 
instance pointing to the MSR.
    Commenters pointed out the following perceived disadvantages of the 
program's current benchmarking methodology:
     Calculating the trend for the three years of the 
historical benchmark and the annual benchmark update using a national 
growth rate, or more generally not accounting for regional cost trends 
in benchmarks. Some commenters perceived disadvantages to ACOs in many 
regions because significant variation in year to year cost trends by 
market are not accounted for by using a single national dollar amount 
to update the benchmark.
     Existing rebasing methodology, based on ACO-specific 
historical spending, penalizes certain ACOs for past good performance 
and forces ACOs to chase diminishing returns in subsequent contract 
periods when the benchmark is reset. Some described this dynamic as 
requiring the ACO to continually beat its own best performance, or as a 
``downward spiral,'' and by others as ``chasing one's tail.'' Some 
identified this issue as being of particular concern to existing low-
cost ACOs.
     Existing risk adjustment methodology doesn't completely 
account for the health status of assigned beneficiaries.
     Current rebasing benchmarking methodology (rebasing with 
each new agreement period) leads to unstable benchmarks; others 
connected unstable benchmarks with assigned beneficiary churn.
    Some commenters offered a mix of views on the advantages and 
disadvantages of ACO-specific benchmarks. For instance, higher cost 
ACOs are advantaged with higher benchmarks. Therefore, they are 
rewarded for their historical organizational inefficiency. ACOs with 
lower costs may be discouraged from participating under this 
benchmarking methodology. Some commenters suggested benchmarks that 
include factors other than the ACO's historical performance would be 
more appropriate, while others explained that the benchmarks should 
primarily focus on the historical costs of the ACO's unique population.
    Commenters expressed a mix of views over whether the benchmark 
methodology should be revised to address incentives for existing high-
cost and low-cost ACOs. Some commenters expressed concern that the 
current methodology for establishing and resetting ACO benchmarks 
disadvantages ACOs with historically good performance, and strongly 
recommended against any benchmarking methodology that would 
disadvantage those ACOs with historically good performance. Some 
commenters, including MedPAC, expressed their opposition to policies 
that would result in higher benchmarks for all ACOs, even high-spending 
ACOs. Several commenters explained that the program's benchmark 
methodology needs to take into account how efficient ACOs are when 
entering the program, while also providing an appropriate incentive for 
ACOs to continue their participation in subsequent agreement periods.
    Some commenters stated that it would be premature for CMS to 
finalize any benchmarking methodology changes at this time. These 
commenters stated that CMS should perform additional modeling and 
analytic work on the alternatives discussed in the proposed rule and 
share the results of this analysis before putting forward detailed 
proposals on revisions to the benchmarking methodology through 
additional notice and comment rulemaking.
    Response: We appreciate commenters' thoughtful consideration of the 
modifications to the benchmarking methodology we sought comment on in 
the December 2014 proposed rule. We agree with commenters who expressed 
that the benchmarking methodology is pivotal to the program's future 
direction, in terms of sustainability and the types of ACOs that choose 
to enter and remain in the program. In the following sections we 
discuss and finalize several modifications to our benchmarking 
methodology, which relate to the process for resetting the benchmark. 
These modifications are particularly important at this time in light of 
the upcoming rebasing for ACOs with 2012 and 2013 agreement start dates 
who elect to enter a second agreement period starting January 1, 2016. 
The comments made on these issues are important and were carefully 
considered in the developing the policies in this final rule, as well 
as in arriving at our decision, described in greater detail below, to 
pursue further rulemaking to make additional changes to the 
benchmarking methodology in the near future.
b. Modifications to the Rebasing Methodology
    In the December 2014 proposed rule we discussed the possible 
implications of using the current benchmarking methodology when 
resetting the ACO's benchmark for its second or subsequent agreement 
period. We explained that by using the three historical years prior to 
the start of an ACO's agreement period in establishing benchmarks, an 
ACO's benchmark under its second or subsequent agreement period will 
reflect its previous performance under the program. Among ACOs whose 
assigned beneficiary population for purposes of resetting the benchmark 
closely matches their assigned beneficiary population for the 
corresponding performance years of the preceding agreement period, 
those ACOs that generated savings during a prior agreement period will 
have comparatively lower benchmarks for their next agreement period. 
Under these circumstances, we explained the application of the current 
methodology for establishing and weighting the benchmark years when 
resetting benchmarks could reduce the incentive for ACOs that generate 
savings or that are trending positive in their first

[[Page 32787]]

agreement period to participate in the program over the longer run or 
reduce incentives for ACOs to achieve savings in their first agreement 
period.
    However, we also noted that a number of factors (such as changes in 
ACO participants) could affect beneficiary assignment for purposes of 
establishing ACO benchmarks in subsequent agreement periods, which may 
cause an ACO's benchmark in subsequent years and agreement periods to 
deviate from its benchmark established in the first agreement period.
    To address concerns raised by stakeholders related to resetting 
benchmarks, we considered revising the methodology to equally weight 
benchmark years and account for shared savings earned by an ACO in its 
prior agreement period, as a way to encourage ongoing participation by 
successful ACOs and improve the incentive to achieve savings. We sought 
comment on these modifications, and whether, if adopted, these 
methodologies should be applied uniformly across all ACOs or only to 
ACOs who choose certain two-sided risk tracks.
(1) Equally Weighting the Three Benchmark Years
    In the December 2014 proposed rule we sought comment on a 
methodology for resetting benchmarks in which we would weight the 
benchmark years equally (ascribing a weight of one-third to each 
benchmark year). We indicated, that if left unchanged, the application 
of the existing methodology for weighting the benchmark years at 10 
percent for BY1, 30 percent for BY2 and 60 percent for BY3 when 
resetting benchmarks could reduce the incentive for ACOs that generate 
savings or that are trending positive in their first agreement period 
to participate in the program over the longer run, or reduce incentives 
for ACOs to achieve savings in their first agreement period. We 
explained that this alternative approach would have the most 
significant impact upon ACOs who generated savings during the preceding 
agreement period for an assigned beneficiary population that closely 
approximate the assigned beneficiary population used to determine their 
benchmark for the subsequent agreement period.
    Comment: Many commenters supported equally weighting the three 
benchmark years, believing this change would likely result in more 
generous benchmarks compared to the existing methodology of weighting 
the benchmark years (10 percent BY1, 30 percent BY2, 60 percent BY3). 
In particular, this approach would help protect ACOs who had been 
successful in generating savings in their prior agreement period 
against having to beat their own best performance in a second or 
subsequent agreement period. A commenter explained that equal weighting 
would result in a more gradual lowering of the benchmark calculations 
and allow ACOs the opportunity to earn more savings. Several commenters 
explained that interventions put in place in the first and second 
performance years of an agreement period will have the most impact in 
performance year 3 (which would become BY3 of the next agreement 
period) and their belief that equal weighting of the benchmark years 
would address this issue more effectively than the weighting approach 
under the current methodology. A commenter pointed to the use of equal 
weighting of baseline years in the later years of the Pioneer ACO 
Model.
    Others disagreed with implementing this change explaining that the 
most accurate predictor of an ACO's costs would be based on 
expenditures from the year prior to the start of the ACO's agreement 
period. Many of these commenters seemed to favor the program's existing 
weighting approach of 10 percent BY1, 30 percent BY2, and 60 percent 
BY3. Several commenters expressed concern that equal weighting the 
benchmark years does not appear to adequately address changes in an 
ACO's composition over time, particularly for ACOs who have expanded/
changed their geography and network.
    A commenter disagreed with our conclusion about the likely impact 
of equal weighting on ACOs whose participant composition remains 
stable, explaining that a change to equal weighting would have minimal 
impact to ACOs with stable populations and costs. This commenter also 
indicated that equal weighting would not reflect inflationary costs.
    A commenter pointed out a tradeoff with moving to equal weighting: 
making this modification may disadvantage ACOs that are struggling to 
achieve savings, but on the other hand without this change successful 
ACOs may be disproportionately punished for their success.
    Several commenters suggested the following alternatives to the 
proposed policy:
     Apply equal weighting of the benchmark years beginning 
with the ACO's first agreement period.
     Equal weighting in the first and third agreement periods, 
but not the second. A commenter explained that by equally weighting the 
second agreement period's benchmark years there could be a perverse 
incentive to increase costs substantially in the first agreement period 
to obtain a higher benchmark going into the second agreement period. 
However, the commenter pointed out the current weighting approach could 
create similar incentives to increase costs substantially in year 3 to 
obtain a higher benchmark. In either event, the ACO would then be 
entering its next agreement period in a very high cost position, 
jeopardizing future shared savings or exposing it to very high risk 
under the two-sided model.
     Equal weighting should be used in resetting benchmarks for 
ACOs who generated savings beneath their MSR (trending positive) under 
their prior agreement period.
    A commenter recommended further analysis about the risk profile of 
beneficiaries assigned during benchmark years before switching to equal 
weighting.
    Response: We appreciate commenters' support for the approach of 
equally weighting an ACO's benchmark years when resetting the ACO's 
benchmark under a second or subsequent agreement period and are 
revising the regulations to finalize this policy. We agree with 
commenters that if an ACO generates savings in its first agreement 
period it is likely that the impact on claims would be most significant 
in the second or third performance year as opposed to being uniformly 
distributed across all three performance years. As we explained in the 
December 2014 proposed rule, this hypothesis is supported by the 
following factors:
     There may be a lag between when an ACO starts care 
management activities and when these activities have a measurable 
impact upon expenditures for the ACO's assigned beneficiary population.
     ACOs may improve their effectiveness over time as they 
gain experience with population management and improve processes.
     There may be higher care costs during the early period of 
performance to treat or stabilize certain patients, as the ACO's care 
management activities involving these patients commence.
    Once stabilized, these patients may show relatively lower care 
costs over the course of time due to more effective, coordinated and 
high quality care.
    As we stated in the December 2014 proposed rule, we believe that 
under these circumstances, resetting the benchmark for ACOs starting a 
second or subsequent agreement period under the Shared Savings Program 
becomes a trade-off between the accuracy gained by weighting the 
benchmark years at 10 percent for BY1, 30 percent for BY2, 60 percent 
for BY3, and the potential for

[[Page 32788]]

further reducing the benchmarks for these ACOs by giving greater weight 
to the later performance years of the preceding agreement period. 
Consistent with the concerns raised by some commenters, we continue to 
believe that, if unchanged, the application of the current methodology 
for weighting the benchmark years when resetting benchmarks could 
reduce the incentive for ACOs that generate savings or that are 
trending positive in their first agreement period to participate in the 
program over the longer run, or reduce incentives for ACOs to achieve 
savings in their first agreement period. We believe an appropriate 
approach to addressing these concerns is equally weighting the 
benchmark years when resetting the ACO's historical benchmark for its 
second or subsequent agreement period. In particular, we believe this 
adjustment is one component of establishing a benchmark rebasing 
methodology to provide appropriate incentives for ACOs to improve and 
maintain high performance in subsequent agreement periods.
    We continue to believe in the importance of maintaining the current 
weighting approach of 10 percent BY1, 30 percent BY2, and 60 percent 
BY3 when establishing the historical benchmark for an ACO's initial 
agreement period because giving the greatest weight to the ACO's most 
recent prior cost experience improves the accuracy of the benchmark. 
Therefore, we decline to apply this modified weighting approach to a 
subset of these ACOs, as suggested by some commenters, although we may 
revisit this decision in upcoming rulemaking on additional changes to 
the benchmarking methodology.
    FINAL ACTION: We are revising Sec.  425.602(c) to specify that in 
resetting the historical benchmark for ACOs in their second or 
subsequent agreement we will weight each benchmark year equally. More 
generally, we are also revising the title of provision 425.602 to 
clarify that it contains policies relevant to the original calculation 
of the benchmark at the start of an ACO's first agreement period and to 
the updates to the benchmark that are made during the agreement period 
and resetting the benchmark at the start of each subsequent agreement 
period.
(2) Accounting for Shared Savings Payments When Resetting the Benchmark
    In the December 2014 proposed rule we sought comment on a 
methodology for resetting ACO benchmarks that would account for shared 
savings earned by an ACO in its prior agreement period as a way to 
encourage continued participation by successful ACOs and improve the 
incentive to achieve savings. We indicated that we were considering an 
approach under which we develop per a beneficiary average based on the 
shared savings payment for the particular performance year under the 
prior agreement period and apply this adjustment on a per beneficiary 
basis to the assigned population for the corresponding benchmark year. 
We also sought comment on whether to make a symmetrical adjustment to 
the benchmarks for ACOs that owed losses in a previous agreement 
period. We noted that by making the adjustment only for ACOs that 
receive shared savings payments in their prior agreement period, some 
ACOs that reduce expenditures would not receive the benefit of this 
adjustment. Specifically, ACOs whose performance year expenditures are 
lower than their benchmark expenditures by an amount that did not meet 
or exceed their MSR, and ACOs that generated savings outside their MSRs 
but failed to satisfy the quality reporting standard, would not receive 
the adjustment. Additionally, we noted that the availability of 
performance data relative to timely creation of benchmarks would need 
to be addressed. We anticipate completing financial reconciliation for 
an ACO's most recent prior performance year midway through its current 
performance year. As a result, one implication of relying on the 
availability of performance data from the most recent prior performance 
year is that it would delay the finalization of an ACO's historical 
benchmark for its subsequent agreement period until well into the first 
performance year.
    Comment: Many commenters supported a modified methodology for 
resetting an ACO's benchmark for its second or subsequent agreement 
period under which we would account for the ACO's shared savings in its 
prior agreement period. Some commenters urged CMS to add in all savings 
an ACO generated (as opposed to savings earned), for instance, to 
protect ACOs who generated savings below their MSRs, as well as to 
account for CMS' share of savings in this adjustment. A commenter 
suggested an alternative approach for reallocating savings between ACOs 
who met or exceeded their MSRs, and those who generated savings close 
to but beneath their MSR. Overall, commenters expressed that they 
believe that this change would make the historical benchmark more 
reflective of the total cost of care for the beneficiaries during the 
prior agreement period and would ultimately encourage continued 
participation in subsequent agreement periods by not penalizing those 
ACOs who were able to make cost improvements.
    Several commenters expressed concerns that these changes may not go 
far enough to adequately adapt the benchmark for future agreement 
periods. Several commenters indicated this approach would not 
adequately account for changes in the risk profile of the ACO's patient 
population. A commenter indicated that accounting for savings alone may 
only capture a percentage of the improvement (efficiencies) the ACO 
achieved, recommending for example, that CMS also adjust the ACO's MSR 
based on total savings produced for Medicare.
    Another commenter, opposed to this approach, explained that 
including savings in rebasing will only widen the gap between low and 
high cost providers, and recommended that this approach not be used in 
the program's financial model.
    Others urged CMS against including shared loss payments from an 
ACO's prior agreement period under the two-sided track, as this would 
make it even harder for struggling ACOs to generate savings under a new 
agreement period.
    Response: We agree with commenters on the importance of accounting 
for the financial performance of an ACO during its prior agreement 
period in resetting the ACO's historical benchmark. In particular, we 
believe that this adjustment is important for encouraging ongoing 
program participation by ACOs who have achieved success in achieving 
the three-part aim in their first agreement, by lowering expenditures 
and improving both the quality of care provided to Medicare FFS 
beneficiaries and the overall health of those beneficiaries. Absent 
this adjustment, an ACO who previously achieved success in the program 
may elect to terminate its participation in the program rather than 
face a lower benchmark that reflects the lower costs for its patient 
population during the three most recent prior years.
    We are further persuaded by commenters of the need to account for 
all savings between the benchmark and the ACO's MSR as well as savings 
that were generated and shared that met or exceeded the ACO's MSR. 
Specifically, we believe that accounting for any savings generated by 
the ACO in the previous agreement period would increase the benchmarks 
of ACOs who are working to achieve the program's goal of lowering 
growth in Medicare FFS expenditures. This way, ACOs who may have 
lowered expenditures, but not by enough to earn a performance

[[Page 32789]]

payment, will also benefit from this adjustment. However, we believe it 
is important to adjust the level of shared savings that we add into 
benchmark year expenditures to prevent a situation in which the reset 
benchmark becomes overly inflated based on prior performance to the 
point where ACOs need to do little to maintain or change their care 
practices in order to generate savings.
    At the time of this final rule, there is limited data available on 
ACO financial performance because results from the second and third 
performance years for ACOs seeking to begin their second agreement 
period on January 1, 2016 are not yet available. We are particularly 
concerned about finalizing a rebasing policy that would advantage an 
ACO who underperforms based on cost and quality experience, and we are 
seeking to target adjustments to ACOs that have been successful in the 
program but who may face challenges in continuing to build on that 
success in subsequent agreement periods. Therefore, we are finalizing 
an approach whereby we will account for savings generated by an ACO in 
rebasing its benchmark if the ACO generated net savings across the 
three performance years under its first agreement period, and will also 
account for the ACO's quality performance in each performance year 
under its first agreement period. We will also limit the adjustment to 
the benchmark for the second agreement period to the average number of 
assigned beneficiary person years under the ACO's first agreement 
period. We believe imposing this limit is important in order to help 
ensure that the adjustment does not to exceed the amount of net savings 
generated by the ACO during the first agreement period due to ACO 
participant list changes that may increase the number of assigned 
beneficiaries in the second agreement period. We will use data from the 
ACO's finalized financial reconciliation report for the performance 
year which corresponds to the benchmark year for the second agreement 
period to calculate the adjustment. The calculation will include the 
following steps:
     Step 1. Determine whether the ACO generated net savings. 
For each performance year we will determine an average per capita 
amount reflecting the quotient of the ACO's total updated benchmark 
expenditures minus total performance year expenditures divided by 
performance year assigned beneficiary person years. However, the ACO's 
total updated benchmark expenditures minus total performance year 
expenditures may not exceed the performance payment limit for the 
relevant track. If the sum of the 3 performance year per capita amounts 
is positive, the ACO would be determined to have net savings and we 
would proceed with Steps 2 and 3. If the sum of the 3 performance year 
per capita amounts is zero or negative, we will not make any adjustment 
to the ACO's rebased benchmark to account for any savings the ACO may 
have generated under its prior agreement period.
     Step 2. Calculate an average per capita amount of savings 
reflecting the ACO's final sharing rates based on quality performance. 
We will average the performance year per capita amounts determined in 
Step 1 to determine the average per capita amount for the agreement 
period. We will also determine the ACO's average final sharing rate, 
based on an average of the ACO's quality performance in each 
performance year of the agreement period. Therefore, the average per 
capita amount of savings will account for those situations where an 
ACO's sharing rate for a performance year is set equal to zero (based 
on the ACO's failure to meet the quality performance requirements in 
that year). We will then calculate an average per capita amount of 
savings which is the product of the average performance year per capita 
amount and the average sharing rate based on quality performance.
     Step 3. Add the average per capita amount of savings 
determined in Step 2 to the ACO's rebased historical benchmark 
developed following the methodology specified under Sec.  425.602 as 
modified by this final rule. The additional per capita amount will be 
applied to the ACO's rebased historical benchmark for a number of 
assigned beneficiaries (expressed as person years) not to exceed the 
average number of assigned beneficiaries (expressed as person years) 
under the ACO's first agreement period. Imposing this limit will help 
ensure that the adjustment does not exceed the amount of net savings 
generated by the ACO during the first agreement period due to ACO 
participant list changes that may increase the number of assigned 
beneficiaries in the second agreement period.
    We are adding a new provision at Sec.  425.602(c)(2)(ii) to reflect 
this adjustment. We further note that ACOs with April 1, 2012 and July 
1, 2012 agreement start dates had a first performance year spanning a 
21-month or 18-month period (respectively), concluding December 31, 
2013. In calculating the average per capita amount of savings for these 
ACOs, we will use calendar year 2013 data from the performance year 1 
final financial reconciliation for these ACOs, to align with the same 
12 month period for the corresponding benchmark year under the new 
agreement.
    To illustrate how this calculation will be performed, take as an 
example the following hypothetical Track 1 ACO:

                                  Table 7--Hypothetical Performance Data--Incorporating Savings Into Rebased Benchmark
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                        PY1                    PY2                    PY3                          Average
--------------------------------------------------------------------------------------------------------------------------------------------------------
A. Person Years..............................              31,024                32,579                  32,463     32,022 (average of A for PY1, PY2,
                                                                                                                     PY3).
B. Total benchmark expenditures minus total           $19,265,778.00       ($48,470,676.00)         $21,824,075.00  ....................................
 expenditures.
C. Per capita total benchmark minus total                    $621.00              ($260.00)                $672.28  $344.42 (average of C for PY1, PY2,
 expenditures (C = B/A).                                                                                             PY3).
D. Final Sharing Rate........................                 50%                     0.0%                  40%     30% (average of D for PY1, PY2,
                                                                                                                     PY3).
E. Average per capita amount to add to                         --                    --                      --     $103.33 (E = average C * average D).
 Rebased Historical Benchmark.
--------------------------------------------------------------------------------------------------------------------------------------------------------


[[Page 32790]]

    For this example, it is assumed that the amount of savings or the 
ACO's total benchmark expenditures minus total expenditures is less 
than its performance payment limit, equivalent to 10 percent of the 
ACO's updated historical benchmark in each performance year. It is also 
assumed that in PY2, the ACO did not meet the quality performance 
standard and therefore did not qualify to share in any portion of 
shared savings (i.e. final sharing rate equals zero). Under Step 1 of 
the calculation, we sum the per capita total benchmark minus total 
expenditure values ($621, -$260, $672.28) to determine whether the 
value is greater than zero and therefore whether the ACO generated net 
savings. Under Step 2 of the calculation, we determine the average 
performance year per capita amounts. In the illustration, this average 
is $344.42. We also determine that the ACO's average final sharing rate 
is 30 percent (50% + 0% + 40% divided by 3). We calculate an average 
per capita amount of $103.33 ($344.42 * 0.3) to add to the ACO's 
rebased historical benchmark. The average per capita amount of $103.33 
would only be applied to the rebased benchmark for a number of assigned 
beneficiary person years not to exceed 32,022 person years, the average 
of the ACO's performance year assigned beneficiary person years under 
its first agreement period.
    At this time, we have decided not to adopt a policy under which we 
would adjust the ACO's rebased benchmark to account for losses 
generated or shared by ACOs in an earlier agreement period if the sum 
of the ACO's prior agreement period performance year per capita amounts 
is zero or negative. Our policy would take into account losses 
generated during an agreement period by offsetting any savings in 
determining if there were net savings during the first agreement 
period. We are particularly concerned about discouraging continued 
participation in the program by Track 1 ACOs who are making a bona fide 
effort to meet the program's goals but need more than several years to 
establish the strategies and operations to be successful in the 
program. In these cases, an adjustment to account for net losses in the 
ACOs' rebased benchmarks could make it very difficult for the ACOs to 
achieve success in their next agreement period. We believe the approach 
we are adopting in this final rule balances the interests of the 
Medicare Trust Funds and interests of ACOs entering their second 
agreement period. In particular, we believe this adjustment will 
encourage continued participation by ACOs who have been previously 
successful in the program by more gradually decreasing their rebased 
benchmarks in a way that will reflect their previous success in 
lowering expenditures for assigned beneficiaries while also not 
discouraging participation by ACOs who did not achieve net savings 
under their first agreement period. However, we remain concerned about 
the possibility for unintended benefits to ACOs from the revised 
rebasing methodology we are adopting in this final rule. We are 
especially concerned about a situation where a Track 1 ACO generates 
statistically significant losses in one agreement period which in turn 
yields a higher benchmark under a subsequent agreement period. 
Therefore, we intend to carefully evaluate the effects of rebasing on 
ACOs who have generated losses under a prior agreement period and may 
revisit this issue in future rulemaking.
    Comment: A few commenters addressed the point that incorporating 
performance year three data into the ACO's benchmark for the following 
agreement period would delay the availability of the ACO's new 
benchmark. Several commenters explained that this delay in issuing 
benchmarks was acceptable because of the need to await financial 
performance data from the previous agreement period. However, these 
commenters suggested that a preliminary benchmark excluding the shared 
savings payments be provided in a timely manner. A commenter expressed 
concern about the delay in producing the benchmark as CMS calculates 
the third performance year results. Although the commenter found some 
merit in the approach of including shared savings in the ACO's 
benchmark, the commenter placed greater weight on the need for ACOs to 
receive more timely data to make decisions and changes to impact the 
three-part aim.
    Response: We appreciate commenters' concerns about an ACO's need 
for timely, actionable data on its benchmark close to the start of the 
ACO's agreement period. We currently provide ACOs with a preliminary 
benchmark close to the start of the agreement period for informational 
purposes. According to our current practice, we will continue to 
provide an ACO with a preliminary historical benchmark close to the 
start of the ACO's agreement period. We will issue a final benchmark 
once complete data are available, including any adjustment for savings 
in the prior agreement period.
    Comment: Some commenters suggested that we implement some 
combination of the five alternative benchmarking methodologies 
discussed in the December 2014 proposed rule. Commenters typically 
suggested using a combination of equally weighting the three benchmark 
years and accounting for shared savings payments in benchmarks. Some 
suggested that, in addition, we use regional FFS expenditures (as 
opposed to national FFS expenditures) to trend and update the 
benchmarks, or implement an alternative methodology for resetting ACO 
benchmarks that would hold an ACO's historical costs constant relative 
to costs in its region for all of the ACO's subsequent agreement 
periods, or both. A commenter suggested adopting a combination of 
equally weighting the three benchmark years and using regional FFS 
expenditures (as opposed to national FFS expenditures) to trend and 
update the benchmarks.
    A commenter, favoring the approach where we would transition ACOs 
to benchmarks based only on regional FFS costs, expressed concern that 
the other alternatives do not align with methods used for updating 
payments in other Medicare programs, such as Medicare Advantage.
    Commenters supporting the modifications under which we would 
equally weight the three benchmark years and account for shared savings 
payments in resetting benchmarks often indicated that these changes 
would protect against creating benchmarks that progressively require 
ACOs to beat their own best performance.
    Response: We appreciate commenters' thoughtful consideration of 
using a combination of the benchmarking alternatives discussed in the 
December 2014 proposed rule. We agree with commenters who expressed 
that accounting for an ACO's shared savings during its prior agreement 
period taken together with equally weighing the ACO's benchmark years 
would more gradually lower the benchmarks of ACOs that perform well. 
This, in turn, could increase the incentive for ACOs to continue to 
generate shared savings and improve quality because they will not be 
penalized for this success in future agreement periods. Moreover, these 
modifications may encourage ACOs to enter the program's two-sided 
models (such as the new Track 3), which offer higher final sharing 
rates, because adjusting ACO benchmarks to reflect successful 
participation during one agreement period may improve the potential for 
ACOs to receive shared savings in the next agreement period. We believe 
these modifications will address, in part, stakeholders' concerns 
regarding sustainability of the model.

[[Page 32791]]

Further we consider these modifications to the rebasing methodology 
important for addressing the immediate issue of how to rebase the 
benchmarks of ACOs whose second agreement period will begin January 1, 
2016.
    As explained later in this section, while we are not making broader 
modifications to the benchmarking methodology in this final rule to set 
ACO benchmarks based in part on regional FFS costs, we anticipate 
issuing a proposed rule this summer that would propose more 
comprehensive revisions to the program's benchmarking methodology. As 
we further develop these proposals, we will take into account the 
possible interactions between these alternatives and the modifications 
to the rebasing methodology to equally weight the benchmark years and 
account for savings generated in an ACO's prior agreement period that 
we are adopting in this final rule. Although we believe it is 
appropriate at this time to finalize a policy for accounting for 
savings generated by an ACO under its initial agreement period in 
resetting the ACO's benchmark, applicable to its second agreement 
period, we believe it will be critical to revisit the policy of 
accounting for an ACO's savings generated in a prior agreement period 
when resetting its benchmark in conjunction with any change to the 
methodology for establishing updating and resetting benchmarks to 
incorporate regional FFS costs. Accordingly, we plan to carefully 
evaluate the effects of the policies we are adopting in this final rule 
and will revisit these policies in the future rulemaking regarding the 
benchmarking methodology.
    FINAL ACTION: We are finalizing revisions to Sec.  425.602(c) to 
specify that in resetting the historical benchmark for ACOs entering 
their second agreement period we will make an adjustment to reflect the 
average per capita amount of savings earned by the ACO in its first 
agreement period, reflecting the ACO's financial and quality 
performance, and number of assigned beneficiaries, during that 
agreement period. The additional per capita amount will be applied to 
the ACO's rebased historical benchmark for a number of assigned 
beneficiaries (expressed as person years) not to exceed the average 
number of assigned beneficiaries (expressed as person years) under the 
ACO's first agreement period. If an ACO was not determined to have 
generated net savings in its first agreement period, we will not make 
any adjustment to the ACO's rebased historical benchmark. We will use 
performance data from each of the ACO's performance years under its 
first agreement period in resetting the ACO's benchmark under its 
second agreement period. For ACOs with April 1, 2012 and July 1, 2012 
agreement start dates that will be entering their second agreement 
period in 2016, we will use calendar year 2013 data from the 
performance year 1 final financial reconciliation for these ACOs, to 
align with the same 12 month period for the corresponding benchmark 
year in performing this calculation. As we currently do now, we will 
continue to issue a preliminary benchmark to an ACO, close to the start 
of the ACO's subsequent agreement period, based on available data. We 
will then issue a final historical benchmark once we have the data 
needed to determine the ACO's financial and quality performance for its 
third performance year under its prior agreement and complete the 
benchmark calculation as required under Sec. Sec.  425.602(a) and 
425.602(c).
c. Use of Regional Factors in Establishing, Updating and Resetting 
Benchmarks
    As discussed in the December 2014 proposed rule, some stakeholders 
have expressed concern that the existing benchmarking methodology does 
not sufficiently account for the influence of cost trends in the 
surrounding region or local market on the ACO's financial performance 
and does not suitably encourage ACOs to achieve and maintain savings. 
Therefore, we discussed and sought comment on several options and 
methods for incorporating regional factors when establishing, updating, 
and resetting the benchmark.
    First we discussed use of regional FFS expenditures, instead of 
national FFS expenditures, to trend forward the most recent three years 
of per beneficiary expenditures for Parts A and B services in order to 
establish the historical benchmark for each ACO and to update the 
benchmark during the agreement period. Specifically, we sought comment 
on an option that would implement an approach similar to the method for 
updating benchmarks used under the PGP demonstration.
    Second, we discussed an approach under which the ACO's benchmark 
from the prior agreement period would be updated according to trends in 
FFS costs in the ACO's region, effectively holding a portion of the 
ACO's reset benchmark constant relative to its region. In the proposed 
rule, we discussed two options for implementing this methodology:
     Option 1: An ACO's benchmark for its initial agreement 
period would be set according to an approach similar to the existing 
methodology. For subsequent agreement periods, the trend in regional 
costs would be calculated using an approach based on the PGP 
demonstration, and the historical benchmark would be updated by 
increasing it by a percentage equal to the percentage increase in 
regional costs.
     Option 2: In resetting the benchmark, information 
regarding the ACO's historical costs relative to its region prior to 
its first agreement period would be used to develop a scaling factor 
that would be applied to regional FFS benchmarks for a future agreement 
period.
    Third, we discussed an approach under which, over the course of 
several agreement periods, we would transition ACOs from benchmarks 
based on their historical costs toward benchmarks based only on 
regional FFS costs. Under this approach, ACO benchmarks would gradually 
become more independent of the ACO's past performance and gradually 
more dependent on the ACO's success in being more cost efficient 
relative to its local market.
    We also sought comment on a number of technical issues specific to 
these alternatives, including: How to define an ACO's region and 
specifically, the ACO's regional reference population; how to account 
for changes in an ACO's Participant TINs from year-to-year and across 
agreement periods; and considerations related to risk adjusting 
benchmarks based on regional factors. We also discussed and sought 
comment on how broadly or narrowly to apply these alternative 
benchmarking approaches to the program's Tracks, and the timing for 
implementing any changes.
    We welcomed commenters' detailed suggestions on our considerations 
of factors to use in resetting ACO benchmarks and for the alternative 
benchmark methodologies; as well as considerations or concerns not 
described in the proposed rule. In particular, we sought commenters' 
input on whether an approach that transitions ACOs to regional 
benchmarks would encourage continued participation by existing low-cost 
and high-cost ACOs. We also requested commenters' input on alternatives 
not described in the proposed rule for resetting benchmarks to 
encourage ongoing participation by ACOs who perform well in the program 
and are successful in reducing expenditures for their assigned 
beneficiaries. We also sought comment on whether these alternative 
benchmarking approaches would have unintended consequences for ACO 
participation in the program, for the

[[Page 32792]]

Medicare Trust Funds, or for Medicare FFS beneficiaries.
    We signaled our intent to carefully review any comments received on 
these issues during the development of the final rule and to determine 
whether any change to our current methodology for establishing 
benchmarks would be necessary and appropriate and would meet relevant 
statutory requirements under section 1899(d)(1)(B)(ii) and section 
1899(i)(3) of the Act.
    Comment: Many commenters generally indicated their support for 
revising the benchmarking methodology to reflect regional cost 
variation. Some commenters specifically addressed the options discussed 
in the December 2014 proposed rule about how to incorporate regional 
costs into ACO benchmarks. Some commenters provided an array of 
alternative suggestions on how to incorporate regional costs into ACO 
benchmarks, including options not explicitly discussed in the proposed 
rule. Others expressed their preference for continuing to implement a 
benchmarking methodology that establishes ACO-specific benchmarks that 
account for national FFS trends.
    Some commenters generally encouraged CMS to reflect location-
specific changes in Medicare payment rates in the benchmarks by using 
regional factors (based on regional FFS costs) in establishing and 
updating ACO-specific benchmarks. Others supporting this approach 
explained that regional expenditures more accurately reflect the health 
status of populations (for risk adjustment), differences between rural 
and urban areas or market/regional differences more generally, and 
differences in beneficiaries' socio-economic status. A commenter who 
supported use of regional costs in updating benchmarks indicated this 
would better address the effects of churn in the ACO's assigned 
population, which the commenter explained leads the ACO's population to 
become less reflective of its historical population and more reflective 
of its regional population. On the other hand, some commenters 
encouraged CMS to continue using factors based on national FFS costs to 
trend and update benchmarks. For example, a commenter expressed concern 
that using regional FFS expenditures instead of national FFS 
expenditures in establishing and updating the benchmark may further 
disadvantage existing low-cost ACOs. Others supported allowing ACOs a 
choice of either regional and national trends, or applying the higher 
of regional or national trends, or applying regional trends to ACOs in 
existing high-cost regions and national trends to ACOs in existing low-
cost regions. Several commenters offered conflicting views on whether 
moving to use of regional FFS costs in establishing historical and 
updated benchmarks would advantage or disadvantage existing low cost 
providers.
    Some commenters supported the option under which we would hold an 
ACO's historical costs constant relative to its region, or similar 
approaches. A commenter expressed support for this approach if it meant 
that the savings in one performance period would not work against the 
ACO in the next agreement period. Several commenters specifically 
favored the option discussed in the proposed rule, under which we would 
use a scaling factor for adjusting the ACO's historical costs under its 
first agreement period in developing its benchmark for future agreement 
periods. Several commenters disagreed with this alternative, concerned 
that this method would: (1) Create a static benchmark based on the 
organization's historical performance that does not evolve to account 
for the changing performance or patient mix of the ACO over time, and 
as a result could create disincentives for the ACO to grow or expand to 
other locations or communities for fear of attracting a 
disproportionate prevalence of sick patients (if not reflected in the 
population used to establish its initial benchmark); (2) fail to 
account for changes in FFS spending trends that occur over time, as new 
codes and payment rules are introduced; (3) require additional trending 
which would create a benchmark methodology that fluctuates greatly 
depending on the region that is the basis for comparison and make a 
more complicated benchmarking methodology that is harder to implement, 
forecast and explain.
    Of the options to incorporate regional FFS costs into ACO 
benchmarks, the option whereby we would transition ACOs to benchmarks 
based only on regional FFS costs over the course of multiple agreement 
periods seemed to garner the greatest support from commenters. Several 
commenters believe that this benchmarking process best recognizes ACOs' 
concerns about performance relative to other providers in the region, 
while also encouraging ACOs to continue to improve over time. A 
commenter further explained that this approach accounts for the halo 
effect of the ACO in its community, where non-ACO providers in the 
community have become more efficient due to the presence of an ACO. 
Commenters offered mixed views about the impact of this approach on 
existing high- and low-cost ACOs, with a commenter explaining that an 
ACO's incentive to participate in the program would depend on whether 
the ACO's market was determined to be cost efficient or inefficient. 
Others expressed concerns that this approach would make it difficult 
for ACOs to add additional ACO participants. Therefore it would slow 
adoption of the Shared Savings Program because ACOs may be reluctant to 
risk including new providers with historically higher costs, and it 
similarly may incentivize ACOs to terminate, rather than remediate, 
high-cost providers within the ACO.
    Commenters expressed the importance of defining the regional 
comparison group under this alternative for transitioning ACOs to 
benchmarks based on regional FFS spending, particularly in light of 
regional variations in payment policies. Several commenters addressing 
this option suggested that the metric for efficient, cost-effective 
care should be consistent across providers within a region, including 
Medicare Advantage plans. A commenter suggested segmenting the 
benchmark by Medicare enrollment type (ESRD, disabled, aged/dual 
eligible, aged/non-dual eligible) when using regional FFS costs to 
establish the ACO's benchmark, as is currently done in the program's 
financial methodology, and making further adjustments for the cost of 
care of dually eligible and ESRD beneficiaries.
    On the topic of the pace for transitioning ACOs to regional 
benchmarks, commenters' suggestions ranged from rapid transition 
(within the first agreement period) to a slower pace (for example, over 
the course of two, three, four, or even five agreement periods). 
Several commenters suggested a different pace of transition depending 
on the ACO's historical costs relative to its market, recommending a 
slower transition for higher costs ACOs and a faster transition for 
lower cost ACOs. Others suggested a different pace for transitioning 
more or less experienced ACOs, or an approach under which an ACO could 
determine its own pace of transitioning to a regional benchmark. A 
commenter indicated this approach should initially be implemented under 
the two-sided payment models, but that all ACOs should be transitioned 
to regional FFS benchmarks by year 2021.
    Commenters addressing the three options for incorporating regional 
costs into benchmarks often pointed to the importance of the definition 
of the ACO's region to the credibility of these benchmarking 
methodologies. Several commenters supported a methodology for defining 
an ACO's region and ACO-

[[Page 32793]]

specific regional FFS costs that would be similar to the approach used 
in the Physician Group Practice (PGP) demonstration as described in the 
proposed rule. Others suggested alternatives including using Medicare 
Advantage (MA) county-level FFS rates, or using Hospital Referral 
Region (HRR) geographies weighted by beneficiary residence, or 
Metropolitan Statistical Areas (MSAs). Commenters also offered detailed 
suggestions on how to define an ACO's reference population, with a 
fairly even split between those commenters that favored including and 
excluding an ACO's assigned beneficiaries. Others offered 
considerations for selecting an ACO's counties and for defining its 
reference population, relative to where assigned or attested 
beneficiaries reside or receive services. Others stressed the 
importance of a sufficiently large reference population, offering 
suggestions on how to expand the ACO's region if needed. Some 
commenters pointed out the importance of regional comparisons due to 
the variation in local rules and regulations as they pertain to FFS 
payment, and variation in the socio-economic status of beneficiaries 
(particularly dually eligible beneficiaries). A commenter explained 
that under an approach like that used for the PGP demonstration, an ACO 
could become a winner or loser under the program based in large part on 
the comparison group, which reflects how other providers in the region 
are performing. Moreover, for a voluntary program like the Shared 
Savings Program, organizations may choose to participate simply because 
their costs are lower than those of the region, potentially leading to 
significant increases in Medicare costs without improvements in 
quality.
    Few commenters addressed concerns about accounting for ACO 
Participant List changes under the alternative benchmarking 
methodologies discussed in the December 2014 proposed rule. Several 
commenters favored an approach under which we would adjust the ACO's 
benchmark each performance year as ACO participants are added or 
removed, and a commenter suggested we account for changes in the health 
status or disease burden of the ACO's assigned beneficiary population 
arising from the changes in the ACO Participant List. A commenter 
further recommended a more fluid approach under which the benchmark 
would be risk adjusted based on changes in the assignment of individual 
beneficiaries.
    Some commenters addressed the need to revise the program's risk 
adjustment methodology when moving to an alternative benchmarking 
methodology. Commenters suggested, for instance: Using a regional HCC 
growth rate or accounting for regional variation in updating the HCC 
formulas; using a concurrent risk adjustment methodology, and doing so 
in combination with a demographically adjusted regional FFS cost 
baseline; creating a risk adjustment factor by comparing the HCC coding 
between the ACO assigned beneficiaries and the regional comparison 
population; following the Medicare Advantage (MA) methodology for risk 
adjustment; and readjusting the risk determination of a population 
after removing beneficiaries determined ineligible for assignment. Some 
suggested that CMS not be overly restrictive in applying regional 
normalization and coding intensity adjustments. Others suggested CMS 
specifically account for other factors in regional adjustments such as 
changes in access to care for low-cost populations, and the socio-
economic risk profile of beneficiaries. A commenter requested that risk 
adjustment be based on the ACO's historical performance and not the 
market's historical performance.
    Although the December 2014 proposed rule did not explicitly request 
comment on the program's existing risk adjustment methodology, many 
commenters took the opportunity to criticize this aspect of the 
calculation of ACO benchmarks. Almost all commenters addressing the 
program's existing risk adjustment methodology suggested that it 
inadequately captures the risk and cost associated with assigned 
beneficiaries. Commenters explained their concern that by only counting 
HCC scores that work against the ACO for the continuously enrolled 
population, the current policy actually disadvantages ACOs that take on 
the management of the sickest populations with the greatest medical 
need. Of the alternatives to the current risk adjustment methodology 
presented by commenters, many commenters urged CMS to incorporate the 
full growth in HCC risk scores across each performance year (upward and 
downward adjustment), or, at a minimum, to recognize the full growth in 
risk scores for beneficiaries in their first year of assignment to the 
ACO. In justifying this alternative, commenters suggested that ACOs are 
less susceptible to coding practices, for instance compared to MA 
plans, because ACOs can be comprised of entities with no influence over 
the coding practices at other facilities or settings. Others suggested 
accounting for full risk score growth could address CMS' concerns about 
providers' avoidance of at-risk beneficiaries. Some commenters 
explained that failing to fully adjust for changes in beneficiary 
health status ignores the fact that even when care is optimally 
managed, individuals become sicker. Therefore, a beneficiary is more 
expensive to treat as disease processes progress or when they initially 
present. Some commenters indicated that the program's current risk 
adjustment methodology requires vigilant ongoing coding of chronic 
conditions to prevent a decline in risk scores. Others recommended 
approaches under which CMS would encourage improved coding practices by 
providers (for example, rural providers). Other commenters envisioned 
that a better approach would involve more frequent risk adjustment (for 
example, quarterly), use of different risk scores (for example, 
concurrent performance year risk scores, or regionally-based risk 
factors, or projected risk based on expected cost of beneficiary care), 
or allow for ACOs to send in supplemental risk score data as is done 
under Medicare Advantage. Others suggested that CMS' concerns about 
upcoding could be addressed through vigilant monitoring or placing a 
cap on upward risk adjustment growth (for example, relative to a 
national or regional growth rate). A commenter indicated the importance 
of incorporating national FFS payment changes in the risk adjustment 
methodology. Some urged CMS to continue researching alternative risk 
adjustment models and consider additional changes to increase the 
accuracy of the risk adjustment methodology.
    Commenters suggested CMS consider a variety of additional 
methodologies for revising the program's benchmarks, sometimes creating 
opposing alternatives. MedPAC offered a vision for both the near and 
long term evolution of the program's benchmarking methodology. In the 
short term, CMS would keep the existing rebasing methodology, but would 
not rebase an ACO that met a two-part test, which would leave 
benchmarks for lower-spending ACOs unchanged. In the longer term, CMS 
would move ACOs from a benchmark based on the ACO's historical cost 
experience to a common (equitable), local FFS-based benchmark where: 
FFS spending is defined to include spending on beneficiaries in ACOs as 
well as on beneficiaries in traditional FFS; the risk adjustment 
methodology reflects expected increases in costliness of the 
beneficiary's care and protects against coding differences; and better 
quality performance is

[[Page 32794]]

rewarded with a higher benchmark (a bonus-only model). MedPAC 
encouraged CMS to focus on creating the conditions that will allow 
efficient ACOs to be successful, rather than establishing an 
environment which creates as many ACOs as possible. Other commenters 
suggested the following alternatives:
     Less frequent rebasing. For instance, carry forward the 
ACO's first agreement period benchmark into subsequent agreement 
periods. That is, do not reset or update this benchmark, or 
alternatively, trend forward the first agreement period benchmark in 
subsequent agreement periods. Some commenters suggested limited 
rebasing, or alternative rebasing for low-cost ACOs. Other commenters 
asked whether CMS could establish a benchmark floor, an actuarial 
number beyond which CMS would not lower an ACO's benchmark.
     More frequent rebasing. For instance, reset the ACO's 
benchmark annually during each year of the agreement period.
     Annually increase the ACO's benchmark using a region-
specific consumer price index (CPI).
     Measure ACO performance against a national baseline, 
considering also the ACO's own past performance and the ACO's 
performance relative to others in its market.
     Reward low-cost providers for improvement in performance 
regardless of their performance compared to the national or local 
trend.
     Apply to each ACO a benchmark which is the higher of 
either a benchmark based on the ACO's historical costs or a benchmark 
based on regional costs. Alternatively, a commenter suggested rewarding 
ACOs that beat either of two benchmarks, one based on the ACO's 
historical cost experience and one based on the ACO's regional costs.
     Adopt the Medicare Advantage methodology for paying plans 
based on a monthly per capita county rate in creating ACO benchmarks, 
particularly for ACOs in low cost counties. Specifically for ACOs in 
the lowest quartile of costs, apply a benchmark that is 115 percent of 
estimated FFS costs, and allow for double bonuses if quality benchmarks 
are achieved.
     Adopt an alternative benchmarking methodology for ACOs 
under prospective assignment. For example, the benchmark could be based 
on the historical costs of the specific beneficiaries that are assigned 
to the ACO for a performance year, rather than on the average costs of 
the ACO's historical patient population.
     Revise the approach to trending and updating the ACO's 
benchmark. Several commenters suggested segmenting and adjusting the 
benchmark by service mix (e.g., expenditures by differing care 
settings), similar to the current approach for segmenting the benchmark 
by Medicare enrollment type. Another commenter suggested using actual 
trend data, as opposed to estimated (projected) trend data to establish 
and update the benchmark. A commenter suggested eliminating the 
benchmark update altogether.
     Address the effects of beneficiary churn on benchmarks, 
for instance by using additional historical data in establishing 
benchmarks or locking-in an ACO's assigned beneficiaries for multiple 
years.
     Normalize random fluctuations in FFS cost estimates for 
the ACO's assigned beneficiary population.
     Revisit the MSR calculation under Track 1 if moving to 
regional benchmarks, to see if the MSR could be lowered.
    Some commenters supported blended approaches, whereby benchmarks 
would reflect a combination of the ACO's historical costs and regional, 
national or a combination of regional/national costs. For instance, a 
benchmark based on the ACO's historical costs and: (1) Only national 
FFS trend factors (as is currently done); (2) only regional FFS trend 
factors; or (3) a combination of both regional and national FFS trend 
factors. Others suggested that an ACO's benchmark be comprised of a 
blend of the costs for the ACO's assigned beneficiaries (historical 
costs) and either regional costs or regional/national costs. A few 
commenters addressed the weight regional and national costs should be 
given in relation to the ACO's historical costs in these blended 
approaches, and especially in the context of discussing the pace for 
transitioning ACOs to benchmarks based only on regional costs. Some 
commenters favored options that would allow ACOs (particularly those 
under the two-sided model) a choice of benchmarking methodology, such 
as benchmarks reflecting national FFS costs versus those reflective of 
regional costs.
    Commenters offered differing suggestions on whether to broadly or 
narrowly apply a benchmarking methodology that accounts for regional 
costs across the program's tracks. Some commenters favored applying the 
same benchmarking methodology across program tracks, particularly to 
provide consistency in methodology as ACOs move between tracks (namely 
from Track 1 into a two-sided risk track). Others suggested using an 
alternative benchmarking methodology to create distinctions between the 
tracks, for instance applying the changes only in Tracks 2 and 3 to 
attract ACOs to performance-based risk. Some others recommended 
allowing ACOs under the two-sided model a choice of multiple 
benchmarking methodologies, including at least one option that accounts 
for regional costs, while other commenters suggested giving all ACOs 
this choice. If CMS adopts a revision to the benchmarking methodology, 
a commenter recommended that the changes become effective for all ACOs 
beginning with the first full performance year after the final rule is 
published.
    Some commenters explained it would be premature for CMS to finalize 
any benchmarking changes at this time. Some commenters indicated there 
were insufficient details in the December 2014 proposed rule on the 
alternatives or cited their lack of data to analyze the alternatives 
discussed in order to make an informed and effective recommendation 
about the options. In particular, commenters pointed to the need for 
more details on the following:
     Definition of an ACO's region.
     Regional FFS data that would be used in incorporating 
regional factors into the benchmarking methodology.
     Risk adjustment.
     Adjustments for changes in ACO Participant TINs.
     Impact of these approaches on existing high and low cost 
providers as well as on existing ACOs according to their past 
performance in the program (for example, the potential impact of these 
changes on ACOs who have generated savings or losses).
     Disincentives for ACOs to include providers who manage the 
highest risk populations under a revised benchmarking methodology.
     Impact of regional or comparison population-based 
benchmarks on ACOs that include certain providers, such as critical 
access hospitals (CAHs) or academic medical centers.
     Budget neutrality of a revised benchmarking approach.
    These commenters typically indicated the need for CMS to perform 
additional modeling and analytic work on the alternatives discussed in 
the proposed rule, and specifically the aforementioned issues. They 
urged CMS to share the results of this analysis and put forward 
detailed proposals on revisions to the benchmarking methodology through 
additional notice and comment rulemaking. A commenter further suggested 
that CMS convene a task force of CMS and ACO

[[Page 32795]]

representatives to evaluate and recommend benchmarking alternatives.
    Response: We believe that the changes to the benchmark rebasing 
methodology we are finalizing in this final rule--equally weighting the 
benchmark years and accounting for savings generated in the ACO's first 
agreement period--will help to ensure that the Shared Savings Program 
remains attractive to ACOs, provides strong incentives for ACOs to 
improve the efficiency and quality of patient care, and generates 
savings for the Medicare Trust Funds. However, as we discussed in the 
December 2014 rule and as highlighted by many commenters, we continue 
to believe that additional changes to benchmark rebasing methodology 
are needed in order to ensure that the Shared Savings Program meets 
these goals over the long run. We agree with stakeholders that 
developing a benchmark rebasing methodology that incorporates regional 
cost factors into benchmarks is an important consideration in the 
development of the program, including for ensuring the sustained 
attractiveness of the program and for encouraging ACOs to achieve and 
maintain savings. In particular we believe that three main criteria 
should be used to evaluate a revised benchmarking methodology. Such a 
methodology should generate the following:
     Strong incentives for ACOs to improve efficiency and to 
continue participation in the program over the long term.
     Benchmarks which are sufficiently high to encourage ACOs 
to continue to meet the three-part aim, while also safeguarding the 
Medicare Trust Funds against the possibility that ACOs' reset 
benchmarks become overly inflated to the point where ACOs need to do 
little to maintain or change their care practices to generate savings.
     Generate benchmarks that reflect ACOs' actual costs in 
order to avoid potential selective participation by (and excessive 
shared payments to) ACOs with high benchmarks. In general, we believe 
that benchmarking approaches involve tradeoffs among these three 
criteria.
    We believe that the current benchmark rebasing methodology does not 
achieve the best possible tradeoff among these criteria. While we 
believe that the modifications to the rebasing methodology we are 
finalizing in this final rule--equally weighting the benchmark years 
and accounting for savings generated in the ACO's first agreement 
period--will improve the extent to which the program's benchmarking 
methodology meets these criteria, we believe additional changes to the 
benchmark rebasing methodology are needed in order to ensure these 
goals are met over the long run.
    However, we believe that the alternatives discussed in the December 
2014 proposed rule, including an approach which would have based ACOs' 
future benchmarks entirely on regional FFS costs in the regions served 
by the ACO, may not strike the best balance among the considerations 
identified above. For instance, under approaches where an ACO's 
benchmark is no longer based directly on the ACO's own recent costs, 
the benchmark would less accurately match the ACO's underlying costs 
and increase the risk of selective participation. Therefore, we intend 
to propose a benchmarking methodology based on a blend of each ACO's 
recent cost experience and cost trends in its region. We intend to 
propose revisions to the program's benchmark rebasing methodology in a 
rule to be issued later this summer, as described in greater detail 
under the Final Action later in this section. While we received 
comments supporting quick adoption of changes to the benchmarking 
rebasing methodology to account for regional FFS costs, we are 
concerned that adopting changes in this final rule would provide short 
notice to ACOs that must determine whether to enter a second agreement 
period starting on January 1, 2016. For this reason we intend to 
propose that the revised benchmark rebasing methodology incorporating 
the ACO's historical costs and regional FFS costs and trends would 
apply to ACOs beginning new agreement periods in 2017 or later. ACOs 
beginning a new agreement period in 2016 would convert to the revised 
methodology at the start of their third agreement period in 2019.
    We appreciate the comments and suggestions from stakeholders on the 
benchmarking alternatives discussed in the December 2014 proposed rule, 
and the specific suggestions on risk adjustment, reference population 
and service area definitions, how broadly or narrowly to incorporate an 
alternative benchmarking methodology into the program and the pace at 
which to make these changes, considerations related to ACO Participant 
List changes, and other factors that would need to be developed prior 
to adopting a benchmarking methodology that includes regional FFS 
costs. We recognize stakeholders' interest in participating in the 
development of policies for revising the benchmarking methodology, and 
in particular the importance of stakeholder feedback in considering the 
potential effects of, and unintended consequences resulting from, 
revisions to the benchmarking methodology. We will take the comments 
and suggestions we received in response to the discussion in the 
proposed rule into consideration when evaluating and developing the 
forthcoming policy proposals on an alternative benchmarking model.
    Some of the suggestions commenters provided related to revising the 
program's benchmarking methodology are beyond the scope of the 
modifications proposed or sought comment on in December 2014 proposed 
rule, including suggestions for revising the program's existing risk 
adjustment methodology. We have limited experience with how this 
methodology affects ACO financial experience or influences the coding 
practices of ACOs, ACO participants and ACO providers/suppliers since 
at the time of this final rule we have final financial reconciliation 
results for only 1 performance year, for ACOs with 2012 and 2013 
agreement start dates. As suggested by some commenters, we will 
continue to evaluate the current risk adjustment methodology. We will 
also continue to monitor the concerns raised by commenters about the 
possible effects of the existing risk adjustment methodology, including 
its impact on ACO financial performance, providers' coding practices 
and care for beneficiaries. Although at this time we believe revising 
the existing risk adjustment methodology is premature, we will continue 
to evaluate this issue, and will address any necessary refinements to 
the risk adjustment methodology in the forthcoming policy proposals on 
a benchmark rebasing model that incorporates regional FFS costs. In 
particular, we anticipate addressing the need for a risk adjustment 
methodology to account for coding differences between the ACO and its 
region.
    FINAL ACTION: As described in section II.F.5.b. of this final rule, 
we are finalizing modifications to the benchmark rebasing methodology, 
to include equally weighting the ACO's historical benchmark years, and 
accounting for savings generated in the ACO's first agreement period 
when setting the ACO's benchmark for its second agreement period. 
Recognizing the importance of quickly moving to a benchmark rebasing 
approach that accounts for regional FFS costs and trends in addition to 
the ACO's historical costs and trends, we intend to propose and seek 
comment on the components of and procedures for calculating a 
regionally-trended rebased benchmark through a proposed rule to be 
issued later this summer. While the forthcoming proposed rule will 
provide

[[Page 32796]]

details of our considerations and preferred methodology, we believe it 
is important to signal our anticipated policy direction in this final 
rule. In particular, we anticipate this approach would include the 
following features:
     Continue to establish the ACO's historical benchmark for 
its first agreement period by calculating a historical benchmark based 
on the three most recent years prior to the start of the ACO's 
agreement period. We intend to discuss in the forthcoming proposed rule 
whether the appropriate weighting under the revised methodology is 
weighting the three benchmark years equally or following the current 
methodology of weighting at 10 percent for benchmark year (BY) 1, 30 
percent for BY2, and 60 percent for BY3.
     For an ACO's second or subsequent agreement period, the 
benchmark would be rebased as a blend of a regionally-trended component 
and a rebased component, for instance--
    ++ Regionally-trended component: The ACO's historical costs 
calculated from the historical benchmark years for the 3 years 
preceding the ACO's first agreement period that starts in 2017 or 
later, adjusted by a regional trend factor based on changes in regional 
expenditures for each Medicare enrollment type (ESRD, disabled, aged/
dual eligible, aged/non-dual eligible) for the most recent year prior 
to the start of the ACO's new agreement period, adjusted for changes in 
the health status and demographic factors of the population in each 
benchmark year relative to its region. The ACO's region would be 
defined relative to the areas where its assigned beneficiaries reside, 
for instance by using MSAs and regions constituting the non-MSA 
portions of the state; and
    ++ Rebased component: The ACO's recent historical expenditures, 
determined by calculating a historical benchmark according to the 
rebasing methodology established with this final rule--based on the 3 
most recent years prior to the start of the ACO's new agreement 
period--including equally weighting these benchmark years but excluding 
the addition of a portion of savings generated over the same 3 most 
recent years.
    An important consideration is the percentage each component 
accounts for in the rebased benchmark. We believe that placing a 70 
percent weight on the regionally-trended component and a 30 percent 
weight on the rebased component would serve the goal of providing 
strong incentives for ACOs to achieve savings and to continue to 
participate in the Shared Savings Program. Further, we anticipate 
maintaining our existing policy for adjusting the ACO's historical 
benchmark whereby we annually account for changes to the ACO's 
participant list, based on the ACO participant list the ACO certifies 
before the start of the performance year for which these changes are 
effective. Specifically, changes in the ACO's certified participant 
list would result in a recalculation of both the regionally-trended 
component and rebased component of the ACO's benchmark.
    We anticipate that the revised rebasing methodology would be used 
for the first time to set benchmarks for ACOs beginning new agreement 
periods in 2017. ACOs beginning new agreement periods in 2016 would 
convert to the revised methodology at the beginning of their next 
agreement period in 2019.
    In the forthcoming proposed rule later this summer we will put 
forward details on this approach and address the following issues:
     Whether to make adjustments to account for ACOs whose 
costs are relatively high or low in relation to FFS trends in their 
region or the nation, such as specifying a smaller benchmark adjustment 
for high-spending ACOs.
     The percentage weight of the regionally-trended component 
and the rebased component, for instance 70 percent and 30 percent 
respectively; and whether to gradually reduce the weight placed on the 
regionally-trended component and reallocate this weight to a component 
based on regional average spending to transition ACOs to benchmarks 
based on regional FFS costs.
     How to refine the risk adjustment methodology to account 
for differences in the mix of beneficiaries assigned to the ACO and in 
the ACO's region; and how we might guard against excessive payments as 
ACOs improve documentation and coding of beneficiary conditions, such 
as by adjusting ACOs' risk scores for coding intensity or imposing 
limits on the extent to which an ACO's risk score can rise relative to 
its region.
     How to define an ACO's region, including considerations 
for using MSAs and rest of state designations, or Combined Statistical 
Areas (CSAs), or another definition of regionally-based statistical 
areas, or the ACO's county-level service area.
     How to account for changes in ACO Participant composition; 
for instance, similar to our existing method for adjusting the ACO's 
benchmark during the course of its agreement period to account for 
changes in its ACO participant list as described previously.
     Whether to incorporate regional FFS costs in updating an 
ACO's historical benchmark each performance year, or to maintain the 
current policy under which we update an ACO's benchmark based on the 
projected absolute amount of growth in national per capita expenditures 
for Parts A and B services under the original fee-for-service program. 
For instance, the update factor could be based on either regional costs 
or a blend of regional/national FFS costs, as well as continuing to 
account for changes during the performance period in health status and 
demographic factors of the ACO's assigned beneficiaries.
     How to safeguard against rewarding ACOs that increase 
their spending between now and the beginning of their next agreement 
period in order to lock in a higher benchmark for future agreement 
periods.
     How the revised benchmark rebasing methodology using ACO 
and regional cost trends fits in with the existing approach for 
establishing the ACO's historical benchmark for its first agreement 
period and the modifications to the rebasing methodology finalized in 
this final rule. We will consider whether additional adjustment is 
needed to transition ACOs to the revised rebasing methodology when they 
have been previously rebased under the methodology established with 
this final rule.
6. Technical Adjustments to the Benchmark and Performance Year 
Expenditures
    When computing average per capita Medicare expenditures for an ACO 
during both the benchmark period and performance years under Sec. Sec.  
425.602, 425.604, and 425.606, we take into account all Parts A and B 
expenditures, including payments made under a demonstration, pilot or 
time limited program, with the exception of IME and DSH adjustments, 
which are excluded from these calculations. In the November 2011 final 
rule (76 FR 67919 through 67923), we considered whether to make 
adjustments to benchmark and performance year expenditures to exclude 
certain adjustments to Part A and B expenditures, including IME and DSH 
payments, geographic payment adjustments and some bonus payments and 
penalties. In the final rule, we acknowledged that taking into 
consideration payment changes could affect ACOs' financial performance 
and their ability to realize savings. However, with the exception of 
the adjustment to account for IME and DSH payments, we ultimately 
declined to make any adjustments to account for various

[[Page 32797]]

differences in payment rates among providers and suppliers.
    While we exclude IME and DSH payments from the ACO's benchmark 
under our authority in section 1899(d)(1)(B)(ii) of the Act to make 
adjustment to the benchmark for such other factors as the Secretary 
determine appropriate, in order to make a similar exclusion from ACO 
performance year expenditures we must use our authority under section 
1899(i)(3) of the Act. In the November 2011 final rule (76 FR 67921 
through 67922), we stated that we believe excluding IME and DSH 
payments would be consistent with the requirements under section 
1899(i)(3) of the Act. That is, excluding these payments from 
performance year expenditures would both improve the care for 
beneficiaries while also not resulting in greater payments to ACOs than 
would otherwise have been made if these payments were included. 
Specifically, we stated that removing IME and DSH payments from 
benchmark and performance year expenditures would allow us to more 
accurately reward actual decreases in unnecessary utilization of 
healthcare services, rather than decreases arising from changes in 
referral patterns. In addition, excluding these payments from our 
financial calculations would help to ensure participation in ACOs by 
hospitals that receive these payments. Taken in combination, these 
factors could result in Medicare beneficiaries receiving higher 
quality, better coordinated, and more cost-efficient care. As a result, 
we did not expect that excluding IME and DSH payments from the 
determination of ACOs' financial performance would result in greater 
payments to ACOs than would otherwise have been made. We also found 
that excluding these amounts was operationally feasible since they are 
included in separate fields on claims allowing them to be more easily 
excluded from financial calculations than certain other payments that 
are included on Part A and B claims. Therefore, we finalized a policy 
of excluding IME and DSH payments from both the benchmark and 
performance year expenditure calculations. We stated that we intended 
to monitor this issue and would revisit it if we determine that 
excluding these payments has resulted in additional program 
expenditures (76 FR 67922).
    In addition to IME and DSH payments, we also considered whether 
standardizing payments to account for other types of payment 
adjustments would alleviate concerns resulting from changes in the 
Medicare payment systems. However, in light of the numerous payment 
adjustments included throughout the Medicare payment systems, we were 
concerned about the complexity resulting from standardizing payments 
and whether standardized payment information would provide meaningful 
and consistent feedback regarding ACO performance. Ultimately, we 
disagreed with commenters' suggestions that we adjust expenditures to 
account for various differences in cost and payment. We stated that 
making such extensive adjustments, or allowing for benchmark 
adjustments on a case-by-case basis, would create an inaccurate and 
inconsistent picture of ACO spending and may limit innovations in ACOs' 
redesign of care processes or cost reduction strategies (76 FR 67920).
    Since the publication of the November 2011 final rule, some 
questions have persisted regarding the most appropriate way to handle 
payment differences and changes under Medicare FFS, including whether 
to take into consideration certain payment changes that could affect 
ACO financial performance. We did not propose to make any further 
adjustments to existing program policies in the December 2014 proposed 
rule, but we did seek further comment from stakeholders on the 
adjustment for IME and DSH payments and our decision not to make 
adjustments for other claims-based and non-claims based payments. In 
particular, we expressed our interest in comments regarding 
standardization of payments, including which elements to adjust for, 
the impact of value-based payment adjustments on payments to physicians 
and hospitals, and the value of providing feedback on non-standardized 
results while using standardized results to perform financial 
reconciliation.
    Comment: Some commenters reiterated their support for the current 
program policy to exclude IME and DSH payments from ACO benchmark and 
performance year expenditures, but not to exclude other payments. A 
commenter explained that under the current policy ACOs are evaluated 
against their own previous period performance, and that any 
standardization or adjustment of expenditures is likely to limit the 
effectiveness of the program overall. The commenter further indicated 
that trying to account for one-time or intermittent payment adjustments 
may overcomplicate the program's financial calculations.
    Many commenters favored removing the effect of all policy 
adjustments from benchmark and performance year expenditures, resulting 
in cost standardization for add-on payments and geographic payment 
differences. Commenters explained that this adjustment is necessary to 
reflect only actual resource utilization. Commenters explained their 
concern that absent these adjustments, financial calculations could 
reward ACOs for simply changing the setting of care, undermine certain 
types of providers, and place patients at risk for being steered away 
from appropriate, high-quality care.
    Commenters recommended that we make the following adjustments:
     Remove adjustments associated with Medicare value-based 
payment programs such as the hospital value-based purchasing program 
(HVBP) and the hospital readmissions reduction program, and the 
physician value modifier. However, a commenter suggested that CMS 
further consider the impact of value-based payment adjustments on ACO 
benchmarks and financial reconciliation.
     Standardize rural payments. Several commenters suggested 
that CMS normalize cost-based payments to an average prospective 
payment system rate for calculations in all value programs, while a 
commenter suggested that medical expenses of rural physicians 
practicing in a geographic health professional shortage area be 
normalized to the Medicare FFS rate. Further, several commenters 
suggested that all special rural payments should be excluded from ACO 
benchmark and performance year expenditures, with a commenter itemizing 
these payments: Sole community hospital add-on, inpatient 
rehabilitation hospital add-ons, psychiatric hospital add-ons, ESRD low 
volume adjustment, frontier state hospital wage index floor, additional 
telehealth payments, floor on work geographic practice cost index 
(GPCI) and practice expense limits, hospital low volume adjustment, 
Medicare dependent hospital add-on, home health add-on and outpatient 
hold harmless payments.
     Exclude new technology payments under the Inpatient 
Prospective Payment System and pass through payment expenditures under 
the Outpatient Prospective Payment System. Commenters believe exclusion 
of these payments would avoid incentives for ACOs to underuse new 
technologies and therapies. Several commenters pointed to the exclusion 
of an IPPS new technology add-on payment from the spending total for an 
episode of care under the Bundled Payments for Care Improvement (BPCI) 
initiative as evidence of the need for these adjustments. Several 
commenters explained the need for CMS to monitor

[[Page 32798]]

patient access to innovative treatments. A commenter pointed to the 
need for additional patient protections against care stinting by 
providers pointing to analysis indicating an increase in the 
utilization of a lower cost procedure option and a decrease in 
utilization of a higher cost alternative procedure for patients served 
by ACOs. Several commenters noted CMS' role in fostering development of 
new technologies, with a commenter pointing to these exclusions as a 
means to encourage future development of life saving cancer treatments, 
and another commenter suggesting CMS incent ACOs to participate in 
clinical trials. Several commenters further pointed to the need for the 
program's quality measures and quality performance scoring to be more 
responsive to and better reward adoption of new technologies and 
treatments. A few commenters further suggested that CMS adopt a process 
whereby stakeholders would identify breakthrough technologies and 
treatments for payment or quality measurement adjustments.
     Modify the program regulations to include IME and DSH 
payments in the calculation of both benchmark and performance year 
expenditures. A commenter suggested that ACOs have the option to 
include or exclude IME and DSH payments, explaining that this 
flexibility would be crucial to address the unique circumstances faced 
by ACOs, relative to their assigned population and the care facilities 
within their service area.
    Several comments reflected commenters' misunderstanding about the 
current methodology for calculating ACO benchmark and performance year 
expenditures by suggesting that we begin to exclude certain payments 
that fall outside of Part A and B claims in our calculations, including 
those payments we currently exclude. For example a commenter suggested 
we exclude direct graduate medical education (DGME) payments and EHR 
incentive payments for hospitals.
    A commenter more generally explained the need for there to be 
direct correspondence between the benchmark and performance year 
expenditures to make sure that ACOs are assessed on true performance 
rather than on changes in payment methodology. However, a commenter 
suggested the need to allow for upward adjustments to ACO benchmarks in 
limited situations where significant statutory changes to Medicare 
payment policies are enacted.
    Some commenters suggested other adjustments, including, for 
example, an adjustment to account for the transition from ICD-9 to ICD-
10.
    Response: We appreciate commenters' feedback about technical 
adjustments to benchmark and performance year expenditures. We agree 
with commenters who expressed support for the program's existing 
policies on these issues. We continue to believe that removing IME and 
DSH payments from benchmark and performance year expenditures allows us 
to more accurately reward actual decreases in unnecessary utilization 
of healthcare services, rather than decreases arising from changes in 
referral patterns. Therefore, we decline at this time to modify our 
existing policies, which exclude IME and DSH payments from benchmark 
and performance year expenditures. Further, we will continue to exclude 
payments that fall outside of Part A and B claims in calculating the 
benchmark and performance year expenditures, including, for example, 
DGME payments. We will also continue to take into account individual 
beneficiary identifiable payments made under a demonstration, pilot, or 
time limited program when calculating benchmark and performance year 
expenditures.
    At this time, we are not persuaded by commenters' suggestions on 
the need to further adjust expenditures to account for various 
differences in cost and payment. We continue to believe that making 
extensive adjustments to remove the effect of all policy adjustments 
from benchmark and performance year expenditures, or allowing for 
expenditure adjustments on a case-by-case basis, would create an 
inaccurate and inconsistent picture of ACO spending and may limit 
innovations in ACOs' redesign of care processes or cost reduction 
strategies (see 76 FR 67920). Unlike the adjustments for IME and DSH 
payments, we continue to believe that the other payment adjustments 
that are made to Part A and B payments (such as geographic payment 
adjustments) do not result in a significant incentive to steer patients 
away from particular hospitals or providers since an ACO's financial 
performance would be compared to its own historical expenditure 
benchmark, as updated. Further, we believe it is important to look to 
lessons learned from Innovation Center initiatives, particularly the 
BPCI Model and other ACO models. The recently announced Next Generation 
ACO Model includes flexibility under the benchmarking methodology to 
adjust for legislative and regulatory changes enacted during the 
performance year which have a meaningful impact on expenditures. We 
will consider modifying program policies as lessons emerge from the 
Innovation Center initiatives. We intend to continue evaluating the 
need for technical adjustments to benchmark and performance year 
expenditures and may address these issues in future rulemaking.
    Comment: Several commenters encouraged CMS to hold ACOs accountable 
for their assigned beneficiaries' Part D costs. Commenters urged CMS to 
make sure that all risk-bearing entities in the Medicare program 
compete on a level playing field, with commenters specifically 
recommending that CMS foster coordination between Part D plans and 
ACOs. Because ACOs are not at risk for Part D spending, there is little 
incentive for them to efficiently manage Part D prescription drug 
benefits for their enrollees, which could result in cost shifting from 
Medicare Part B to Part D plans. In contrast, MA-PDs and PDPs bear 
significant financial risk. To ensure that incentives are properly 
aligned, commenters recommend: (1) CMS should develop a Part D 
attribution payment model that rewards ACOs and Part D sponsors for 
savings generated in Part D; (2) the Part D Medical Loss Ratio rule 
should be revised to treat activities related to improving care and 
reducing costs for beneficiaries assigned to ACOs in the Shared Savings 
Program as quality improving activities; and (3) CMS should establish a 
process that allows interested parties to request that specific Part B 
drugs and their administration costs be excluded from the calculation 
of ACO expenditures. A commenter indicated the need for pharmacy 
network adequacy, particularly by risk-bearing ACOs.
    Response: As we explained in the November 2011 final rule, we do 
not believe it is appropriate to consider Part D spending in our 
calculation of benchmark and performance year expenditures. The statute 
is clear in requiring that we take into account only payments made from 
the Medicare Trust Funds for Parts A and B services for assigned 
Medicare FFS beneficiaries, when computing average per capita Medicare 
expenditures under the ACO. Although commenters pointed out important 
concerns about the potential for inappropriate cost shifting to Part D, 
we continue to believe that the program's quality measurement and 
program monitoring activities will help us to prevent and detect any 
avoidance of at-risk beneficiaries or inappropriate cost shifting. 
Furthermore to the extent that lower cost drug therapies available 
under Part D are not the most appropriate course of treatment and lead

[[Page 32799]]

to subsequent visits or hospitalizations payable under Parts A and B, 
then any costs associated with not choosing the most appropriate 
treatment for the patient would be reflected in the ACO's per capita 
expenditures (76 FR 67920).
    Comment: Some commenters suggested technical changes to how CMS 
calculates ACO costs. Several commenters recommended that actual ACO 
expenditures be based upon dates of service which end during the 
performance year (rather than begin during the performance year) to 
achieve the following objectives:
     More timely settlements by having a reduced run-out 
period.
     More accurate and reliable settlements since CMS uses a 
national average completion factor of 1.013 for all ACOs based on a 3-
month run-out period.
    The commenter explained that by calculating based on service end 
dates, a much lower completion factor would be necessary.
    Several commenters provided alternative suggestions on how CMS 
truncates beneficiary costs under the Shared Savings Program. Several 
commenters expressed concern that the program's existing methodology 
for truncating beneficiary costs at the 99th percentile of national FFS 
is not sufficient protection for smaller ACOs specifically, and 
generally an insufficient incentive for ACOs to manage the costliest 
beneficiaries. Alternatively, commenters suggested CMS provide ACOs 
with several options of outlier caps to choose from based on their 
size, experience and preference. A commenter suggested the program's 
existing truncation methodology, where there is a separate threshold 
for each Medicare enrollment type, creates confusion for ACOs and is 
also a barrier for managing high-expenditure enrollees as ACOs may 
decide to not invest scarce resources in controlling costs where they 
will be unable to make an impact on the three-part aim. Alternatively, 
this commenter suggested CMS explore using a single, prospectively 
fixed, dollar cap for the Disabled, Aged/Dual, Aged/Non-Dual 
categories, but maintain a separate cap for the ESRD category. Another 
commenter suggested CMS exclude from benchmark calculations 
beneficiaries who received transplants, those with ESRD, and those with 
Medicaid long-stay nursing home expenses, and those with a single acute 
episode costing more than $100,000 in a year.
    Response: The suggestions for technical adjustments to the 
program's benchmark and performance calculations are beyond the scope 
of the December 2014 proposed rule. We appreciate commenters' 
thoughtful input on these issues. However, we decline at this time to 
amend these policies through this final rule, and will continue to 
consider these issues for future rulemaking and policy development.
    FINAL ACTION: We are not making additional technical adjustments to 
our current policy on calculation of benchmark and performance year 
expenditures, which takes account of all Parts A and B expenditures 
(including payments made under a demonstration, pilot or time limited 
program) with the exception of the adjustments for IME and DSH 
payments, as specified under Sec. Sec.  425.602, 425.604, 425.606 and 
the newly established 425.610. However, we intend to continue to 
evaluate these issues and may revisit them in future rulemaking.
7. Ways To Encourage ACO Participation in Performance-Based Risk 
Arrangements
    Under the current Medicare FFS system, providers have a financial 
incentive to increase their volume of services. As a result, many 
current Medicare regulations are designed to prevent overuse of 
services and the resulting increase in Medicare spending in this 
context. However, stakeholders such as MedPAC believe that moving ACOs 
to two-sided performance-based risk under the Shared Savings Program 
would provide strong incentives for organizations to control costs, 
which should, in turn, open up the opportunity for regulatory relief 
across a broad range of issues. Removing certain regulatory 
requirements may provide ACOs with additional flexibility to innovate 
further, which could in turn lead to even greater cost savings. These 
views are supported by analyses performed by CMS actuaries that suggest 
two-sided performance-based risk provides stronger incentives for ACOs 
to achieve savings. Thus, ACOs and MedPAC have encouraged us to 
consider relaxing certain specific FFS Medicare payment and other rules 
under two-sided performance based risk models in the Shared Savings 
Program.
    Therefore, as discussed in detail in the proposed rule (79 FR 72815 
through 72831) we considered what additional flexibilities could be 
offered to encourage ACO participation in performance-based risk 
arrangements, including waiving certain Medicare Program rules using 
our waiver authority under section 1899(f) of the Act, which permits 
the Secretary to waive ``such requirements of . . . title XVIII of this 
Act as may be necessary to carry out the provisions of this section.'' 
In order to waive FFS payment or other program rules, the waiver must 
be determined to be necessary for CMS to carry out the provisions of 
section 1899 of the Act, which governs the Shared Savings Program. In 
the proposed rule we stated that given the very limited ACO interest 
thus far in two-sided performance-based risk (to date only 5 of the 
ACOs participating in the Shared Savings Program have elected to 
participate under Track 2) and the comments and suggestions by 
stakeholders, we now believe that using the authority under section 
1899(f) of the Act to waive certain payment or other program 
requirements may be necessary to carry out the provisions of the Shared 
Savings Program and to permit effective implementation of two-sided 
performance-based risk tracks under the program.
    We noted in the proposed rule that while we were considering these 
waiver issues under the Shared Savings Program, we were also actively 
moving forward with testing certain payment rule and other waivers as 
part of models tested by the CMS Innovation Center under section 1115A 
of the Act, including the Pioneer ACO Model (see the CMS Web site at 
https://innovation.cms.gov/initiatives/Pioneer-ACO-Model/). For example, 
we have early information and data from our initial test of the waiver 
of the SNF 3-day rule under the Pioneer ACO Model, and we are in the 
process of testing beneficiary attestation under the Pioneer ACO Model.
    In addition, we would note that the CMS Innovation Center also 
recently announced the new Next Generation ACO Model (see the CMS Web 
site at https://innovation.cms.gov/initiatives/Next-Generation-ACO-Model/). The goal of the Next Generation ACO Model is to test whether 
strong financial incentives for ACOs, coupled with tools to support 
better patient engagement and care management, can improve health 
outcomes and lower expenditures for Original Medicare fee-for-service 
(FFS) beneficiaries. Also central to the Next Generation ACO Model are 
several ``benefit enhancement'' tools to help ACOs improve engagement 
with beneficiaries, such as greater access to home visits, telehealth 
services, and skilled nursing facility services.
    Finally, we also noted that it is possible that certain waivers of 
payment or program rules may only be appropriate under a model in which 
there is prospective assignment of beneficiaries, such as proposed 
Track 3. Under prospective assignment, beneficiaries would be assigned 
to the

[[Page 32800]]

ACO for the entire performance year, and it would thus be clear as to 
which beneficiaries the waiver applied. Having clarity as to whether a 
waiver applies to a particular beneficiary may be important for the ACO 
to comply with the conditions of the waiver and could also improve CMS' 
ability to monitor waivers for misuse.
    As discussed in the sections that follow, we solicited comment on 
several options that would implicate the waiver authority under section 
1899(f) of the Act and then considered other options that could be 
implemented independent of waiver authority. Although we did not 
specifically propose these options, we stated that we would consider 
the comments received regarding these options during the development of 
the final rule, and indicated that we might consider adopting one or 
more of these options in the final rule.
a. Payment Requirements and Other Program Requirements That May Need To 
Be Waived in Order To Carry Out the Shared Savings Program
    In the proposed rule (79 FR 72816 through 72826), we discussed in 
detail a number of specific payment and program rules for which we 
believed waivers could be necessary under section 1899(f) of the Shared 
Savings Program statute to support ACOs' efforts to increase quality 
and decrease costs under two-sided performance-based risk arrangements, 
and on which we invited comments, as discussed later in this section. 
The payment and program rules are as follows:
(1) SNF 3-Day Rule
    The Medicare SNF benefit is for beneficiaries who require a short-
term intensive stay in a SNF, requiring skilled nursing, or skilled 
rehabilitation care, or both. Pursuant to section 1861(i) of the Act, 
beneficiaries must have a prior inpatient hospital stay of no fewer 
than three consecutive days in order to be eligible for Medicare 
coverage of inpatient SNF care. MA plans may cover SNF care that is not 
preceded by a three day inpatient hospital stay; we believe this is 
appropriate because of the financial incentives for MA plans, which 
operate under a capitated payment arrangement, to control total cost of 
patient care. (See the discussion of this Medicare Advantage waiver of 
the three day qualifying inpatient hospital stay on the CMS Web site at 
https://www.cms.gov/Medicare/Health-Plans/MedicareAdvtgSpecRateStats/Downloads/Announcement2016.pdf, page 142.)
    The Pioneer ACO Model has recently started testing whether a 
tailored waiver of the SNF 3-day rule will enable the Pioneer ACOs to 
improve the quality of care for a subset of beneficiaries requiring 
skilled nursing, or skilled rehabilitation care, or both while also 
reducing expenditures. ACOs under the Pioneer ACO Model are accountable 
for the total costs of care furnished to their assigned beneficiary 
population, and must accept performance-based risk in the event that 
costs exceed their benchmark. This type of performance-based risk 
arrangement has the potential to mitigate the incentive to overuse SNF 
benefits.
(2) Billing and Payment for Telehealth Services
    Under section 1834(m) of the Act, Medicare pays for telehealth 
services furnished by a physician or practitioner under certain 
conditions even though the physician or practitioner is not in the same 
location as the beneficiary. Generally, for Medicare payment to be made 
for telehealth services under the Physician Fee Schedule several 
conditions must be met. The services must be on the Medicare list of 
telehealth services and meet all of the following other requirements 
for payment:
     The service must be furnished via an interactive 
telecommunications system.
     The service must be furnished to an eligible telehealth 
individual.
     The individual receiving the services must be in an 
eligible originating site.
    When all of these conditions are met, Medicare pays a facility fee 
to the originating site and provides separate payment to the distant 
site practitioner for the service. While certain professional services 
that are commonly furnished remotely using telecommunications 
technology are paid under the same conditions as in-person physicians' 
services, and thus do not require a waiver, ACOs and other commenters 
have suggested that a waiver of certain Medicare telemedicine payment 
requirements would help encourage a broader range of ACOs to more fully 
utilize telehealth, remote patient monitoring, and other such enabling 
technologies.
(3) Homebound Requirement Under the Home Health Benefit
    In order for Medicare to pay for home health services, a 
beneficiary must be determined to be ``home-bound.'' Specifically, 
sections 1835(a) and 1814(a) of the Act require that a physician 
certify (and recertify) that in the case of home health services under 
the Medicare home health benefit, such services are or were required 
because the individual is or was ``confined to the home'' and needs or 
needed skilled nursing care on an intermittent basis, or physical or 
speech therapy or has or had a continuing need for occupational 
therapy. A beneficiary is considered to be confined to the home if the 
beneficiary has a condition, due to an illness or injury, that 
restricts his or her ability to leave home except with the assistance 
of another individual or the aid of a supportive device (such as 
crutches, a cane, a wheelchair, or a walker), or if the beneficiary has 
a condition such that leaving his or her home is medically 
contraindicated. While a beneficiary does not have to be bedridden to 
be considered confined to the home, the condition of the beneficiary 
must be such that there exists a normal inability to leave home and 
leaving home requires a considerable and taxing effort by the 
beneficiary. Absent this condition, it would be expected that the 
beneficiary could typically get the same services in an outpatient or 
other setting. Thus, the homebound requirement provides a way to help 
differentiate between patients that require medical care at home versus 
patients who could more appropriately receive care in a less costly 
outpatient setting.
    Some ACOs and others have suggested that a waiver of this 
requirement would be appropriate under the Shared Savings Program, 
especially for ACOs that have elected to participate under a two-sided 
performance-based risk arrangement. They suggested that home health 
care would be appropriate for additional beneficiaries and could result 
in lower overall costs of care in some instances. For example, some had 
suggested, based on their experiences outside of the Medicare FFS 
program, that if a beneficiary is allowed to have home health care 
visits, even if the beneficiary is not considered home-bound, the 
beneficiary may avoid a hospital admission.
(4) Waivers for Referrals to Post-Acute Care Settings
    As a condition of participation (CoP) in Medicare, a hospital must 
have in effect a discharge planning process that applies to all 
patients, as required under Sec.  482.43. The Interpretative Guidelines 
for this requirement found in the State Operations Manual, Publication 
100-07, Appendix A--Survey Protocol, Regulations and Interpretive 
Guidelines for Hospitals, section A-0799, define hospital discharge 
planning as a process that involves determining the appropriate post-
hospital discharge

[[Page 32801]]

destination for a patient; identifying what the patient requires for a 
smooth and safe transition from the hospital to his or her discharge 
destination; and beginning the process of meeting the patient's 
identified post-discharge needs. The discharge planning CoP requires 
the hospital to develop a discharge planning evaluation at the 
patient's request and to discuss the evaluation and plan with the 
patient and actively involve patients or their representatives 
throughout the discharge planning process. When applicable, the 
hospital must include in the discharge plan a list of home health 
agencies (HHAs) or SNFs that are available to the patient, that are 
participating in the Medicare program and that serve the geographic 
area (as defined by the HHA) in which the patient resides or, in the 
case of a SNF, in the geographic area requested by the patient. During 
the discharge planning process the hospital must inform the patient or 
the patient's family of their freedom to choose among Medicare-
participating post-hospital providers and must not direct the patient 
to specific provider(s) or otherwise limit which qualified providers 
the patient may choose among. When the patient or the patient's family 
has expressed a preference, the hospital must attempt to arrange post-
hospital care with an HHA or SNF, as applicable, consistent with that 
preference. If the hospital is unable to make the preferred arrangement 
(for example, if there is no bed available in the preferred SNF), it 
must document the reason the patient's preference could not be 
fulfilled and explain that reason to the patient.
    ACOs and MedPAC have indicated that as ACOs have started to analyze 
claims data on their beneficiaries, they are recognizing that certain 
providers may deliver higher-quality and lower-cost care than others. 
ACOs have indicated that they would like to have the ability to 
recommend high-quality SNF and HHA providers with whom they have 
established relationships, rather than presenting all options equally. 
ACOs have asked that we provide clear direction on how preferred 
providers can be presented to beneficiaries and what represents clear 
notification of the beneficiary's freedom to choose among participating 
Medicare providers.
(5) Solicitation of Comments on Specific Waiver Options
    In the December 2014 proposed rule, although we did not propose 
changes to our program rules that would implicate waivers of payment 
and other program rules, we sought comments on the following specific 
waivers of payment and other program rules that would implicate the 
waiver authority under section 1899(f) of the Act:
     SNF 3-Day Rule. We sought comment (79 FR 72817 through 
72820) on whether a waiver of the 3-day SNF rule was necessary for 
purposes of implementing two-sided performance based risk models under 
the Shared Savings Program. We indicated that if we were to make such a 
waiver available in the Shared Savings Program then initially it would 
likely be made available only to ACOs in Track 3 for their prospective 
assigned beneficiary population. We indicated that we would likely 
offer ACOs the opportunity to apply for such a waiver using a framework 
similar to the one currently developed under the Pioneer ACO Model, 
with appropriate revisions as necessary to accommodate the differences 
in beneficiary assignment methodology. However, we sought comment on 
whether such a waiver should apply to all performance-based risk tracks 
and considered options for identifying eligible beneficiaries under a 
retrospective assignment methodology. We indicated that under any such 
waiver ACOs would be required to submit to CMS for approval of a SNF or 
group of SNFs with which they wish to partner. In addition, we stated 
that we believed it would be appropriate to limit such a waiver to SNFs 
that are ACO participants or ACO providers/suppliers because these 
entities would have incentives that are most directly aligned with 
those of the ACO.
     Billing and Payment for Telehealth Services. We sought 
comment (79 FR 72820 through 72822) on an option that would waive the 
originating site requirements of section 1834(m)(4)(C)(i)(I) through 
(III) of the Act that limit telehealth payment to services furnished 
within specific types of geographic areas or in an entity participating 
in a federal telemedicine demonstration project approved as of December 
31, 2000. We also sought comment on an option that would provide a 
waiver of the originating site requirements of section 
1834(m)(4)(C)(ii)(I) through (VIII) of the Act that specify the 
particular sites at which the eligible telehealth individual must be 
located at the time the service is furnished via a telecommunications 
system. We indicated that any such a waiver would likely be limited for 
use by Track 3 ACOs for their prospectively assigned beneficiaries. We 
sought comments on whether it is necessary to use the waiver authority 
under section 1899(f) to allow ACOs additional flexibility to provide a 
more extensive set of telehealth services or services in a broader 
range of geographic areas and a number of factors related to the scope 
of any such waiver.
     Homebound Requirement Under the Home Health Benefit. We 
sought comment (79 FR 72822 through 72823) on whether a waiver of the 
homebound requirement under section 1899(f) of the Act is necessary in 
order to carry out the Shared Savings Program. Specifically, we sought 
comment on an option that would offer an ACO participating under Track 
3 the opportunity to provide home health services to non-home bound 
beneficiaries that are prospectively assigned to the ACO, and requested 
additional comment on related implementation issues. We indicated that 
to help ensure that the waiver is used appropriately, we would require 
that home health services provided pursuant to the waiver be at the 
direction of an ACO provider/supplier that is not a home health agency. 
We also noted that the home health agency would likely be required to 
be an ACO provider/supplier. However, in any case, the ACO would be 
required to submit to CMS the home health agency or group of home 
health agencies with which it wishes to partner in providing services 
pursuant to this waiver.
     Referrals to Post-acute Care Settings. We sought comment 
(79 FR 72823 through 72826) on whether it is necessary to waive the 
requirement under section 1861(ee)(2)(H) of the Act that a hospital 
``not specify or otherwise limit the qualified provider which may 
provide post-hospital home services'' and the portions of the hospital 
discharge planning CoP at 42 CFR 482.43 that implement this 
requirement, using our waiver authority under section 1899(f) of the 
Act for ACOs participating in two-sided risk tracks under the Shared 
Savings Program. We indicated that if we were to implement such a 
waiver, we would likely limit the use of the waiver to beneficiaries 
prospectively assigned to ACOs participating under Track 3. We also 
noted that we believed it would be appropriate to limit such a waiver 
to hospitals that are ACO participants or ACO providers/suppliers 
because these entities would have incentives that are most directly 
aligned with those of the ACO. We stated that under a waiver of the 
prohibition on the specification of qualified providers, discharge 
planners in hospitals that are ACO participants or ACO providers/
suppliers would have the flexibility to recommend high quality post-
acute providers with whom they have relationships (either financial, or 
clinical, or both) for the purpose of

[[Page 32802]]

improving continuity of care across sites of care.
     Waiver of Other Payment Rules. In the proposed rule (79 FR 
72826), we also welcomed suggestions on whether there are any 
additional Medicare FFS payment rules that it may be necessary to waive 
using our authority under section 1899(f) of the Act in order to 
effectively implement two-sided risk financial arrangements under the 
Shared Savings Program by providing additional mechanisms for ACOs to 
increase quality and decrease costs. We indicated that we would 
establish any such waivers through the rulemaking process.
    Comments: A majority of commenters supported all four waivers. Most 
commenters supported applying these waivers very broadly to all tracks 
and all FFS patients receiving services from ACO participants and ACO 
providers/suppliers, stating that waiver of payment requirements and 
other regulations is necessary for ACOs in all tracks to optimally 
coordinate care and reduce costs. These commenters generally believe 
that ACOs participating in each track can produce savings for CMS and 
improve value and quality for Medicare beneficiaries. Therefore, they 
recommended that ACOs participating under all 3 tracks should have an 
opportunity to apply for these four potential payment and program 
requirement waivers. Under this approach, the determination of whether 
an organization can appropriately use these waivers would be based on 
the strength of an ACO's waiver application and past performance, not 
its risk track. Some commenters believe that these waivers should be 
available not only to assigned beneficiaries but rather to all 
beneficiaries who have had at least one primary care service from an 
ACO provider/supplier. Some commenters suggested that for quality 
control, CMS could use a screening mechanism (for example, the 
application process) and ongoing monitoring of all ACOs participating 
in waivers to ensure participating ACOs are able to fulfill the 
requirements for the waivers.
    A few commenters disagreed that the waivers offered any additional 
incentive to move to two-sided risk because ACOs have demonstrated they 
can improve quality and reduce costs without them. A few commenters 
expressed concerns that incorporating such waivers in FFS Medicare 
without providing the same flexibilities for MA plans could create 
inappropriate incentives for MA plans to leave and become ACOs or for 
providers that contract with MA plans to leave such plans and instead 
join or form ACOs. MedPAC and several others agreed that regulatory 
relief should be incorporated into the Shared Savings Program, but that 
the waivers should be limited to Track 3 or only applied when there is 
prospective assignment of beneficiaries or both so that CMS may process 
claims appropriately and provide oversight of their use. Other 
commenters also expressed concern with applying the waivers beyond 
Track 3, stating they believed that doing so would create a 
disincentive for ACOs to accept additional risk. Some commenters 
supported the waivers but cautioned that additional protections should 
be incorporated to guard against stinting of care. At least a commenter 
suggested limiting waiver use to ACOs that choose two-sided risk after 
having successfully completed at least one agreement period under Track 
1.
    More specific comments related to each waiver option for which we 
sought comment are as follows:
     SNF 3-Day Waiver: A majority of commenters supported a 
waiver of the SNF 3-day rule. In contrast, several commenters strongly 
opposed use of a SNF 3-day waiver for any ACO, regardless of track or 
criteria. Some stated that they believe Shared Savings Program ACOs 
have the potential to endanger patients' health outcomes and that ACOs 
lack adequate oversight and the waiver options include insufficient 
protections for beneficiaries. Some stated they viewed the discussion 
of a potential waiver of the SNF 3-day rule as driven by a governmental 
attempt to save money at the expense of beneficiary choice and quality 
of care. Some expressed concern that such a waiver would 
inappropriately incentivize migration of care to SNFs over other post-
acute options, or that costs would be shifted to the Medicaid program 
because patients could be referred to SNFs preferentially over IRFs and 
become long-stay residents. Some recommended a cautious and incremental 
approach to the application of such a waiver, and recommended that CMS 
gather evidence from testing prior to incorporating it in the Shared 
Savings Program.
    Some commented on criteria for use of the waiver, such as requiring 
an ACO physician's signature for admission to a SNF and aligning the 
waiver criteria with those established for the Pioneer ACO Model, under 
which the patient must be medically stable, not require an inpatient 
evaluation or treatment and have a skilled nursing or rehabilitation 
need that could not be provided as an outpatient. Some commenters 
suggested that we should allow a waiver of the 3-day SNF rule only for 
patients with certain highly prevalent, high-cost chronic conditions. 
At least one commenter believes the criteria used under the Pioneer ACO 
Model are not strong enough independently, or together, to ensure high 
quality of care for SNF patients assigned to ACOs using the waiver. 
Commenters suggested that we should closely monitor waiver use and 
rescind the waivers ``for cause.'' Most commenters generally agreed 
that waivers should only be granted to SNFs that are ACO participants 
or ACO providers/suppliers, although a few opposed this limitation, 
stating that limiting the waiver to some subset of SNFs could limit 
patient access, particularly in rural areas, and override patient 
preference or choice.
    In addition, several made comments about SNF quality of care. For 
example, some commenters supported requiring SNFs to have a quality 
rating of 3 or more stars under the CMS 5 Star Quality Rating System, 
as reported on the Nursing Home Compare Web site in order to 
participate in the use of a waiver. Some commenters suggested that the 
quality criteria should apply more broadly; that is, SNFs should be 
required to earn a 3-star rating in order to be an ACO provider/
supplier.
    However, other commenters believe that earning a 3-star rating is 
insufficient evidence of a SNF's readiness to treat patients that are 
admitted pursuant to a waiver and cited a recent New York Times article 
and OIG report. At least one commenter suggested that SNFs be required 
to have at least a 4-star rating in order to be eligible to receive 
patients pursuant to a waiver. Some commenters recommended that a 3-
star rating should be required not only for the SNF's overall rating 
but should also apply to each composite rating.
     Telehealth Waiver: Most commenters supported a telehealth 
waiver that would remove geographic and originating site requirements 
for ACOs participating in all tracks or all two-sided risk tracks. Some 
commenters believe we should consider allowing all ACOs (including 
Pioneer ACOs) to apply for a waiver to bill for telehealth services for 
any patient. In particular, high-risk, frail patients may benefit from 
such a waiver if they are unable to get to a physician office in a 
timely manner. Some patients, who may be reluctant to make an 
appointment for a simple problem because of scheduling conflicts, leave 
their medical condition unchecked, often leading to more serious health 
issues. For these patients, the commenters believe the convenience of 
telehealth may encourage them to seek advice from their medical care 
team for non-emergent medical

[[Page 32803]]

conditions, potentially avoiding unnecessary use of the emergency room. 
The commenters believe use of telehealth has been demonstrated to be 
beneficial for patients who have certain chronic diseases (COPD and 
CHF) where minor daily changes in their health status can trigger an 
exacerbation and subsequent hospitalization. Commenters varied 
considerably as to the services that they believe should be included 
within the definition and scope of a telehealth waiver. For example, 
some commenters were supportive of waiving requirements regarding 
originating site, or geographic areas, or both for currently billable 
services whereas other commenters suggested waivers that would cover a 
broader range of additional services such as including the use of bi-
directional audio/video, physiologic and behavioral monitoring, 
``engagement prompts,'' remote monitoring, store and forward 
technologies, and point-of-care testing.
    Some commenters suggested a phase-in or pilot testing of a 
telehealth waiver to assist with implementation and application to all 
tracks. Some commenters suggested a phase-in of additional telehealth 
flexibility, including remote patient monitoring, for ACOs based on 
their level of financial risk and ``beneficiary management.'' Some 
commenters suggested that CMS should use its waiver authority to allow 
ACOs to define the specific technologies, conditions, and services that 
they would use in the provision of care and CMS would then evaluate 
which services improved care delivery efficiency and quality. This 
phased approach would also allow newer ACOs to learn from the 
experience of the more advanced ACOs that are bearing greater financial 
risk. To limit new spending under the waiver, some commenters suggested 
that CMS could control the scope of the waiver by applying it only to 
telehealth services for a limited set of conditions; these conditions 
could encompass chronic conditions, such as diabetes, chronic 
obstructive pulmonary disease, and congestive heart failure, as well as 
more acute post-operative conditions including overall health, pain, 
fever, incision appearance, activity level, and any patient post-
operative concerns. The commenters believe limiting the scope of the 
waiver would allow CMS to test the effects of the use of telehealth 
services and remote patient monitoring in these critical populations, 
while ensuring that the policy is well-defined. Some commenters also 
believe that those who provide telemedicine services must abide by 
certain standards of care, and that these standards must be part of the 
waiver requirements. Some commenters oppose any monitoring or 
requirements that would increase the reporting burden of the ACO.
    Some commenters noted that there are times when telehealth may not 
be appropriate-for example, when there is a cognitive impairment, when 
diagnostic testing is needed, when the condition is severe, when a 
hands-on examination is needed, or if there is an uncertain diagnosis. 
A few commenters expressed concern about whether the expansion of the 
use of telehealth services within the Shared Savings Program may lead 
to inappropriate utilization through the 340B drug discount program in 
the absence of more detailed guidance on the interaction of the two 
initiatives. These commenters requested that CMS work with the Health 
Resources and Services Administration (HRSA), which administers the 
340B program, to affirm that it is not our intention for the receipt of 
telehealth services within the context of the Shared Savings Program 
to, in and of itself, qualify a beneficiary as a patient of 340B 
covered entity. These commenters are concerned that without such a 
clarification and necessary oversight in place, patients may be unduly 
encouraged to seek telehealth services even when in-person services are 
available and more appropriate.
     Homebound Requirement Waiver: Most commenters supported a 
waiver of the homebound requirement for all tracks. Some of these 
commenters acknowledge there is a possibility that home health 
utilization increases could exceed the corresponding savings from lower 
inpatient utilization. However, the commenters believe the potential 
improvements in care and outcomes across all participants as a result 
of this waiver far outweigh the remote risks to the Medicare Trust 
Fund. Some strongly recommended a phase-in approach or prior pilot 
testing before offering such a waiver to all tracks. For example, some 
commenters recommended that CMS should test and measure the impact of 
this waiver with qualified Track 1 ACOs and that CMS should implement 
this waiver immediately for Track 2 and Track 3 ACOs, because Track 2 
and Track 3 ACOs are already adequately incentivized to manage cost and 
quality. A few commenters were strongly in opposition to implementing a 
waiver of the homebound requirement, stating that the homebound 
requirement is necessary to avoid abuse and overuse of home health 
services. Some commenters agreed that there is benefit to the home 
health agency being an ACO participant or ACO provider/supplier and 
that the home health agency should be required to have a 3-star quality 
rating (or better), whereas other commenters opposed these 
requirements. Some commenters, for example, believe that ACOs should 
have the flexibility to determine which partners, participants, and 
vendors it believes best fit within its integration of care as it is at 
financial risk in such decisions. Some commenters believe the Home 
Health star rating system requires further refinement and that the Home 
Health star ratings require appropriate risk-adjustment.
     Post-Acute Referral Waiver: Support for the waiver for 
post-acute referrals was more mixed than for the other waivers. For 
those that supported this waiver, most would support a waiver for all 
tracks. These commenters believe a waiver would allow participants to 
provide informed recommendations to patients without limiting choice 
and without increasing utilization. They further suggest that ACOs in 
all tracks already have adequate incentives to ensure patients receive 
care from the highest quality, most efficient providers in the market. 
Some of the commenters that supported such a waiver believe that the 
waiver should be limited to hospitals that are ACO participants or ACO 
providers/suppliers, that any recommended post-acute care provider meet 
certain quality criteria, and that the ACO provide a brief written 
description in its waiver application describing how it would use the 
waiver to meet the clinical needs of its assigned patients.
    Some expressed support for such a waiver only if additional 
conditions apply, such as including a requirement that patients should 
be notified in advance that providers and suppliers participating in an 
ACO may direct patients to certain pre-identified post-acute care 
providers. These commenters believe that CMS must closely monitor the 
use of the waiver to ensure beneficiaries maintain full freedom of 
choice.
    Some commenters were strongly opposed to or expressed strong 
concerns about waiving the post-acute care requirements. Some strongly 
oppose allowing hospitals to refer patients solely to providers with 
which they have financial relationships. These commenters believe that 
such a waiver would infringe on the right of beneficiaries to choose 
the best provider for their needs or undermine patient selection of 
high quality post-acute care providers. Some expressed concern that 
patients would be inappropriately steered toward SNFs in lieu of IRFs, 
even when IRFs are available in the geographic area and are the most

[[Page 32804]]

medically appropriate post-acute setting for the patient, solely 
because their charges to the Medicare program are higher than SNF' 
charges. Some commenters requested a clarification that the waiver 
applies to ACOs and not just hospitals, since some ACOs do not include 
any hospitals as participants.
     Other Payment Rule Waiver Suggestions: Commenters 
suggested many other payment rules that they believed we should 
consider for a waiver, such as the following:
    ++ Waiving the two-midnight inpatient admission criteria.
    ++ Relief from RAC audits.
    ++ Waiving the face-to-face home health requirement.
    ++ Waiving hospice rules to permit ACOs to enroll individuals in 
hospice even if they are receiving curative treatment.
    ++ Waivers that would permit non-physician practitioners to certify 
patients for home health services.
    ++ Waiving the intermittent care requirement so that patients 
requiring intermittent care would not be ``forced to receive care from 
a skilled nursing facility'' but instead could receive home health 
care, if appropriate.
    ++ Waiving rules to permit home health agencies to perform pre- and 
post-operative assessments.
    ++ Waiving certain Shared Savings Program rules such as the 
requirement that a physician visit is a prerequisite for assignment.
    ++ Waiving FFS payment rules to compensate ACO providers for 
currently unfunded activities such as care manager services, paramedic 
evaluations, or services provided by community health workers.
    Response: We appreciate the many thoughtful suggestions, which will 
be helpful to us in developing any future proposals regarding the 
waiver of any Medicare FFS rules that might be necessary to carry out 
the Shared Savings Program, and in particular to implement two-sided 
risk models under the program. We agree with commenters who believe 
that waivers of certain FFS payment rules and other requirements could 
be a beneficial addition to the Shared Savings Program.
    However, in order to waive a statutory requirement using the waiver 
authority under section 1899(f) of the Act, the waiver must be 
necessary in order to carry out the provisions of section 1899 of the 
Act. With the exception of the waiver of the SNF 3-day rule, we need 
additional time to assess whether any of the waivers discussed in the 
proposed rule or suggested by commenters are necessary for the 
operation of the Shared Savings Program. We intend to consider this 
issue further and will carefully examine lessons learned regarding the 
waivers that are being tested as part of Innovation Center models and 
in the event that we determine that additional waivers are necessary to 
carry out the Shared Savings Program, we will propose them in future 
rulemaking.
    As noted previously, we are encouraged by the robust participation 
of organizations under the one-sided model of the Shared Savings 
Program. However, we continue to believe that the long term 
effectiveness and sustainability of the program depend on encouraging 
ACOs to progress along the performance-based risk continuum. Given the 
limited ACO interest thus far in two-sided performance-based risk, and 
the comments and suggestions by stakeholders, we believe that use of 
the authority under section 1899(f) of the Act to waive certain payment 
or other program requirements is necessary to carry out the provisions 
of the Shared Savings Program and to permit effective implementation of 
two-sided performance-based risk tracks under the program. As discussed 
previously in the April 2011 and December 2014 proposed rules, both we 
and many commenters believe that models where ACOs bear a degree of 
financial risk hold the potential to induce more meaningful systematic 
change than one-sided models. We believe that ACOs that bear financial 
risk would have a heightened incentive to restrain wasteful spending by 
their ACO participants and ACO providers/suppliers. This, in turn, may 
reduce the likelihood of over-utilization. In these circumstances, we 
believe that it is necessary to use our authority under section 1899(f) 
to waive the SNF 3-day rule under section 1861(i) of the Act in order 
to carry out the provisions of section 1899 of the Act by offering ACOs 
that have accepted two-sided risk under the Shared Savings Program more 
flexibility under FFS Medicare to provide appropriate care for 
beneficiaries in the most appropriate care setting.
    Because we believe a waiver of the SNF 3-day rule under section 
1899(f) of the Act is necessary in order to carry out the Shared 
Savings Program, and because we have already developed key program 
details through the Pioneer ACO Model that can be readily adopted under 
the Shared Savings Program, in this final rule we are providing for a 
waiver under part 425 of the SNF 3-day rule for certain SNF services 
furnished to eligible beneficiaries that are prospectively assigned to 
ACOs that participate in Track 3. An ACO's use of the 3-day SNF rule 
waiver will be associated with a distinct and easily identified event 
(admission of a prospectively assigned beneficiary to a SNF without 
prior hospitalization or after an inpatient hospitalization of fewer 
than 3 days). This waiver under part 425 will be effective for services 
furnished on or after January 1, 2017. This timeline will allow for 
development of additional subregulatory guidance, including necessary 
education and outreach for ACOs, ACO participants, ACO providers/
suppliers and SNFs. At this time we are limiting the waiver to ACOs in 
Track 3 because under the prospective assignment methodology used in 
Track 3, beneficiaries will be assigned to the ACO for the entire 
performance year, and it will be clearer to the ACO as to which 
beneficiaries the waiver applies than it would be to an ACO in Track 1 
or 2 under preliminary prospective assignment. We believe that having 
clarity as to whether the waiver would apply to SNF services furnished 
to a particular beneficiary is important to allow the ACO to comply 
with the conditions of the waiver and could also improve our ability to 
monitor waivers for misuse.
    We are including the program requirements for this waiver of the 
SNF 3-day rule under the Shared Savings Program in a new provision that 
we are adding at Sec.  425.612 of the regulations. We are not only 
adopting specific program requirements for the SNF 3-day rule waiver, 
but also more general requirements that will apply to all payment and 
program rule waivers under the Shared Savings Program. These 
requirements are primarily based on the program criteria previously 
developed under the Pioneer ACO Model. Specifically, we are waiving the 
requirement in section 1861(i) of the Act for a 3-day inpatient 
hospital stay prior to a Medicare covered post-hospital extended care 
service for eligible beneficiaries prospectively assigned to ACOs 
participating in Track 3 that receive otherwise covered post-hospital 
extended care services furnished by an eligible SNF that has entered 
into a written agreement to partner with the ACO for purposes of this 
waiver. All other provisions of the statute and regulations regarding 
Medicare Part A post-hospital extended care services continue to apply. 
We would emphasize that under this waiver CMS is not expanding Medicare 
SNF coverage to patients who could be treated in outpatient settings or 
who require long term custodial care. Through this waiver CMS is not 
creating a new benefit, but

[[Page 32805]]

instead we are providing ACOs participating in Track 3 with additional 
flexibility to increase quality and decrease costs. The SNF benefit 
itself will remain otherwise unchanged.
    All ACOs electing to participate in Track 3 will be offered the 
opportunity to apply for a waiver of the SNF 3-day rule for their 
prospectively assigned beneficiaries at the time of their initial 
application to the program. In their request to use the waiver, ACOs 
must demonstrate that they have the capacity to identify and manage 
patients who would be either directly admitted to a SNF or admitted to 
a SNF after an inpatient hospitalization of fewer than 3 days. Specific 
criteria will be set forth in the materials for both initial 
applications and renewals under Track 3. CMS will provide further 
information regarding the application, process, including the 
application and specific requirements such as the deadline for 
submitting waiver requests, through subregulatory guidance and will 
also provide a feedback process to afford an opportunity for the 
applicant to clarify or revise its waiver request to meet the 
requirements. This waiver of the SNF 3-day rule under the Shared 
Savings Program under part 425 will be implemented consistently across 
all eligible ACOs. In other words, the waiver will be uniformly 
applied, and there will not be customization of the waiver or specific 
conditions for the waiver for particular eligible ACOs. CMS does not 
intend for ACOs to select SNFs on the basis of willingness to pay (or 
actual payment) for participation (for example ``pay to play''). We 
intend to monitor this issue and, if necessary, will modify the waiver 
to address any abuses in selection of SNFs in future rulemaking. At 
this time we are not requiring eligible ACOs to obtain a surety bond or 
other financial instrument to cover the costs of inappropriate SNF 
admissions, but we may consider adding such a requirement in future 
rulemaking.
    The materials that must be submitted as part of the waiver request 
include but are not limited to the following:
     Narratives describing how the ACO plans to implement the 
waiver. For example, all eligible ACOs interested in applying for the 
SNF 3-day waiver will be required to provide an overview of how the 
care for patients admitted to a SNF pursuant to this waiver will be 
clinically integrated across sites and describe the system of care that 
will be implemented--including how the ACO will assess whether care is 
improving while decreasing cost growth. In addition all eligible ACOs 
interested in applying for the waiver will be required to describe how 
beneficiaries will be assessed, with input from the ACO medical 
director, to determine whether a SNF is the best site for admission 
(vs. acute care hospital or other post-acute care facility), including 
how they will determine that the beneficiary does not require the 
intensity of an acute care hospital admission, but does require the 
level of skilled nursing and rehabilitation care or both provided in a 
high performing SNF. More specifically, as part of the narratives 
describing how the ACO plans to implement the waiver, eligible ACOs 
will also be required to describe their: (1) Communication plan between 
ACO participants and the SNFs participating in the waiver; (2) care 
management plan for beneficiaries that are admitted to a SNF pursuant 
to this waiver; (3) beneficiary evaluation and admission plan, which 
must be approved by the ACO medical director and the healthcare 
professional responsible for the ACO's quality improvement and 
assurance program, that includes: The protocol that will be followed 
for evaluating and approving admissions to a SNF pursuant to the waiver 
and consistent with the beneficiary eligibility requirements described 
in the next paragraph; that provides for the ACO medical director or 
qualified healthcare professional to be available to respond to 
inquiries related to application of the waiver; and provides for 
education and training for eligible SNFs regarding waiver requirements, 
and (4) the financial relationship between the ACO, participating SNFs, 
and acute care hospitals. These requirements would be similar to the 
narratives that are already required as part of the application to 
participate in the Shared Savings Program to explain how ACOs will 
implement the required care processes under Sec.  425.112. ACOs must 
then periodically evaluate and update these processes.
     A list of SNFs with whom the ACO will partner along with 
executed written agreements.
     Documentation demonstrating that the SNF has an overall 
quality rating of 3 or more stars under the CMS 5 Star Quality Rating 
System, as reported on the Nursing Home Compare Web site.
    In order to be eligible to receive covered SNF services under the 
waiver, a beneficiary must meet the following requirements:
     Is prospectively assigned to the ACO for the performance 
year in which they have a SNF admission.
     Does not reside in a SNF or other long-term care setting.
     Is medically stable.
     Does not require inpatient or further inpatient hospital 
evaluation or treatment.
     Have certain and confirmed diagnoses.
     Have an identified skilled nursing or rehabilitation need 
that cannot be provided as an outpatient.
     Have been evaluated and approved for admission to the SNF 
within 3 days prior to the SNF admission by an ACO provider/supplier 
who is a physician, consistent with the beneficiary evaluation and 
admission plan.
    To provide flexibility for ACOs, we are not requiring that SNFs be 
an ACO participant or ACO provider/supplier in order to be eligible to 
partner with an ACO for purposes of the waiver, although they must be 
Medicare-enrolled entities in good standing. We agree with some 
commenters who believe that limiting the waiver to SNFs that are ACO 
participants or ACO providers/suppliers could limit patient access, 
particularly in rural areas, and override patient preference or choice. 
Furthermore, under the Pioneer ACO Model, eligible SNFs are not 
required to be participating in the Pioneer ACO. However, we agree with 
commenters who believe that there should be strong evidence of 
collaboration between the ACO and SNF related to the objectives of the 
Shared Savings Program. Therefore, the following requirements apply in 
order for a SNF to be eligible to partner with ACOs for purposes of the 
waiver:
     Similar to the current requirement under the Pioneer ACO 
Model, for purposes of this waiver under part 425, an eligible SNF must 
have an overall quality rating of 3 or more stars under the CMS 5 Star 
Quality Rating System, as reported on the Nursing Home Compare Web site 
at the time of selection and must maintain that rating in order to 
continue to partner with an ACO for purposes of this waiver. We believe 
incorporating this requirement under the Shared Savings Program will 
provide beneficiaries with evidence that the SNF provides quality care.
     An eligible SNF must sign a written agreement with the 
ACO, which we will refer to as the ``SNF Affiliate Agreement'' that 
includes elements determined by CMS, including: A clear indication of 
the effective dates of the SNF affiliate agreement; agreement to comply 
with Shared Savings Program rules, including but not limited to those 
specified in the participation agreement; agreement to comply with and 
training on both the ACO's beneficiary evaluation and admission plan 
and the care management plan for beneficiaries that are admitted to a 
SNF pursuant to

[[Page 32806]]

this waiver; agreement to validate beneficiary eligibility for the 
waiver prior to admission; and remedial processes and penalties for 
inappropriate use of the waiver. The SNF Affiliate Agreement must 
include these elements in order to ensure that the SNF is able to 
determine prior to admission whether a beneficiary is prospectively 
assigned to the Track 3 ACO with which the SNF has an agreement and 
whether the admission has been ordered by an ACO provider/supplier who 
is a physician so that the SNF will know when it can appropriately bill 
for services furnished to an eligible beneficiary who does not have a 
3-day inpatient stay.
     Eligible SNFs will be screened during the waiver 
application review process and periodically thereafter, with regard to 
their program integrity history, including any history of Medicare 
program exclusions or other sanctions and affiliations with individuals 
or entities that have a history of program integrity issues.
    The waiver will be effective no earlier than January 1, 2017; 
thereafter, the waiver will be effective upon CMS notification of 
approval for the waiver or the start date of the participation 
agreement, whichever is later, and will not extend beyond the term of 
the ACO's participation agreement. If CMS terminates the participation 
agreement under Sec.  425.218, then the waiver will end on the date of 
the notice of termination or on a later date to be determined by CMS in 
order avoid disrupting patient care or transitions. We believe that 
this additional flexibility to determine the end date is appropriate to 
provide us with an opportunity to address potential concerns about 
beneficiary liability for SNF services received after the date of the 
notice of termination. If the ACO terminates its participation 
agreement, then the waiver will end on the effective date of 
termination as specified in the written notification required under 
Sec.  425.220.
    ACOs with approved waivers will be required to post their use of 
the waivers, and will also be required to post a list of SNFs with 
which the ACO has a signed written SNF Affiliate Agreement for purposes 
of the waiver, as part of public reporting on their dedicated ACO Web 
page. We are revising Sec.  425.308 to add this requirement at 
paragraph (b)(6).
    Further, we will monitor and audit the use of such waivers under 
Sec.  425.316. We anticipate implementing heightened monitoring of 
entities that bill under this payment rule waiver to help reduce the 
possibility for abuse of the waiver. We also intend to give heightened 
scrutiny to any marketing materials or activities by ACOs or by 
eligible SNFs that relate to services for which there may be an 
applicable waiver of the SNF 3-day rule to prevent coercive or 
misleading marketing. Additionally, we will require the ACO to 
continually monitor and evaluate its processes for assessing 
beneficiaries for admission to a SNF pursuant to the waiver, similar to 
the requirement under Sec.  425.112 that ACOs evaluate and periodically 
update their required processes and patient-centeredness criteria.
    We reserve the right to deny or revoke an ACO's participation in 
this waiver if the ACO, the ACO participants, the ACO providers/
suppliers, or other individuals or entities (including SNFs) providing 
services to Medicare beneficiaries pursuant to this waiver are not in 
compliance with requirements under the Shared Savings Program, if the 
ACO does not use the waiver as described in its application, or if the 
ACO does not successfully meet the quality performance standard. We 
believe that the ACO's failure to meet the quality performance standard 
raises questions as to whether the ACO has the capacity to properly 
monitor the use of the waiver and to evaluate when beneficiaries are 
eligible for admission to a SNF under the terms of the waiver. We note 
that under Sec.  425.304(b) we perform routine screening at the time of 
application and at other times during the ACO's agreement period. We 
reserve the right to deny participation in or revoke participation in 
this waiver if program integrity issues are uncovered as a result of 
the screening.
    The waiver will not protect financial or other arrangements between 
or among ACOs, ACO participants, ACOs providers/suppliers, or other 
individuals or entities providing services to ACO patients from 
liability under the fraud and abuse laws or any other applicable laws. 
Additionally, this waiver only protects the submission of claims that 
meet all applicable requirements except the requirement for a prior 3-
day inpatient stay. In other words, waivers are only granted for the 
regulatory exceptions expressly permitted under the waiver. No other 
applicable payment regulations are waived. Therefore, ACOs, ACO 
participants, ACO providers/suppliers and SNFs must comply with all 
applicable claims submission requirements.
    We would also note that we will continue to evaluate the waiver of 
the SNF 3-day rule, including further lessons learned from Innovation 
Center models in which a waiver of the SNF 3-day rule is being tested. 
In the event that we determine that additional safeguards or 
protections for beneficiaries or other changes are necessary, such as 
to incorporate additional protections for beneficiaries into the 
participation agreement or SNF Affiliate Agreements, we will propose 
the necessary changes through future rulemaking.
    However, regarding the other waivers of payment and program rules 
under part 425 discussed in the proposed rule, based on a review of the 
comments and experience gained thus far with ACO models, we continue to 
have concerns that immediately adopting untested or unproven waivers 
with which we have little experience on a national scale could lead to 
unintended consequences for the FFS beneficiaries we serve or for the 
health care system more broadly. There are many important details that 
must be designed and implemented to appropriately maintain beneficiary, 
provider and program protections under a waiver. Therefore, at this 
time we are not adopting any additional waivers under part 425 other 
than a waiver of the SNF 3-day rule. Instead, we expect to take a 
phased approach to the introduction of additional waivers with testing 
by the CMS Innovation Center prior to any decision as to whether it is 
appropriate to implement a particular waiver in the Shared Savings 
Program. More specifically, we expect to initially focus on further 
development of a waiver under part 425 of certain billing and payment 
requirements for telehealth services. We intend to offer such a waiver 
starting as early as in 2017, with specific requirements to be 
determined based on CMS' experience implementing such a waiver in the 
Next Generation ACO Model. We believe that providing ACOs that 
participate in the Shared Savings Program under two-sided performance 
based risk arrangements with additional flexibility to expand 
appropriate use of telehealth services has significant potential to 
improve patient care, improve communication between patients and their 
families and health care providers, support more timely treatment, and 
help to address barriers to access to care for some beneficiaries, such 
as those that require treatment or consultations with certain 
specialists. We believe that it may be necessary to use our authority 
under section 1899(f) of the Act to waive certain payment or other 
program requirements for telehealth services, for the same reasons that 
we have determined that a waiver of the SNF 3-Day Rule is necessary to 
carry out the Shared Savings Program in order to permit effective 
implementation of two-sided performance-based risk tracks

[[Page 32807]]

under the program. We believe that a waiver of certain telehealth-
related rules under part 425 for ACOs participating under a two-sided 
risk model may be necessary in order to give ACO participants and ACO 
providers/suppliers more flexibility under FFS Medicare to provide 
appropriate and timely care for assigned beneficiaries. At this time, 
we anticipate that we would initially limit any waiver to ACOs in Track 
3 because under the prospective assignment methodology used in Track 3, 
beneficiaries will be assigned to the ACO for the entire performance 
year, and it will be clearer to the ACO as to which beneficiaries the 
waiver applies than it would be to an ACO in Track 1 or 2 where 
beneficiaries are assigned using a preliminary prospective assignment 
methodology.
    In regards to the concerns raised by some commenters regarding a 
possible interaction between a telehealth waiver and the 340B Drug 
Pricing Program, we note that we are aware that HRSA, which administers 
the 340B Drug Pricing Program, is currently considering issuing 
guidance on key areas in the 340B Program. If, in the future, we 
develop a proposal for a waiver of any telehealth payment rules within 
the Shared Savings Program, we intend to work closely with HRSA to 
address concerns about interactions between such a waiver under part 
425 and HRSA programs, including the 340B Program.
    We plan to test a waiver of certain telehealth payment rules as 
part of the Next Generation ACO Model being tested through the CMS 
Innovation Center. The benefit of this approach is that it will provide 
flexibility to permit testing of such a waiver prior to implementation 
of any waiver on a larger scale in the Shared Savings Program. Through 
such testing we frequently identify issues that neither we nor 
stakeholders had previously identified. Developing and implementing 
waivers in a test environment provides an opportunity for us to better 
understand the effects on providers, beneficiaries, and Medicare. 
Additionally, testing provides an opportunity to fine tune operations 
and to make any necessary modifications quickly to refine the waiver to 
address concerns, such as if the waiver implementation is determined to 
be too burdensome to ACOs or harmful to beneficiaries.
    Comment: Commenters provided suggestions for waivers of certain 
fraud and abuse rules, or other rules including the following:
     A waiver that would allow ACOs to provide beneficiaries 
with incentives to receive services within the ACO, such as a waiver of 
some or all beneficiary ``co-pays'' or allowing ACOs to allocate a 
certain percentage of their shared savings directly to patients.
     A waiver that would allow ACOs to cover additional costs 
that they deem as being necessary for chronic care management, such as 
additional telehealth-related services, transportation, wheelchairs and 
other medical equipment, gym or wellness program memberships, heating 
or air conditioning, home improvements, including railing installation 
or other modifications to ease movement.
    Response: Any waiver of fraud and abuse rules would be addressed by 
OIG and CMS separately from payment and program rule waivers. We 
recognize that in certain circumstances where there is no Medicare 
coverage for a particular item or service, some ACOs want to be able to 
offer additional beneficiary incentives that they deem as being 
necessary for chronic care management such as additional telehealth or 
other services suggested by commenters. We addressed these issues in 
our November 2011 final rule (see Sec.  425.304(a)). Subject to 
compliance with all other applicable laws and regulations, an ACO, its 
ACO participants, its ACO providers/suppliers, or entities performing 
functions or services related to ACO activities may provide 
beneficiaries items or services for free or below fair market value if 
both of the following conditions are met:
     There is a reasonable connection between the items or 
services and the medical care of the beneficiary.
     The items or services are in-kind and either are 
preventive care items or services or advance one or more of the 
following clinical goals: Adherence to a treatment regime; adherence to 
a drug regime; adherence to a follow-up care plan; or management of a 
chronic disease or condition.
    Also, the authority at section 1899(f) of the Act has been used by 
the Office of Inspector General and CMS to issue an interim final rule 
with comment period setting forth waivers of certain fraud and abuse 
authorities (``Waiver IFC''), which was published concurrently with the 
November 2011 final rule establishing the Shared Savings Program (76 FR 
67992). On October 17, 2014, HHS published a continuation notice (79 FR 
62356) to extend the effectiveness of the Waiver IFC for 1 year (that 
is, until November 2, 2015). The Waiver IFC, as may be modified or 
updated from time to time, addresses certain issues related to the 
provision of in-kind beneficiary incentives under Sec.  425.304.
    Comment: Some commenters stated that any waivers and related 
standards should be applied consistently across entities--in this case, 
all Shared Savings Program ACOs as well as MA plans that bear risk for 
the cost and quality of care. Regarding non-traditional benefits being 
offered to a subset of the ACO's population, a few commenters noted 
that there are situations where MA plans have wanted to offer benefits 
to members that would have improved their care experience, but have 
been unable to do so as a result of the supplemental benefits rules 
outlined in Chapter 4 of the Medicare Managed Care Manual. For example, 
one MA plan offers supplemental benefits such as transportation and 
home food delivery as part of care management programs but is bound by 
the supplemental benefits rules, which require uniformity, anti-
discrimination and access (Chapter 4, Section 10.5 of the Medicare 
Managed Care Manual and 42 CFR 422.100(e)(2)). The commenter stated 
that it would be helpful if MA plans (and ACOs) could offer such 
supplemental benefits as part of a robust care management program, even 
if the program is targeted to the subset of the plan's population most 
likely to benefit from the services. In situations like this, the 
commenters believe that it is not the best use of resources to offer 
the benefits to the entire membership; rather, the additional benefits 
should be focused on those who could most benefit from these additional 
resources.
    Response: We will further consider such issues as part of the 
development of any future proposals to waive payment or other program 
rules. As MA plans are governed by different statutory requirements, we 
would need to make a separate, independent determination as to whether 
it is either possible or appropriate to make any changes to the 
requirements governing supplemental benefits under the MA program.
    Comment: A commenter requested that future consideration of waivers 
should go through the notice and comment and rulemaking process.
    Response: We agree.
    Comment: A commenter stated that ACOs would need assurance that 
they are legally protected for their use of such waivers of payment or 
program rules, which may require additional coordination between CMS 
and the Department of Health and Human Services Office of the Inspector 
General.
    Response: We are unclear about the commenter's concern. We note 
that in developing the Shared Savings Program, and in response to 
stakeholder suggestions, we continue to work closely with agencies 
across the federal

[[Page 32808]]

government, including the HHS Office of the Inspector General. With 
respect to the commenter's concerns about legal protection for the use 
of waivers, any legal liability associated with the payment and program 
rule waivers under part 425 will depend on the particular facts and 
circumstances. Parties are encouraged to consult legal counsel as 
needed.
    FINAL ACTION: We are adopting a new provision at Sec.  425.612 of 
the regulations to provide for a waiver of the SNF 3-day rule for ACOs 
that participate in Track 3. Specifically, we will waive the 
requirement in section 1861(i) of the Act for a 3-day inpatient 
hospital stay prior to the provision of Medicare covered post-hospital 
extended care services for beneficiaries that are prospectively 
assigned to ACOs that participate in Track 3. We will refer to this 
waiver and any payment or program rule waivers we establish in the 
future under the Shared Savings Program as being waivers under part 
425. The waiver of the SNF 3-day rule under part 425 will allow for 
Medicare payment for otherwise covered SNF services when ACO providers/
suppliers participating in eligible Track 3 ACOs admit an eligible 
prospectively assigned beneficiary to an eligible SNF without a 3 day 
prior inpatient hospitalization. All other provisions of the statute 
and regulations regarding Medicare Part A post-hospital extended care 
services shall continue to apply. This waiver will be effective on or 
after January 1, 2017, and all ACOs participating under Track 3 or 
applying to participate under Track 3 will be eligible to apply for the 
waiver.
    Currently, our regulations at Sec.  425.10 state that the 
regulations under part 425 must not be construed to affect the payment, 
coverage, program integrity, and other requirements that apply to 
providers and suppliers under FFS Medicare. Because the SNF 3-Day 
waiver modified certain coverage determinations, we are making a 
conform changes to Sec.  425.10 of the regulations to add ``except as 
permitted under section 1899(f) of the Act.'' For purposes of this 
waiver, an eligible ACO under the Shared Savings Program is an ACO that 
has elected to participate in Track 3 and has been approved by CMS as 
having demonstrated that it has the capacity to identify and manage 
patients who would be either directly admitted to a SNF or admitted to 
a SNF after an inpatient hospitalization of fewer than 3 days.
    Finally, we will conduct further development and testing of other 
selected waivers through the CMS Innovation Center prior to deciding 
whether it is necessary to incorporate such waivers in the Shared 
Savings Program. We intend to initially focus on further development 
and testing of a waiver of the billing and payment requirements for 
telehealth services through the Next Generation ACO Model (see the CMS 
Web site at: https://innovation.cms.gov/initiatives/Next-Generation-ACO-Model/, page 22). We anticipate a telehealth waiver being available to 
ACOs no earlier than January 1, 2017, after notice and comment and 
rulemaking.
b. Other Options for Improving the Transition to Two-Sided Performance-
Based Risk Arrangements
    In the proposed rule, we also solicited comment on other options 
that could be implemented independent of waiver authority (79 FR 72826 
through 72831) to support ACO efforts to increase quality and decrease 
costs under two-sided performance-based risk arrangements. They are as 
follows:
(1) Beneficiary Attestation
    Under 1899(c) of the Act, beneficiaries are required to be assigned 
to an ACO participating in the Shared Savings Program based on the 
beneficiary's utilization of primary care services rendered by 
physicians participating in the ACO. Thus, beneficiary choice, as 
indicated by their utilization of primary care service furnished by 
physicians that are ACO professionals in the ACO, determines 
beneficiary assignment to an ACO under the Shared Savings Program.
    In developing the policies for the November 2011 final rule, it was 
our intent to incentivize ACOs to redesign care processes and improve 
the health care system for all FFS beneficiaries and not create an 
incentive to treat some FFS beneficiaries preferentially or create 
inequalities in the care provided to FFS beneficiaries. We developed a 
hybrid approach where ACOs are given up-front information about their 
fee-for-service beneficiary population to help refine their care 
coordination activities, but are assessed at the end of each year based 
on beneficiaries that received a plurality of their primary care from 
ACO professionals during the performance year. We called this 
assignment method preliminary prospective assignment with retrospective 
reconciliation. Medicare FFS beneficiaries do not enroll in the Shared 
Savings Program, and they retain the right to seek treatment from any 
Medicare-enrolled provider of their choosing. No exclusions or 
restrictions based on health conditions or similar factors are applied 
in the assignment of Medicare FFS beneficiaries. We adopted this policy 
because we believed that the methodology would balance beneficiary 
freedom to choose providers under FFS Medicare with the ACO's desire to 
have information about the FFS beneficiaries that were likely to be 
assigned at the end of the performance year.
    Patient advocacy groups and ACOs have expressed interest in and 
support for enhancing claims-based assignment of beneficiaries to ACOs 
by taking into account beneficiary attestation regarding the provider 
that they consider to be responsible for coordinating their overall 
care. Stakeholders believe that incorporating this information and 
giving beneficiaries the opportunity to voluntarily ``align'' with the 
ACO in which their primary healthcare provider participates will 
improve the patient-centeredness of the assignment methodology.
    To begin to address these concerns, we began conducting a test of 
beneficiary attestation in the Pioneer ACO Model for the 2015 
performance year. Specifically, the Innovation Center designed a test 
in which beneficiaries were asked to confirm whether or not a listed 
provider or supplier is their ``main doctor.'' Beneficiaries who 
confirmed a care relationship with the provider/supplier listed on the 
form and met all other eligibility criteria for alignment are aligned 
to the Pioneer ACO for the following performance year, regardless of 
whether or not the practitioners participating in the Pioneer ACO 
render the plurality of the beneficiary's primary care services during 
the alignment year. Additional testing in the future is planned under 
the Pioneer ACO Model and the Next Generation ACO Model that will build 
upon lessons learned from this initial test and in which we will seek 
to enhance the meaningfulness of dialogue between beneficiaries and 
their providers regarding the nature of the care relationship.
    Although we did not make any specific proposals related to 
beneficiary attestation, we welcomed comments on whether it would be 
appropriate to offer a beneficiary attestation process to ACOs that 
choose to participate in the Shared Savings Program under two-sided 
risk financial arrangements. We noted that if we were to offer a 
beneficiary attestation process for ACOs that choose to participate in 
the Shared Savings Program under two-sided risk financial arrangements, 
we would anticipate implementing this beneficiary attestation in a 
manner consistent with the beneficiary attestation policy tested under 
the Pioneer ACO Model for the 2015 performance year. We sought

[[Page 32809]]

comment on a wide variety of policy and operational issues related to 
beneficiary attestation.
    In connection with any implementation of beneficiary attestation, 
we also indicated that we would revise our regulations as necessary to 
protect beneficiaries from undue coercion or influence in connection 
with whether they choose to attest or not. We noted that beneficiary 
attestation is not intended to be used as a mechanism for ACOs (or ACO 
participants, ACO providers/suppliers, ACO professionals or others) to 
target potentially lucrative beneficiaries or avoid those less likely 
to produce savings. Further, we stated that we did not believe ACOs or 
others should be permitted to offer gifts or other inducements to 
beneficiaries, nor should they be allowed to withhold or threaten to 
withhold services, for the purposes of coercing or influencing their 
alignment decisions. However, we would not prohibit an ACO or its ACO 
participants and ACO providers/suppliers from providing a beneficiary 
with accurate descriptive information about the potential patient care 
benefits of aligning with an ACO. We solicited comment on these issues.
    We received the following comments:
    Comments: Most commenters supported beneficiary attestation for all 
tracks. Some commenters requested that we revise the assignment rules 
to permit (but not require) beneficiaries to elect to attribute 
themselves to a particular ACO or ACO physician. These commenters 
stated that they believe the most accurate method of assigning a 
beneficiary to a provider is based on the beneficiary's active 
selection and objected to the statutory requirement that a beneficiary 
be assigned to an ACO based on his/her utilization of primary care 
services furnished by physicians participating in the ACO. Some 
commenters supported beneficiary attestation only for ACOs 
participating in a two-sided performance-based risk model and further 
suggested that, unlike the Pioneer pilot, the attestation process 
should be available to all such patients, not just those previously 
assigned to the ACO.
    Some commenters opposed beneficiary attestation or expressed 
significant concerns with it. These commenters stated that absent 
extensive beneficiary education (which has not yet occurred) 
beneficiary attestation may be premature. Some stated that while this 
policy may be appealing, more analysis is needed at this time to fully 
understand how it could be operationalized in a still-evolving national 
program. Other commenters questioned what purpose beneficiary 
attestation would serve and why it is under consideration at all, given 
that it may open the door to marketing abuses by ACOs.
    Response: We agree with commenters who recommended that we 
implement a policy to revise the beneficiary assignment methodology to 
permit beneficiaries to indicate who they believe is the ``main 
doctor'' responsible for their care coordination. We anticipate that a 
voluntary alignment approach that incorporates beneficiary preferences 
to supplement the current claims-based beneficiary assignment process 
could help mitigate fluctuations in assigned beneficiary populations. 
As explained in section II.F.3.(b).(4). of this final rule, such 
beneficiary attestation could be considered prior to applying the other 
assignment rules for assigning beneficiaries to an ACO.
    We further believe this method would be consistent with the 
statutory requirement that a beneficiary be assigned to an ACO on the 
basis of primary care services rendered by physicians because the 
beneficiaries eligible for assignment under an approach similar to the 
one used in the Pioneer ACO Model for performance year 2015 would be 
those that were previously assigned based on an analysis of the ACO's 
claims for primary care services, including the requirement that the 
beneficiary have received at least one primary care service from a 
physician who is an ACO professional in the ACO.
    However, based on our recent experiences with similar approaches 
under the Pioneer ACO Model, we also agree with commenters who believe 
that additional development and testing of the beneficiary attestation 
approach is necessary before it can be incorporated into the Shared 
Savings Program. We note that through the Next Generation ACO Model 
(see the CMS Web site at https://innovation.cms.gov/Files/x/nextgenacorfa.pdf pages 18 through 20), CMS will offer beneficiaries an 
opportunity to become aligned to Next Generation ACOs voluntarily as an 
addition to claims-based alignment. Next Generation ACOs may offer 
currently and previously aligned beneficiaries the option to confirm or 
deny their care relationships with specific Next Generation Providers/
Suppliers. These decisions will take effect in alignment for the 
subsequent year. A beneficiary who completes the voluntary alignment 
process will have the option to reverse that decision or change the 
identified provider prior to development of the ACO's alignment list. 
The confirmation of a care relationship through the voluntary alignment 
process will supersede claims-based attribution. For example, 
beneficiaries who indicate a Next Generation provider/supplier as their 
main care provider will be aligned with the ACO, even if claims-based 
alignment would not result in alignment. In later years of the Next 
Generation ACO Model, CMS may refine the voluntary alignment policies 
as follows:
     Make alignment accessible to a broader set of Medicare 
beneficiaries, regardless of current or previous alignment with an ACO.
     Include affirmation of a general care relationship between 
beneficiaries and ACOs instead of between beneficiaries and specific 
providers.
     Allow beneficiaries to opt out of alignment to a 
particular ACO in addition to opting into alignment.
    Therefore, we intend to carefully consider the results of further 
testing of beneficiary attestation under the Pioneer ACO Model and the 
Next Generation ACO Model for the 2016 performance year and expect to 
propose to implement beneficiary attestation for purposes of 
beneficiary assignment under the Shared Savings Program beginning 
January 1, 2017. We expect to propose a beneficiary attestation policy 
for the Shared Savings Program in the 2017 PFS rulemaking. This 
timeline will allow for further development and testing of this 
approach through the Pioneer ACO Model and further development of this 
approach through the Next Generation ACO Model. Initially, until we 
gain additional operational experience, we anticipate limiting this 
beneficiary attestation process to ACOs that choose Tracks 2 or 3 as an 
additional incentive for ACOs willing to take on increased risk. This 
approach will also allow for further development of the operational 
details, and will provide an opportunity for additional public input. 
We will also have additional time to learn from CMS Innovation Center 
models that are testing beneficiary attestation, specifically the 
Pioneer ACO Model and the Next Generation ACO Model.
    Comment: Some commenters provided suggestions on specific 
operational details regarding implementing beneficiary attestation 
under the Shared Savings Program. Some commenters suggested that the 
attestation method being tested under the Pioneer ACO Model is 
burdensome and that CMS should develop a system in which patients could 
select an ACO via 1-800 Medicare or Medicare.gov. A commenter indicated 
that the attestation should be based on the patient's

[[Page 32810]]

selection of their primary care provider, rather than the name of an 
ACO, since most patients will not be familiar with the name of their 
provider's ACO. The commenter suggested that ACOs be responsible for 
informing patients of the option to attest to a care relationship with 
an ACO, but that CMS should administer the process and maintain 
information on patient choices and help assure that beneficiary 
communications about attestation and opting in or opting out will be 
consistent and appropriate. A commenter suggested that the patient 
attestation and beneficiary opt-out processes only occur during the 
first three months of each performance year. A commenter's suggestions 
for making performance-based risk more attractive included rapid 
development and implementation of a user friendly beneficiary and 
provider portal similar to those used in the commercial insurance 
market that would be maintained by CMS and accessible to beneficiaries, 
ACOs and providers. The commenter explained beneficiaries would be 
allowed to select their ACO or primary care provider in more ``real 
time,'' and the providers could in turn ``pull'' the information from 
the portal. The commenter believes that CMS is currently using archaic 
means to transfer information to the ACOs participating in the Shared 
Savings Program, with cumbersome data feeds that require manpower and 
expense to manipulate.
    Response: We appreciate receiving the many helpful suggestions, 
which we will further consider in the development of any future 
proposals to incorporate beneficiary attestation as part of the Shared 
Savings Program.
    FINAL ACTION: We expect to propose to implement beneficiary 
attestation for purposes of beneficiary assignment under the Shared 
Savings Program beginning January 1, 2017, in the 2017 PFS rulemaking. 
This timeline will allow for further development and testing of this 
approach through the Pioneer ACO Model and the Next Generation ACO 
Model and development of appropriate safeguards against abusive or 
coercive marketing associated with beneficiary attestation. Initially, 
until we gain additional operational experience, we anticipate limiting 
the beneficiary attestation process to ACOs participating under Tracks 
2 or 3.
(2) Solicitation of Comment on a Step-Wise Progression for ACOs To Take 
on Performance-Based Risk
    Under the current Shared Savings Program rules, an ACO may not 
include an entity on its list of ACO participants unless all ACO 
providers/suppliers billing through the entity's Medicare-enrolled TIN 
have agreed to participate in the program and comply with the program 
rules (see discussion in section II.B. of this final rule). 
Furthermore, it is not possible under our current regulations for some 
ACO providers/suppliers to participate in Track 1, while other ACO 
providers/suppliers that may be more ready to accept performance-based 
risk participate under Track 2. In the proposed rule, we noted that 
some stakeholders have commented that requiring all ACO providers/
suppliers billing through an ACO participant TIN to participate in the 
same risk track could deter some ACOs from entering higher risk 
arrangements (Tracks 2 or 3) if they do not believe that all of the ACO 
providers/suppliers billing through a given ACO participant TIN are 
prepared to operate under high levels of risk. Conversely, we have 
heard from other stakeholders that requiring all ACO providers/
suppliers billing though an ACO participant TIN to enter the same risk 
track can motivate an organization to work toward a common performance 
goal and implement uniform care processes that streamline patient care 
within and between various sites of care. We believe that the program 
works best when the incentives within an organization are aligned among 
all providers and suppliers in that organization.
    We did not propose to change our regulations in order to allow 
providers and suppliers billing through the same ACO participant TIN to 
participate in different tracks under the Shared Savings Program. 
However, given our policy objectives to encourage ACOs to redesign 
their care processes and move to increasing levels of financial risk, 
we expressed our interest in stakeholder opinion on this issue and 
sought comment on what options the program might consider in the future 
to encourage organizations to participate in the program while 
permitting the providers and suppliers within that organization to 
accept varying degrees of risk. In particular, we sought stakeholders' 
input on the advantages and disadvantages of allowing Shared Savings 
Program ACOs that wish to enter a track with increased risk to split 
their ACO participants into different tracks or split ACO providers/
suppliers billing through a given Medicare-enrolled TIN so that a 
subset participate in a track that offers a higher sharing rate in 
exchange for taking on a greater degree of performance-based risk, 
while the remainder participate in a lower risk track.
    Comments: We received a modest number of comments on this issue and 
the commenters were mixed on their views. Some commenters supported 
permitting ``split TINs'', stating this may increase the number of 
providers willing to join ACOs but who may not be ready for assuming 
risk and may allow ``single TIN'' entities or large organizations such 
as academic medical centers and their faculty practice plans to enter 
the program with a subset of their providers--primary care providers, 
for example--rather than sitting out until they confidently believe 
that the whole system is ready to participate. Some suggested 
modifications should be made such as dividing TINs geographically so 
that one TIN may participate in multiple ACOs.
    Some other commenters were strongly opposed to permitting ACOs to 
split ACO providers/suppliers or ACO participant TINs between risk 
tracks. Such commenters stated they believe the concept and practice of 
accountability and transforming the care of a population should be 
universal throughout the ACO, and not segmented within the ACO. They 
expressed concerns that such a policy would open up the risk of gaming, 
both through selection of providers for participation in certain tracks 
and adverse selection of patients depending on an ACO's strategy of 
whether to assume one-sided or two-sided risk. Others expressed concern 
that such policies could lead to cherry picking of beneficiaries to 
achieve higher incentive payments without real quality improvement. 
Others raised concerns that this policy would be too complex and 
burdensome for both ACOs and CMS.
    Response: We appreciate the comments on this issue. At this time, 
we are persuaded by commenters who raised concerns about operational 
complexity for ACOs and CMS. We also agree there could be significant 
risks for ``cherry picking'' of beneficiaries to achieve higher 
incentive payments without real quality improvement. Such strategies 
could be detrimental to the progress ACOs have made to date. Most ACOs 
are learning from their initial experiences in the Shared Savings 
Program, and many have been successful in transforming the care of 
their entire FFS beneficiary population while accepting accountability 
for all assigned patients. However, we appreciate the flexibility that 
could be afforded to ACOs if a methodology could be developed that 
would permit ACOs to split ACO participants or ACO providers/suppliers 
into two different

[[Page 32811]]

risk tracks. Under such a model, ACOs could progressively move 
providers participating in their organizations into risk in a step-wise 
fashion. Therefore, we are interested in exploring operational 
processes that could permit such a design while also ensuring 
appropriate beneficiary protections. We intend to continue considering 
this issue and may revisit it in future rulemaking as infrastructure 
evolves to support this new alternative.
    FINAL ACTION: We will explore operational processes to develop a 
methodology that would permit ACOs to split ACO participants or ACO 
providers/suppliers into two different risk tracks while also ensuring 
appropriate beneficiary protections. We may revisit this approach in 
future rulemaking as infrastructure evolves to support this new 
alternative.

                                    Table 8--Comparision of One- and Two-Sided Performance-Based Risk Models by Track
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                          Track 1: One[dash]Sided Risk Model                     Tracks 2 and 3: Two[dash]Sided Risk Models
              Issue               ----------------------------------------------------------------------------------------------------------------------
                                            Current                   Final              Current Track 2               Final             New Track 3
--------------------------------------------------------------------------------------------------------------------------------------------------------
Transition to Two[dash]Sided       First agreement period     Remove requirement    ACOs may elect Track 2     No change...........  Same as Track 2.
 Model.                             under one[dash]sided       to transition to      without completing a
                                    model. Subsequent          two[dash]sided        prior agreement period
                                    agreement periods under    model for a second    under a one[dash]sided
                                    two[dash]sided model.      agreement period.     model. Once elected,
                                                                                     ACOs cannot go into
                                                                                     Track 1 for subsequent
                                                                                     agreement periods.
Assignment.......................  Preliminary prospective    No change...........  Preliminary prospective    No change...........  Prospective
                                    assignment for reports;                          assignment for reports;                          assignment for
                                    retrospective assignment                         retrospective assignment                         reports, quality
                                    for financial                                    for financial                                    reporting and
                                    reconciliation.                                  reconciliation.                                  financial
                                                                                                                                      reconciliation.
Benchmark........................  Reset at the start of      Modifications to      Same as Track 1..........  Same as Track 1.....  Same as Tracks 1
                                    each agreement period.     rebasing                                                               and 2.
                                                               methodology for an
                                                               ACO's second or
                                                               subsequent
                                                               agreement period:
                                                               equal weighting
                                                               benchmark years,
                                                               and including a per
                                                               capita amount
                                                               reflecting the
                                                               ACO's financial and
                                                               quality performance
                                                               during prior
                                                               agreement period.
Adjustments for health status and  Historical benchmark       No change...........  Same as Track 1..........  No change...........  Same as Tracks 1
 demographic changes.               expenditures adjusted                                                                             and 2.
                                    based on CMS[dash]HCC
                                    model. Updated
                                    historical benchmark
                                    adjusted relative to the
                                    risk profile of the
                                    performance year.
                                    Performance year: newly
                                    assigned beneficiaries
                                    adjusted using
                                    CMS[dash]HCC model;
                                    continuously assigned
                                    beneficiaries adjusted
                                    using demographic
                                    factors alone unless
                                    CMS[dash]HCC risk scores
                                    result in a lower risk
                                    score.
Benchmark and Performance year     Payment amounts included   No change...........  Same as Track 1..........  No change...........  Same as Tracks 1
 Expenditures.                      in Parts A and B FFS                                                                              and 2.
                                    claims using a
                                    3[dash]month claims run
                                    out with a completion
                                    factor. (i) excluding
                                    IME and DSH payments.
                                    (ii) including
                                    individually beneficiary
                                    identifiable payments
                                    made under a
                                    demonstration, pilot or
                                    time limited program.

[[Page 32812]]

 
Final Sharing Rate...............  Up to 50% based on         No change. (Up to     Up to 60% based on         No change...........  Up to 75% based on
                                    quality performance.       50% based on          quality performance.                             quality
                                                               quality performance                                                    performance.
                                                               for second
                                                               agreement period
                                                               under the
                                                               one[dash]sided
                                                               model).
Minimum Savings Rate.............  2.0% to 3.9% depending on  No change...........  Fixed 2.0%...............  Choice of             Same as Track 2.
                                    number of assigned                                                          symmetrical MSR/
                                    beneficiaries.                                                              MLR: (i) no MSR/
                                                                                                                MLR; (ii)
                                                                                                                symmetrical MSR/MLR
                                                                                                                in 0.5% increment
                                                                                                                between 0.5% [dash]
                                                                                                                2.0%; (iii)
                                                                                                                symmetrical MSR/MLR
                                                                                                                to vary based upon
                                                                                                                number of assigned
                                                                                                                beneficiaries (as
                                                                                                                in Track 1).
Minimum Loss Rate................  Not applicable...........  No change...........  Fixed 2.0%...............  See options under     See options under
                                                                                                                MSR.                  MSR.
Performance Payment Limit........  10%......................  No change...........  15%......................  No change...........  20%.
Shared Savings...................  First dollar sharing once  No change...........  Same as Track 1..........  No change...........  Same as Tracks 1
                                    MSR is met or exceeded..                                                                          and 2.
Shared Loss Rate.................  Not applicable...........  No change...........  One minus final sharing    No change...........  One minus final
                                                                                     rate applied to first                            sharing rate
                                                                                     dollar losses once                               applied to first
                                                                                     minimum loss rate is met                         dollar losses once
                                                                                     or exceeded; shared loss                         minimum loss rate
                                                                                     rate may not be less                             is met or
                                                                                     than 40% or exceed 60%.                          exceeded; shared
                                                                                                                                      loss rate may not
                                                                                                                                      be less than 40%
                                                                                                                                      or exceed 75%.
Loss Sharing Limit...............  Not applicable...........  No change...........  Limit on the amount of     No change...........  15%. Losses in
                                                                                     losses to be shared                              excess of the
                                                                                     phases in over                                   annual limit would
                                                                                     3[dash]years starting at                         not be shared.
                                                                                     5% in year 1; 7.5% in
                                                                                     year 2; and 10% in year
                                                                                     3 and any subsequent
                                                                                     year. Losses in excess
                                                                                     of the annual limit
                                                                                     would not be shared.
Payment and Program Rule Waivers   Not applicable...........  No change...........  Not applicable...........  No change...........  ACOs may elect to
 under Part 425.                                                                                                                      apply for a waiver
                                                                                                                                      of the SNF 3-Day
                                                                                                                                      Rule.
--------------------------------------------------------------------------------------------------------------------------------------------------------

G. Additional Program Requirements and Beneficiary Protections

1. Background
    Section 1899(a)(1)(A) of the Act authorizes the Secretary to 
specify criteria that ACOs must satisfy in order to be eligible to 
participate in the Shared Savings Program. In the November 2011 final 
rule, we finalized policies regarding how ACOs will be monitored with 
respect to program requirements and what actions will be taken against 
ACOs that are not in compliance with the requirements of the Shared 
Savings Program.
    Based on our initial experience with the Shared Savings Program, we 
proposed several refinements and clarifications to our policies on the 
following:
     Public reporting (Sec.  425.308).
     Termination of the participation agreement (Sec. Sec.  
425.218 and 425.220).

[[Page 32813]]

     Enforcement of ACO compliance with quality performance 
standards (Sec.  425.316(c)).
     Reconsideration review procedures (Sec. Sec.  425.802 and 
425.804).
2. Public Reporting and Transparency
a. Overview
    Section 1899 of the Act sets forth a number of requirements for 
ACOs. Section 1899(b)(2)(H) of the Act requires ACOs to demonstrate 
that they meet patient-centeredness criteria specified by the 
Secretary. We believe that one important aspect of patient-centeredness 
is patient engagement and transparency. Increasingly, transparency of 
information in the health care sector is seen as a means to help 
patients become more active in their health care choices and to 
generate feedback that may improve the quality of care and lower the 
cost of care. In addition, transparency may improve oversight and 
program integrity. Public reporting also supports the mandate for ACOs 
to be willing to ``become accountable for the quality, cost, and 
overall care'' of the Medicare beneficiaries assigned to them. Reports 
on ACO quality and cost performance hold ACOs accountable and 
contribute to the dialogue on how to drive improvement and innovation 
in health care. Public reporting of ACO cost and quality data may 
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.
    Therefore, for these reasons, which are described in more detail in 
the November 2011 final rule, we finalized requirements specified at 
Sec.  425.308 that ACOs must make certain information publicly 
available. Since publication of the final rule, minor updates were made 
to Sec.  425.308(e) in the 2013 PFS final rule with comment period (77 
FR 69164 through 69170) and in the 2015 PFS final rule with comment 
period (79 FR 67769). For purposes of the Shared Savings Program, each 
ACO is currently required at Sec.  425.308 to publicly report certain 
organizational and other information. Currently, we recommend that ACOs 
publicly report the specified information in a standardized format that 
we have made available to ACOs through guidance at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/sharedsavingsprogram/Downloads/ACO-Public-Reporting-Guidance.pdf. Our guidance recommends 
that ACOs report the required information on a Web site that complies 
with the marketing requirements set forth at Sec.  425.310. Because Web 
pages used to publicly report the information specified in Sec.  
425.308 constitute ``marketing materials and activities,'' as defined 
at Sec.  425.20, any changes to such Web pages must be submitted for 
our review in accordance with Sec.  425.310. Thus, if an ACO changes 
any of the information on its public reporting Web page, such as adding 
an ACO participant or replacing a member of the governing body, the ACO 
must submit its Web page to us for marketing review. Because we believe 
this policy creates undue burden on the ACO as well as on CMS, we 
proposed some refinements to the requirements related to public 
reporting and transparency.
b. Proposals
    In the December 2014 proposed rule, we proposed to modify the 
public reporting requirements set forth at Sec.  425.308. In Sec.  
425.308(a), we proposed to require that each ACO maintain a dedicated 
Web page on which the ACO must publicly report specified information. 
In addition, we proposed that an ACO must report to us the address of 
the Web page on which it discloses the information set forth in Sec.  
425.308 and apprise us of changes to that Web site address in the form 
and manner specified by CMS. We solicited comment on when an ACO should 
be required to inform us of such changes (for example, within 30 days 
after the change has occurred).
    Additionally, we noted that existing Sec.  425.308(b) requires ACOs 
to report certain information in a standardized format specified by 
CMS. Currently, our guidance sets forth a standardized format 
(template) that ACOs must use so that ACOs report information 
uniformly. We proposed in Sec.  425.308(c) that information reported on 
an ACO's public reporting Web page in compliance with the requirements 
of the standardized format specified by CMS, (that is, through use of 
the template) would not be subject to marketing review and approval 
under Sec.  425.310.
    We also proposed to make a few changes to the information that must 
be publicly reported. In Sec.  425.308(b), we proposed to add two 
categories of organizational information that must be publicly 
reported. First, we proposed to add a requirement at Sec.  
425.308(b)(3)(iv) that ACOs publicly identify key clinical and 
administrative leaders within their organization as part of the public 
reporting requirements. Second, we proposed to add a provision at Sec.  
425.308(b)(3)(vi) requiring ACOs to publicly report the types of ACO 
participants or combinations of ACO participants, as listed in Sec.  
425.102(a), that form the ACO. We believe it would be helpful for the 
public to have a better understanding of the types of ACO participants 
or combinations of ACO participants that are listed at Sec.  425.102(a) 
that have joined to form the ACO. We noted that stakeholders have 
requested information about the composition of ACOs and that publicly 
reporting the types and combinations of ACO participants would assist 
stakeholders in understanding the composition of ACOs.
    In addition, we proposed at Sec.  425.308(b)(5) to require each ACO 
to publicly report its performance on all quality measures used to 
assess the quality of care furnished by the ACO. As explained in more 
detail in the December 2014 proposed rule, we agreed with the comments 
made by stakeholders that requiring an ACO to publicly report its 
performance on all quality measures (as defined at Sec.  425.20) would 
provide a more accurate picture of the ACO's performance. We also noted 
a technical modification to our rules. Currently, we require ACOs to 
report the amount of any ``shared savings performance payment'' (Sec.  
425.308(d)(1)). However, to conform this provision to the definition of 
``shared savings'' at Sec.  425.20, we proposed to remove the term 
``performance payment'' from the phrase and insert the new language at 
revised Sec.  425.308(b)(4)(i).
    Finally, we noted in the December 2014 proposed rule that, for 
purposes of program transparency, we find it useful to publicly post 
certain information about ACOs. Therefore, we proposed at Sec.  
425.308(d) to post certain ACO-specific information, including 
information that the ACO is required to publicly report under Sec.  
425.308, as necessary to support program goals and transparency. We 
solicited comment on what other information should be published on our 
Web site. Because proposed Sec.  425.308(d) encompasses our ability to 
publicly report ACO performance on all quality measures, we proposed to 
remove Sec.  425.308(e) or reserve it for future use.
    Comment: Many commenters expressed support for our public reporting 
and transparency requirements, stating that they enable beneficiaries 
to make informed decisions and reduce fraud and abuse. Commenters also 
noted that transparency and public reporting can spur innovation in 
quality and efficiency. Stakeholders also supported implementation of 
these policies in a way that would not impose undue burdens for ACOs.
    Response: We appreciate stakeholder support for public reporting 
and

[[Page 32814]]

transparency requirements. We agree that such transparency can improve 
beneficiary engagement, reduce fraud and abuse, and encourage 
organizations to improve quality and efficiency of care. We believe 
that many of the policies proposed will reduce burden on ACOs and CMS 
because, for example, the ACO will have a pre-approved format for 
reporting the required information and such changes will not be subject 
to marketing review.
    Comment: A few commenters specifically addressed our proposal to 
require ACOs to maintain a dedicated Web page and report the address to 
us. These commenters encouraged CMS to provide ACO web addresses 
through the CMS Web site and suggested that ACOs notify CMS of Web page 
address changes and other changes within a reasonable time frame to 
permit CMS compliance review.
    Several commenters specifically supported our proposal to require 
ACOs to use a standardized template to publicly report required 
information and supported our proposal to not require marketing review 
of information disclosed using a standardized template. Commenters 
agreed that our policies would ensure consistent practice by all ACOs, 
make information uniformly available to the public, and provide some 
relief from marketing reviews. Some commenters stressed the importance 
of ensuring that ACOs post accurate, CMS-validated information on their 
Web sites. A commenter stated that the marketing review in general is 
overly burdensome and urged CMS to review the current marketing 
requirements. Additionally, a few commenters suggested that we ensure 
that the required template is clear and manageable by soliciting input 
from stakeholders such as ACOs, beneficiaries, and others on draft 
templates prior to implementation.
    Some commenters suggested that use of the template should be 
optional, in which case changes to information posted by ACOs choosing 
not to use the template would remain subject to marketing review. A 
commenter specifically opposed the use of a template, stating that its 
use would stifle creativity and limit available data.
    Response: We appreciate commenters' support for our proposals to 
require an ACO to maintain a dedicated Web page and report this web 
address to us. We also appreciate support for ACOs to use a 
standardized template which will be exempt from marketing review. 
Because we believe it is important for this information to be uniformly 
available to the public, we will not permit ACOs to diverge from the 
template required by CMS. We note that although information reported 
using the template will be exempt from the marketing review 
requirements, such information will continue to be subject to 
compliance audit and review and therefore must be accurately 
maintained. Furthermore, we may consider whether our marketing review 
requirements should be revised in future rulemaking. We also note that 
if an ACO wants to report more information than required in the 
template, the ACO may submit the additional information through 
marketing review if such information constitutes ``marketing materials 
and activities'' as defined at Sec.  425.20. Finally, we invite ACO 
input through established modes of communication with CMS on templates 
that are developed and intend to take such comments into consideration 
when revising and updating the template.
    Comment: A few comments directly addressed our proposals for 
modifying the kind of information ACOs must make publicly available. A 
commenter noted that these additional requirements will facilitate 
shared learning among ACOs and stakeholders. Another commenter stated 
that it would support reporting additional organizational information 
if CMS defines terms and provides clear guidance on what needs to be 
posted. Several commenters suggested requiring ACOs to publicly report 
additional information, such as disclosure of its parent corporation or 
the amount of shared savings that participating physicians in the ACO 
receive. A commenter encouraged CMS to establish a requirement for ACOs 
to report their HIT and interoperability capabilities. Another 
commenter recommended that we permit flexibility for ACOs to supplement 
the required publicly posted information with additional metrics.
    Response: We are finalizing our proposals to modify the information 
ACOs are required to publicly report. Specifically, in addition to the 
information the ACO is currently required to report, we will require 
ACOs to publicly identify key clinical and administrative leaders 
within their organizations and the types of ACO participants or 
combinations of ACO participants that are listed at Sec.  425.102(a) 
that have joined to form the ACO. We believe these minor additions will 
improve public understanding of individual ACOs as well as foster 
shared learning. Additionally, we will provide further guidance to help 
ACOs clearly understand what information they must make publicly 
available. We appreciate the suggestions for reporting additional ACO-
specific information, and believe it could be appropriate to require 
ACOs to make this type of information public. However, we believe it 
will be appropriate to give ACOs and other stakeholders the opportunity 
to provide input on what additional information ACOs should be required 
to make public and whether there are other factors that should be 
considered before adopting additional public reporting requirements. 
Accordingly, we expect to consider these suggestions further in future 
rulemaking.
    Additionally, we note that ACOs are currently permitted to maintain 
and post additional metrics on their own public Web sites. However, 
such information is subject to marketing review.
    Comment: A few commenters supported the posting of ACO quality 
measure results publicly in general. However, they opposed duplication 
of effort. Specifically, commenters disagreed with our proposal to 
require ACOs to report on their Web sites the same information that 
would be posted by CMS, for example, on Physician Compare, stating this 
would be redundant.
    Several commenters supported the proposal and recommended that ACO-
specific information be posted at a ``central CMS location.''
    A few commenters recommended that we post additional ACO-specific 
information, such as ACO and commercial cost information or additional 
quality information, such as medical errors and infection rates. A few 
commenters provided specific recommendations related to quality data 
reporting, specifically, that CMS post quality measure results at the 
provider level. A commenter stated that ACO measures should be reported 
at the ACO or ACO participant level, but not at the ACO provider/
supplier level. Another commenter urged CMS to provide thorough 
explanations of measures and rankings to ensure the public understands 
ACO quality performance data.
    Some commenters expressed the need for public reporting uniformity 
across CMS and ACO Web sites, and a commenter suggested that ACO 
information be posted on a state's department of public health Web 
site.
    Response: We are finalizing our proposal to require ACOs to report 
all quality measure data on their public Web sites. Although this 
policy may appear redundant or duplicative, we believe it is important 
to provide stakeholders multiple ways to retrieve information about 
specific ACOs and the program as a whole. For instance, the public can 
access specific and

[[Page 32815]]

updated information about a particular ACO by going to ACO-specific Web 
sites which will likely be updated more frequently than the CMS Web 
site, which provides annual information (such as the results of quality 
reporting) for all ACOs in one location to allow for comparison between 
ACOs. We note that we do not believe we have the authority to require 
posting of ACO information on states' department of public health Web 
sites. However, we anticipate posting all ACO-specific information on a 
central, easily accessible Web site.
    For the reasons stated previously, and to ensure accuracy and 
transparency of ACO-specific information, we are also finalizing our 
proposal to post ACO-specific data as necessary to support program 
goals.
    FINAL ACTION: We are finalizing these policies as proposed. These 
policies are reflected in Sec.  425.308. Specifically, we require that 
each ACO maintain a dedicated Web page on which the ACO must publicly 
report the information listed in paragraph (b) using a template 
specified by CMS. We are making a technical correction at Sec.  
425.308(b) to add the word ``publicly'' to clarify that the information 
reported using the template must be publicly available. Each ACO must 
report to us the address of the Web page on which it discloses the 
information set forth in Sec.  425.308 and apprise us of changes to 
that Web site address in the form and manner specified by CMS in 
operational guidance. Additionally, information reported on an ACO's 
public reporting Web page in the standardized format specified by CMS 
will not be subject to marketing review and approval under Sec.  
425.310.
    We are also finalizing our proposal to revise the information that 
must be publicly reported. Specifically, we are requiring at Sec.  
425.308(b)(3)(iv) that ACOs publicly identify and list the key clinical 
and administrative leaders within their organization. Additionally, we 
are adding a provision at Sec.  425.308(b)(3)(vi) to require ACOs to 
publicly report the types of ACO participants or combinations of ACO 
participants, as listed in Sec.  425.102(a), that form the ACO.
    We are finalizing the modification to Sec.  425.308(b)(5) as 
proposed to require each ACO to publicly report its performance on all 
quality measures as well as the technical modification to Sec.  
425.308(d)(1) to remove the term ``performance payment'' and insert 
revised language at Sec.  425.308(b)(4)(i). Additionally, as discussed 
in more detail in section II.F.7. of this final rule, we will include 
the requirement for ACOs to publicly report their use of any waivers 
under Sec.  425.612, if applicable.
    Lastly, we are finalizing Sec.  425.308(d), which will allow CMS to 
publicly report ACO-specific information, including information the ACO 
is required to publicly report under Sec.  425.308, as necessary to 
support program goals and transparency. BecauseSec.  425.308(d) 
encompasses our ability to publicly report ACO performance on all 
quality measures, we are finalizing our proposal to remove Sec.  
425.308(e).
3. Terminating Program Participation
a. Overview
    Section 425.218 of our regulations sets forth the grounds for 
terminating an ACO for failure to comply with the requirements of the 
Shared Savings Program (Sec.  425.218(a)). For example, an ACO's or ACO 
participant's failure to notify beneficiaries of their provider's 
participation in the program as required under Sec.  425.312 would 
constitute grounds for terminating the ACO. In addition, we may 
terminate an ACO for a number of other violations, such as those 
related to certain fraud and abuse laws, the antitrust laws, or other 
applicable Medicare laws and regulations relevant to ACO operations, or 
if certain sanctions have been imposed on the ACO by an accrediting 
organization or a federal, state or local government agency (Sec.  
425.218(b)).
    Prior to termination, we may take interim steps such as issuing the 
ACO a warning notice or placing the ACO on a corrective action plan 
(CAP) (Sec.  425.216). However, we reserved the right to immediately 
terminate a participation agreement if necessary (Sec.  425.218(c)). We 
notify the ACO in writing if the decision is made to terminate the 
participation agreement.
    Under Sec.  425.220, an ACO may voluntarily terminate its 
participation agreement. Such an ACO is required to provide CMS and all 
of its ACO participants with 60 days advance written notice of its 
decision to terminate its participation in the Shared Savings Program. 
An ACO is not required to notify beneficiaries of the ACO's decision to 
terminate from the Shared Savings Program. Under current regulations, 
an ACO that terminates its participation agreement before expiration of 
the participation agreement does not share in any savings for the 
performance year during which it notifies CMS of its decision to 
terminate the participation agreement (Sec.  425.220(b)). This is 
because an ACO that terminates its participation agreement during a 
performance year will have failed to complete the entire performance 
year. Therefore, it will have failed to meet the requirements for 
shared savings.
b. Proposed Revisions
    We proposed several modifications to the regulations related to 
termination of a participation agreement. First, we proposed to permit 
termination for failure to timely comply with requests for documents 
and other information and for submitting false or fraudulent data. In 
addition, we proposed to add a new regulation at Sec.  425.221 
requiring ACOs to implement certain close-out procedures upon 
termination and nonrenewal. Finally, we proposed to address in new 
Sec.  425.221 the payment consequences upon termination of a 
participation agreement.
(1) Grounds for Termination
    First, at Sec.  425.218(b) we proposed to modify the grounds for 
termination to specifically include the failure to comply with CMS 
requests for submission of documents and other information by the CMS 
specified deadline. At times, we may request certain information from 
the ACO in accordance with program rules. As explained in the December 
2014 proposed rule, the submission of those documents by the specified 
due date is important for program operations. For example, we require 
each ACO to submit to us, on an annual basis, its list of ACO 
participants and their TINs (existing Sec.  425.304 and proposed Sec.  
425.118). We explained that when ACOs do not submit these lists by the 
due date specified, it prevents us from applying the assignment 
methodology (which is dependent on having accurate lists of ACO 
participants for all ACOs) and impacts the timelines for the program, 
such as the calculation of the benchmarks for all ACOs. Missing such 
deadlines is very disruptive to the program and other ACOs. Therefore, 
we proposed to modify Sec.  425.218(b) to permit termination of an ACO 
agreement for failure to comply with requests for information and 
documentation by the due date specified by CMS.
    Additionally, under Sec.  425.302, an individual with the authority 
to legally bind the individual or entity submitting data or information 
to CMS must certify the accuracy, completeness, and truthfulness of the 
data and information to the best of his or her knowledge and belief. 
However, circumstances could arise in which the data and information 
submitted (for example, data submitted through the CMS web interface 
used to determine an ACO's quality performance) was falsified or

[[Page 32816]]

fraudulent. Submission of false or fraudulent data is a serious offense 
that could harm the Shared Savings Program; for example, it could 
impact the amount of shared savings calculated for the ACO and cause 
CMS to overpay the ACO. We proposed to modify Sec.  425.218(b) to 
permit termination of an ACO agreement for submission of false or 
fraudulent data. We note that ACOs are obligated to repay shared 
savings payments to which they are not entitled, including, by way of 
example only, any overpayment to the ACO based on the submission of 
false or fraudulent data.
(2) Close-Out Procedures and Payment Consequences of Early Termination
    We proposed to add new Sec.  425.221 to address close-out 
procedures and payment consequences of early termination. First, we 
believe it was important to establish an orderly close-out process when 
an ACO's participation agreement is terminated. Therefore, we proposed 
in Sec.  425.221(a) that an ACO whose participation agreement is 
terminated prior to its expiration either voluntarily or by CMS must 
implement close-out procedures in a form, manner, and deadline 
specified by CMS. We proposed that these close-out procedures would 
address such issues as data sharing (such as data destruction), 
beneficiary notification (for example removal of marketing materials 
and ensuring beneficiary care is not interrupted), compliance with 
quality reporting, and record retention. We noted that the close-out 
procedures would also apply to those ACOs that have elected not to 
renew their agreements upon expiration of the participation agreement. 
We also proposed in Sec.  425.221(a)(2) that any ACO that failed to 
complete the close-out procedures in the form and manner and by the 
deadline specified by CMS would not be eligible for shared savings. We 
solicited comments on other strategies that would ensure compliance 
with close-out procedures.
    Second, we proposed in Sec.  425.221(b) to address certain payment 
consequences of early termination. Currently under Sec.  425.220(b), an 
ACO that voluntarily terminates its agreement at any time during a 
performance year will not share in any savings for the performance year 
during which it notifies CMS of its decision to terminate the 
participation agreement. However, stakeholders suggested that 
completion of the performance year, as part of an orderly close-out 
process, could be mutually beneficial to the ACO, its ACO participants 
and ACO providers/suppliers, and to CMS. Specifically, stakeholders 
suggested that an ACO should be entitled to receive shared savings if 
the ACO completes a performance year through December 31 and satisfies 
all requirements for sharing in savings for that performance year (for 
example, the quality reporting for the performance year). Additionally, 
by completing quality reporting as part of the close-out process, the 
ACO participants would not be penalized by the ACO's decision to 
terminate its participation agreement. For example, eligible 
professionals that bill through the TIN of an ACO participant could 
satisfy the reporting requirement to avoid the downward payment 
adjustment under the PQRS in a subsequent year.
    Therefore, we proposed in Sec.  425.221(b) to permit an ACO whose 
participation agreement is voluntarily terminated by the ACO under 
Sec.  425.220 to qualify for shared savings, if--
     The effective date of termination is December 31; and
     By a date specified by CMS, it completes its close-out 
process for the performance year in which the termination becomes 
effective.
    In order to effectively manage this option in the case of voluntary 
termination, the ACO must specify in its termination notice, and CMS 
must approve, a termination effective date of December 31 for the 
current performance year. Because the proposed new provision at Sec.  
425.221 addressed the consequences of termination, including the 
payment consequences, we also proposed to make a conforming change to 
Sec.  425.220 to remove paragraph (b) addressing the payment 
consequences of early termination.
    We noted that under this proposal, the opportunity to share in 
savings for a performance year would not extend to ACOs that terminate 
their participation agreement with effective dates prior to December 31 
or to ACOs that CMS terminates under Sec.  425.218. Those ACOs that 
terminate prior to December 31 would not have completed the performance 
year and thus would not qualify for shared savings. ACOs terminated by 
CMS under Sec.  425.218 would not qualify for shared savings 
irrespective of the termination date because maintaining eligibility to 
participate in the Shared Saving Program is a pre-requisite for sharing 
in savings (see Sec. Sec.  425.604(c) and 425.606(c)). In such cases, 
we strongly encouraged ACOs to fulfill their obligations to their ACO 
participants and ACO providers/suppliers by reporting quality for the 
performance year in which it terminates so that their ACO participants 
and ACO providers/suppliers are not unduly penalized by the ACO's 
decision. However, even if the ACO completes quality reporting on 
behalf of its ACO participants and ACO provider/suppliers, if the ACO 
terminates its participation midyear or is terminated by CMS under 
Sec.  425.218 (prior to December 31), it would not be eligible to share 
in savings for the performance year. The ACO would not be eligible to 
share in savings because the ACO would not have satisfied all 
requirements for sharing in savings for that performance year.
    Comment: A few commenters supported the proposals related to 
grounds for termination of an ACO, stating that it is important to 
ensure consistent practices by all participants. A commenter supported 
the proposal so long as ACOs would be provided reasonable timeframes to 
satisfy CMS requests.
    Response: We agree that it is important to apply consistent 
practices across ACOs participating in the Shared Savings Program. The 
submission of documents by a specified due date is necessary for 
program operations. We believe that we have established reasonable 
timeframes for ACOs to satisfy such documentation requests, and we 
alert ACOs of deadlines well in advance through newsletters and other 
ACO communications. For example, we give ACOs at least 30 days to 
return the Certificate of Disposition for data destruction. 
Additionally, we allow ACOs to take up to 60 days to notify their 
participant TINs that the ACO is terminating its agreement with CMS. To 
date, ACOs have not expressed concern over these or other deadlines 
related to termination.
    Comment: The few comments we received stated they supported our 
proposals regarding close-out procedures because of the clarity and 
certainty it provides for this aspect of the program. Several 
commenters supported our proposals regarding payment consequences of 
early termination. A commenter suggested that CMS provide an 
opportunity to negotiate certain close-out procedures without 
forfeiting shared savings if it poses no direct risks to beneficiaries. 
For example, the commenter stated that ACOs should be able to negotiate 
to adjust the timing of data destruction to correspond with established 
organizational timelines for such activities. Another commenter stated 
that ACOs should not be required to report quality measures to satisfy 
PQRS reporting on behalf of its eligible professionals that bill under 
the TIN of an ACO participant when the ACO terminates midyear. Another 
commenter stated that if unforeseen circumstances

[[Page 32817]]

prevent an ACO from completing the performance year, CMS should provide 
the ACO an opportunity to appeal the limitation against earning shared 
savings for that year.
    Response: We appreciate the support for our proposals related to 
close-out procedures. The timely completion of all close-out procedures 
is mutually beneficial to the ACO, its ACO participants and ACO 
provider/suppliers, as well as CMS. We believe it is reasonable for an 
ACO to share in savings for a given performance year, provided it has 
satisfied all the requirements for obtaining a shared savings payment, 
including completion of the performance year and close-out procedures. 
The close-out procedures are particularly important because, for 
instance, they require the ACO to complete quality reporting after the 
completed performance year, adhere to data destruction requirements, 
and notify ACO participants, ACO providers/suppliers, and beneficiaries 
as necessary to ensure proper transfer of care. We also believe that 
requiring ACOs to complete close-out procedures in order to receive 
shared savings for their final performance year will result in timely 
and accurate completion of the ACO's final obligations after 
termination.
    We will not provide ACOs that terminate in the middle of a 
performance year the opportunity to request an exception to or 
otherwise ``appeal'' the rule that prevents such ACOs from receiving 
shared savings. As we noted in the proposed rule, the opportunity to 
share in savings for a performance year will not extend to ACOs that 
terminate their participation agreement with effective dates prior to 
December 31 or to ACOs that CMS terminates under Sec.  425.218 because 
the ACO will not have completed the requirements for sharing in savings 
for the performance year. Furthermore, our rule does not provide a 
methodology for calculating shared savings for partial year 
participation. Moreover, the determination of whether an ACO is 
eligible for shared savings is precluded from administrative and 
judicial review. Therefore, accommodating the commenter's request is 
beyond the scope of this rulemaking.
    FINAL ACTION: We are finalizing our proposals related to 
terminating program participation. Specifically, we are finalizing our 
proposal to modify Sec.  425.218(b) to permit termination of an ACO 
agreement for failure to comply with requests for information and 
documentation by the due date specified by CMS. Additionally, because 
we received no objections related to our proposal to terminate an ACO 
agreement for submission of false or fraudulent data, we are finalizing 
our proposal to modify Sec.  425.218(b). We note that ACOs are 
obligated to repay shared savings payments to which they are not 
entitled, including, by way of example only, any overpayment to the ACO 
based on the submission of false or fraudulent data.
    We are also finalizing our proposal to add new Sec.  425.221 to 
address close-out procedures and payment consequences of early 
termination. At new Sec.  425.221(a), an ACO whose participation 
agreement is terminated prior to its expiration either voluntarily or 
by CMS must implement close-out procedures regarding the following in a 
form, manner, and deadline specified by CMS:
     Notice to ACO participants of termination.
     Record retention.
     Data sharing.
     Quality reporting.
     Beneficiary continuity of care.
    The close-out procedures also apply to those ACOs that have elected 
not to renew their agreements upon expiration of the participation 
agreement. At Sec.  425.221(a)(2), any ACO that fails to complete the 
close-out procedures in the form and manner and by the deadline 
specified by CMS will not be eligible for shared savings. At new Sec.  
425.221(b), an ACO whose participation agreement is voluntarily 
terminated by the ACO under Sec.  425.220 will qualify for shared 
savings for the performance year during which the termination becomes 
effective, if--
     The effective date of termination is December 31;
     By a date specified by CMS, the ACO completes its close-
out process for the performance year in which the termination becomes 
effective; or
     The ACO has satisfied the criteria for sharing in savings 
for the performance year.
    In order to effectively manage this option, the ACO must specify in 
its termination notice, and CMS must approve, a termination effective 
date of December 31 for the current performance year. Because the 
proposed new provision at Sec.  425.221 will address the consequences 
of termination, including the payment consequences, we will also 
finalize our proposal to make a conforming change to Sec.  425.220 to 
remove paragraph (b) addressing the payment consequences of early 
termination. For the reasons specified in our proposed rule, the 
opportunity to share in savings for a performance year does not extend 
to an ACO that terminates its participation agreement with an effective 
date prior to December 31 or to an ACO that CMS terminates under Sec.  
425.218.
4. Reconsideration Review Process
a. Overview
    Under Sec.  425.802(a), an ACO may appeal an initial determination 
that is not subject to the statutory preclusion on administrative or 
judicial review (see section 1899(g) of the Act). Specifically, the 
following determinations are not subject to administrative or judicial 
review:
     The specification of quality and performance standards 
under Sec. Sec.  425.500 and 425.502.
     The assessment of the quality of care furnished by an ACO 
under the performance standards.
     The assignment of beneficiaries.
     The determination of whether the ACO is eligible for 
shared savings and the amount of such shared savings (including the 
determination of the estimated average per capita Medicare expenditures 
under the ACO for beneficiaries assigned to the ACO and the average 
benchmark for the ACO).
     The percent of shared savings specified by the Secretary 
and the limit on the total amount of shared savings established under 
Sec. Sec.  425.604 and 425.606.
     The termination of an ACO for failure to meet the quality 
performance standards.
    Initial determinations that are not precluded from administrative 
or judicial review would include the denial of an ACO application or 
the involuntary termination of an ACO's participation agreement by CMS 
for reasons other than the ACO's failure to meet the quality 
performance standard.
    Under Sec.  425.802(a), an ACO may appeal an initial determination 
that is not prohibited from administrative or judicial review by 
requesting reconsideration review by a CMS official. The request for 
review must be submitted for receipt by CMS within 15 days of the 
notice of the initial determination. Section 425.802(a)(2) provides 
that reconsiderations may be heard orally (that is, in person, by 
telephone or other electronic means) or on-the-record (review of 
submitted documentation) at the discretion of the reconsideration 
official.
b. Proposed Revisions
    To date, all reconsideration review requests have been on-the-
record reviews. As explained in the December 2014 proposed rule, we 
believe that on-the-record reviews are fair to both parties. We noted 
that our experience to

[[Page 32818]]

date demonstrated that a robust oral review was not necessary in light 
of the narrow scope of review. We found that the issues eligible for 
review could be easily communicated in a detailed writing by both 
parties and did not require in person witness testimony. We also noted 
that on-the-record reviews do not require as many agency resources and 
therefore would ensure that decisions are made in a timely manner.
    Accordingly, we proposed to modify Sec.  425.802 to permit only on-
the-record reviews of reconsideration requests. Additionally, we 
proposed to similarly modify Sec.  425.804 to clarify that the 
reconsideration process allows both an ACO and CMS to submit one brief 
each in support of its position by the deadline established by the CMS 
reconsideration official.
    Comment: Overall, commenters supported the proposals to permit only 
on-the-record reviews of reconsideration requests. However, a commenter 
questioned why CMS would arbitrarily constrain the process to a single 
brief. Another commenter suggested that CMS provide a reconsideration 
or grievance process for beneficiaries similar to these processes under 
MA.
    Response: We believe that the current reconsideration review 
process offers a sufficient mechanism for stakeholders to appeal CMS 
decisions related to the Shared Savings Program. As outlined in Sec.  
425.802, we give ACOs 15 days to request a reconsideration from the 
notice of the initial determination and a second opportunity to request 
a review of the reconsideration official's recommendation under Sec.  
425.806.
    We clarify that our proposal for the ACO and CMS to file a single 
brief is related to CMS or the ACO's initial request for 
reconsideration. If either CMS or the ACO disagrees with the initial 
decision of the reconsideration official, CMS or the ACO may request an 
on-the-record review from an independent CMS official who was not 
involved in the initial determination or the reconsideration review 
process. Our experience to date demonstrated that a robust oral review 
is not necessary in light of the narrow scope of review, and for the 
reasons noted in the December 2014 proposed rule, we will modify Sec.  
425.802 to permit only on-the-record reviews of reconsideration 
requests.
    Additionally, although we believe the current regulations support 
submission of only a single brief, we want to ensure that the 
reconsideration official has the information needed to make a 
determination. For this reason and in response to comment, we will 
modify our proposal. Specifically, we will finalize the proposal that 
the reconsideration process allows both an ACO and CMS to submit one 
brief each but also include that submission of additional briefs or 
evidence is at the discretion of the reconsideration official.
    Finally, beneficiaries maintain the ability to dispute charges or 
file an appeal for a claim under the FFS program. The Shared Savings 
Program does not change any FFS beneficiary choices or benefits.
    Comment: Several commenters appeared to believe that CMS does not 
have a reconsideration review process, stating that the lack of one is 
a violation of due process and that CMS should provide ACOs with a 
reconsideration process to challenge determinations. Finally, a few 
commenters objected to the statutory requirement to preclude 
administrative and judicial review of certain determinations under the 
program.
    Response: As discussed earlier, we have established appeals 
procedures for the Shared Savings Program at 42 CFR part 425, subpart 
I. To the extent the commenters are concerned about the absence of 
administrative review for certain determinations, we note that section 
1899(g) of the Act expressly precludes administrative and judicial 
review of these determinations, and as a result, we do not have the 
authority to offer administrative review for these determinations.
    FINAL ACTION: We are finalizing our proposal at Sec.  425.802 to 
permit only on-the-record reviews of reconsideration requests. 
Additionally, we are finalizing our proposal at Sec.  425.804(a)(3) 
that the reconsideration review process permits the ACO and CMS to 
submit one brief each in support of its position by the deadline 
established by the CMS reconsideration official. Also, based on 
comments and a desire to ensure that the reconsideration official has 
the information necessary to make a determination, we will include in 
Sec.  425.804(a)(3) that submission of additional briefs or evidence is 
at the sole discretion of the reconsideration official.
5. Monitoring ACO Compliance With Quality Performance Standards
    We proposed a technical revision to Sec.  425.316(c) to clarify our 
administrative enforcement authority when ACOs fail to meet the quality 
reporting requirements. Specifically, we proposed to remove Sec.  
425.316(c)(3), which sets forth various required actions the ACO must 
perform if it fails to report one or more quality measures or fails to 
report completely and accurately on all measures in a domain. We also 
proposed to remove Sec.  425.316(c)(4), which sets forth the 
administrative action we may take against an ACO if it exhibits a 
pattern of inaccurate or incomplete reporting of quality measures or 
fails to make timely corrections following notice to resubmit. The 
actions identified in Sec.  425.316(c)(3) and (4) include request for 
missing or corrected information, request for a written explanation for 
the noncompliance, and termination. All of these actions are already 
authorized under Sec.  425.216 and Sec.  425.218. Therefore, to reduce 
redundancy, prevent confusion, and to streamline our regulations, we 
proposed to modify Sec.  425.316(c) to remove Sec.  425.316(c)(3) and 
(c)(4).
    In addition, we proposed a technical change to Sec.  425.316(c)(5), 
which currently provides that an ACO ``will not qualify to share in 
savings in any year it fails to report fully and completely on the 
quality performance measures.'' We proposed to redesignate this 
paragraph as Sec.  425.316(c)(3) and replace ``fully and completely'' 
with ``accurately, completely, and timely'' to align with Sec.  
425.500(f) and to emphasize the importance of timely submission of 
measures.
    Comment: A few commenters supported the proposals, noting they 
would provide consistency within the program. A commenter requested 
that CMS clearly articulate what standards would apply to determine 
whether an ACO failed to accurately, completely, and timely report the 
quality measures.
    Response: We appreciate the commenters' support for the proposed 
revisions to our regulatory language regarding requirements for 
accurate, complete, and timely submission of quality measures. We have 
provided clear guidance on an ACO's obligation to accurately, 
completely and timely report quality measures. We publish the annual 
deadlines for submitting quality measures and remind ACOs of the 
deadlines frequently. Additionally, we provide helpdesk support and 
hold daily support calls during the first and last weeks of the 8-week 
quality reporting submission period, and we hold weekly support calls 
during the 6 weeks in between. The support calls give ACOs an 
opportunity to inquire about each measure to make sure they understand 
how to report accurately and completely. We publish the submission 
deadline in advance of the submission period, announce it on support 
calls, and remind ACOs in emails, list serve postings, and weekly 
newsletter articles.
    To meet the quality performance standard in PY1, the ACO must 
report

[[Page 32819]]

quality measures ``completely, accurately, and timely.'' In PY2 and 
PY3, the ACO must continue to report quality measures ``completely, 
accurately, and timely'' and must also meet minimum attainment on at 
least one pay-for-performance measure in each domain. Meeting the 
quality performance standard qualifies an ACO to share in savings for 
the performance year. As articulated in section II.C.3. of this final 
rule, we evaluate an ACO's participation agreement renewal request on 
whether the ACO met the quality performance standards during at least 1 
of the first 2 years of the previous agreement period.
    FINAL ACTION: We are finalizing our proposals without change. 
Specifically, we are removing redundant sections of the regulation text 
(Sec.  425.316(c)(3) and (c)(4)). We are also finalizing our proposal 
to redesignate Sec.  425.316(c)(5) as Sec.  425.316(c)(3), and to make 
changes to indicate the ACO must report ``accurately, completely, and 
timely'' to emphasize the importance of timely submission of measures 
and to conform to language elsewhere in the program rules.

III. Collection of Information Requirements

    As stated in section 3022 of the Affordable Care Act, Chapter 35 of 
title 44, United States Code, shall not apply to the Shared Savings 
Program. Consequently, the information collection requirements 
contained in this final rule need not be reviewed by the Office of 
Management and Budget.

IV. Regulatory Impact Analysis

A. Statement of Need

    This final rule is necessary in order to make payment and policy 
changes to the Medicare Shared Savings Program established under 
section 1899 of the Act. The Shared Savings Program promotes 
accountability for a patient population, fosters the coordination of 
items and services under Parts A and B, and encourages investment in 
infrastructure and redesigned care processes for high quality and 
efficient service delivery.

B. Overall Impact

    We examined the impacts of this rule as required by Executive Order 
12866 on Regulatory Planning and Review (September 30, 1993), Executive 
Order 13563 on Improving Regulation and Regulatory Review (January 18, 
2011), the Regulatory Flexibility Act (RFA) (September 19, 1980, Pub. 
L. 96-354), section 1102(b) of the Social Security Act, section 202 of 
the Unfunded Mandates Reform Act of 1995 (March 22, 1995; Pub. L. 104-
4), Executive Order 13132 on Federalism (August 4, 1999) and the 
Congressional Review Act (5 U.S.C. 804(2)).
    Executive Orders 12866 and 13563 direct agencies to assess all 
costs and benefits of available regulatory alternatives and, if 
regulation is necessary, to select regulatory approaches that maximize 
net benefits (including potential economic, environmental, public 
health and safety effects, distributive impacts, and equity). Section 
3(f) of Executive Order 12866 defines a ``significant regulatory 
action'' as an action that is likely to result in a rule: (1) Having an 
annual effect on the economy of $100 million or more in any 1 year, or 
adversely and materially affecting a sector of the economy, 
productivity, competition, jobs, the environment, public health or 
safety, or state, local or tribal governments or communities (also 
referred to as ``economically significant''); (2) creating a serious 
inconsistency or otherwise interfering with an action taken or planned 
by another agency; (3) materially altering the budgetary impacts of 
entitlement grants, user fees, or loan programs or the rights and 
obligations of recipients thereof; or (4) raising novel legal or policy 
issues arising out of legal mandates, the President's priorities, or 
the principles set forth in the Executive Order.
    A regulatory impact analysis (RIA) must be prepared for major rules 
with economically significant effects ($100 million or more in any 1 
year). We estimate that this rulemaking is ``economically significant'' 
as measured by the $100 million threshold, and hence also a major rule 
under the Congressional Review Act. Accordingly, we have prepared a 
Regulatory Impact Analysis, which to the best of our ability presents 
the costs and benefits of the rulemaking.

C. Anticipated Effects

1. Effects on the Medicare Program
    The Shared Savings Program is a voluntary program involving an 
innovative mix of financial incentives for quality of care and 
efficiency gains within FFS Medicare. As a result, the changes to the 
Shared Savings Program being adopted in this final rule could result in 
a range of possible outcomes. In the November 2011 final rule (76 FR 
67904), we indicated that participation in Track 1 might enable ACOs to 
gain the experience necessary to take on risk in a subsequent agreement 
period under a two-sided arrangement, possibly enhancing the 
opportunity for greater program savings in years beyond the first 
agreement period. Conversely, if in that first agreement period, ACOs 
come to reliably predict a bias between expenditure benchmarks and 
actual assigned beneficiary costs that ensures an outcome--whether 
favorable or unfavorable--the program would be at risk for increasingly 
selective participation from favored ACOs and any real program savings 
could be overwhelmed by outsized shared-savings payments (76 FR 67964). 
Furthermore, even ACOs that opt for a two-sided arrangement could 
eventually terminate their agreements if they anticipate that efforts 
to improve efficiency are overshadowed by their particular market 
circumstances. This scenario could also contribute to selective program 
participation by ACOs favored by the national flat-dollar growth 
target, or favored by other unforeseen biases affecting performance.
    However, as we indicated in the November 2011 final rule (76 FR 
67964), even with the optional liability for a portion of excess 
expenditures, which offers less incentive to reduce growth in costs 
than a model involving full capitation, the opportunity to share in FFS 
Medicare savings still represents an incentive for efficiency. The 
actual effects of shared savings (and potential liabilities in the form 
of shared losses) will have varying degrees of influence on hospitals, 
primary care physicians, specialty physicians, and other providers and 
suppliers. Moreover, while certain care improvements might be achieved 
relatively quickly (for example, prevention of hospital readmissions 
and emergency-room visits for certain populations with chronic 
conditions), some ACOs might need more than 3 years to achieve 
comprehensive efficiency gains. As of January 2015, over 400 
organizations have chosen to participate in the Shared Savings Program. 
These organizations care for over 7 million assigned FFS beneficiaries 
living in 47 states, plus Puerto Rico and the District of Columbia. 
Half of all ACOs characterize themselves as networks of individual 
practices and the other half include hospitals or facilities. In the 
fall of 2014, we announced the final financial reconciliation and 
quality performance results for performance year 1 for ACOs with 2012 
and 2013 agreement start dates. ACOs outperformed other FFS providers 
that reported data on 17 out of 22 GPRO quality measures. ACOs that 
reported quality in both 2012 and 2013 also improved on 30 out of 33 
quality measures.

[[Page 32820]]

    Of the 220 ACOs with 2012 and 2013 start dates, 58 ACOs generated 
shared savings during their first performance year. They held spending 
$705 million below their targets and earned shared savings payments of 
more than $315 million as their share of program savings. One ACO in 
Track 2 overspent its target by $10 million and owed shared losses of 
$4 million. Total net savings to Medicare is close to $383 million, 
including repayment of shared losses by one Track 2 ACO. An additional 
60 ACOs reduced growth in health costs compared to their benchmark, but 
did not qualify for shared savings, as they did not meet the minimum 
savings threshold.
    While evaluation of the program's overall impact is ongoing, the 
performance year 1 final financial reconciliation and quality results 
are within the range originally projected for the program's first year. 
Also, at this point, we have seen no evidence of systematic bias in ACO 
participation or performance that would raise questions about the 
savings that have been achieved.
    Earlier in this final rule, we discussed changes in policy that are 
intended to better encourage ACO participation in performance risk-
based models by:
     Easing the transition from Track 1 to Track 2.
     Providing refinements to Track 2.
     Adopting a new performance risk-based model with greater 
reward --Track 3.
    Currently, an ACO will be able to apply to participate in Track 1 
for its initial agreement period during which the ACO could be eligible 
for shared savings payments in all 3 performance years of the agreement 
period without the risk of being responsible for repayment of any 
losses if actual expenditures exceed the benchmark. However, rather 
than requiring all Track 1 ACOs to transition to a performance risk-
based model in their second agreement period, as is currently required, 
we are improving the transition from the shared-savings only model to a 
performance risk-based model for Track 1 ACOs that might require 
additional experience with the program before taking on performance-
based risk. Specifically, in this final rule, we are specifying that 
Track 1 ACOs may elect to continue participation under Track 1 for a 
subsequent agreement period at the same sharing rate as under the first 
agreement period provided they meet the general criteria established 
for an ACO to renew its 3-year participation agreement.
    Under Track 2, which provides an opportunity for an ACO to receive 
a higher percentage of shared savings for all years of the agreement 
period, but with potential liability for shared losses in each of the 
agreement years if annual expenditures exceed the benchmark, we are 
providing the opportunity for ACOs to have some choice in the level of 
risk. Specifically, in this final rule, we are finalizing a policy that 
will permit an ACO in a two-sided performance risk track to choose its 
MSR and MLR from a range of options, so long as they are symmetrical. 
We believe this modification will enable ACOs to choose a level of risk 
with which they are comfortable and encourage ACOs to move more quickly 
to performance-based risk.
    We are also establishing an additional performance risk-based 
option (Track 3) that offers a higher maximum shared savings percentage 
(75 percent) and performance payment limit (20 percent) than is 
available under Track 2 (60 percent and 15 percent respectively), and a 
cap on the amount of losses for which an ACO is liable that is fixed at 
15 percent of its updated benchmark in each year. Similar to ACOs in 
Track 2, ACOs in Track 3 will be able to choose from a menu of 
symmetrical MSR/MLR levels. Also, under this model, beneficiaries will 
be assigned prospectively so an ACO will know in advance those 
beneficiaries for which it will be responsible.
    We are finalizing a policy for resetting ACO benchmarks for a 
subsequent agreement period under which we will weight each benchmark 
year equally (approximately 33.3 percent for each year). We will also 
take into account the financial performance of the ACO from the prior 
agreement period when resetting the benchmark. If an ACO generated net 
savings over the previous agreement period, we will make an adjustment 
to the new benchmark to account for those savings.
    As detailed in Table 9, we estimated at baseline (that is, without 
the changes detailed in this final rule) a total aggregate median 
impact of $540 million in net federal savings for calendar years (CYs) 
2016 through 2018 from the continued operation of the Shared Savings 
Program for ACOs electing a second agreement period starting in January 
2016. The 10th and 90th percentiles of the estimate distribution, for 
this same time period, yield a net savings of $340 million and $800 
million, respectively. These estimated impacts represent the effect on 
federal transfers of payments to Medicare providers and suppliers. The 
median estimated federal savings are higher than the estimate of the 
program effects over the preceding CYs 2012 through 2015 published in 
the previous final rule (estimated median net savings of $470 million 
for such 4 year period). This increase in savings is due to multiple 
factors related to maturation of the program, including continued 
phase-in of assumed savings potentials, lowered effective sharing rates 
due in part to rebased benchmarks, and increased collection of shared 
losses due to mandatory enrollment in Track 2 in a second agreement 
period. However, absent changes to improve the viability of 
participation for ACOs considering a second agreement period, we 
estimate fewer than 15 percent of ACOs would opt for continued 
participation under downside risk in Track 2 as required under the 
current regulations. We note that this estimate was revised downward 
from 25 percent in the December 2014 proposed rule based on emerging 
program experience (for example, assumptions for renewals and first-
time applicants were revised in light of additional data provided by 
the 2015 start date). The decrease in the baseline median net savings 
previously estimated at $730 million in the proposed rule is directly 
related to the revision to this estimate. Furthermore, we estimated up 
to half of such re-enrolling ACOs would ultimately drop out of the 
program by 2018 to avoid future shared loss liability.
    Alternatively, as detailed in Table 10, by including the changes 
detailed in this final rule, the total aggregate median impact would 
increase to $780 million in net federal savings for CYs 2016 through 
2018. The tenth and ninetieth percentiles of the estimate distribution, 
for the same time period, yield net savings of $230 million and $1,430 
million, respectively. Such median estimated federal savings are $240 
million greater than the $540 million median net savings estimated at 
baseline absent the finalized changes. A key driver of an anticipated 
increase in net savings is through improved ACO participation levels in 
a second agreement period. We estimate that at least 90 percent of 
eligible ACOs will renew their participation in the Shared Savings 
Program if presented with the new options, primarily under Track 1 and, 
to a lesser extent, under Track 3. This expansion in the number of ACOs 
willing to continue their participation in the program is estimated to 
result in additional improvements in care efficiency of a magnitude 
significantly greater than the reduced shared loss receipts estimated 
at baseline (median shared loss dollars reduced by $20

[[Page 32821]]

million relative to baseline) and the added shared savings payments 
flowing from a higher sharing rate in Track 3 and continued one-sided 
sharing available in Track 1, with all three tracks operating under 
more favorable rebasing parameters including equal base year weighting 
and adding a portion of savings from the prior agreement period to the 
baseline (median shared savings payments increased by $970 million 
relative to baseline). Because final rule estimates reflect revised 
participation assumptions including lower Track 2 participation at 
baseline (as noted previously), the difference in shared loss receipts 
from baseline is revised downward from the $140 million estimated in 
the proposed rule.
    With respect to costs incurred by ACOs, as discussed later in this 
section, for purposes of this analysis, we are retaining our assumption 
included in our November 2011 final rule (76 FR 67969) of an average of 
$0.58 million for start-up investment costs but are revising our 
assumption for average ongoing annual operating costs for an ACO 
participating in the Shared Savings Program to $0.86 million, down from 
the $1.27 million assumed in our November 2011 final rule (76 FR 
67969). This revision is related to the lower average number of 
beneficiaries currently observed to be assigned to existing Shared 
Savings Program ACOs compared to the larger organizations participating 
in the Physician Group Practice Demonstration upon which the original 
assumption was based. We also believe the changes we are making in this 
final rule to streamline the administrative requirements for the 
program will further assist in lowering administrative costs.
    For our analysis, we are comparing the effects of the changes being 
adopted in this final rule for a cohort of ACOs that either continued 
their participation in the Shared Savings Program, beginning in 2016 or 
newly begin their participation in that same year. For purposes of our 
analysis, we assumed that roughly one-quarter of ACOs will incur 
aggregate start-up investment costs in 2016, ranging from $12 million 
under the baseline scenario to $58 million under the policies being 
adopted in this final rule. Aggregate-ongoing operating costs are 
estimated to range from $43 million under the baseline scenario to $258 
million under the policies adopted in this final rule. Both start-up 
investment and ongoing operating cost ranges assume an anticipated 
average participation level of 50 (baseline scenario) to 300 (with all 
changes) new or currently participating ACOs that establish or renew 
participation agreements in 2016. For purposes of this analysis, we 
assumed that some portion of ACOs currently participating in the 
program will not renew their participation agreement for a subsequent 
agreement period. As a result, under our baseline scenario, we assumed 
50 ACOs will either renew or begin an agreement period in 2016--far 
fewer than the nearly 100 new ACOs that have entered the program in 
each of the last 2 years. The 3-year aggregate ongoing operating cost 
estimate also reflects our assumption that, under the baseline 
scenario, there would be a greater propensity for ACOs that have 
completed the full term of their initial agreement period, and that 
would be required to participate under Track 2 in their second 
agreement period, to drop out of the program after receiving poor 
results from their final settlement for the first performance year 
under Track 2 in the new agreement period. Therefore, as illustrated in 
Table 9 for the baseline scenario, for CYs 2016 through 2018, total 
median ACO shared savings payments of $160 million offset by $50 
million in shared losses coupled with the aggregate average start-up 
investment and ongoing operating cost of $129 million result in an 
estimated net private cost of $19 million. Alternatively, as 
illustrated in Table 10 for the all changes scenario, for CYs 2016 
through 2018 the total median ACO shared savings payments of $1,130 
million, offset by $30 million in shared losses, coupled with the 
aggregate average start-up investment and ongoing operating costs of 
$822 million, result in an estimated net private benefit of $278 
million. Under the changes we are adopting in this final rule, ACOs are 
no longer required to move to a two-sided performance-based risk model 
in their second agreement period. As a result of this change and the 
other changes we are making in this final rule, the per-ACO average 
shared loss liability is reduced by 90 percent compared to the 
baseline. Therefore, the changes will likely prevent a significant 
number of ACOs that are due to renew their participation agreements in 
2016 from leaving the program prior to 2018.
    By encouraging greater Shared Savings Program participation, the 
changes in this rule will also benefit beneficiaries through broader 
improvements in accountability and care coordination than would occur 
under current regulations. Accordingly, we have prepared a regulatory 
impact analysis (RIA) that to the best of our ability presents the 
costs and benefits of this final rule.

 Table 9--Baseline (Absent All Changes) Estimated Net Federal Savings, Costs and Benefits, CYs 2016 Through 2018
----------------------------------------------------------------------------------------------------------------
                                                                                                       CYs
                                                    CY 2016         CY 2017         CY 2018     (2016[dash]2018)
                                                   (million)       (million)       (million)        (million)
----------------------------------------------------------------------------------------------------------------
Net Federal Savings:
    10th Percentile...........................            $180            $130             $20             $340
    Median....................................             270             200              60              540
    90th Percentile...........................             380             290             120              800
ACO Shared Savings:
    10th Percentile...........................              20              30              40              100
    Median....................................              30              50              70              160
    90th Percentile...........................              50              80             110              230
ACO Shared Losses:
    10th Percentile...........................              10              10               0               30
    Median....................................              20              30               0               50
    90th Percentile...........................              30              40              10               80
                                               -----------------------------------------------------------------

[[Page 32822]]

 
Costs.........................................    The estimated aggregate average start[dash]up investment and
                                                3[dash]year operating costs is $129 million. The total estimated
                                                start[dash]up investment costs average $12 million, with ongoing
                                                 costs averaging $43 million, for the anticipated mean baseline
                                                                    participation of 50 ACOs.
Benefits......................................  Improved healthcare delivery and quality of care and better
                                                communication to beneficiaries through patient[dash]centered
                                                care.
----------------------------------------------------------------------------------------------------------------
Note that the percentiles for each individual year do not necessarily sum to equal the corresponding percentiles
  estimated for the total 3-year impact, in the column labeled CYs 2016 through 2018, due to the annual and
  overall distributions being constructed independently.


     Table 10--Estimated Net Federal Savings, Costs and Benefits Under This Final Rule CYs 2016 Through 2018
----------------------------------------------------------------------------------------------------------------
                                                                                                       CYs
                                                    CY 2016         CY 2017         CY 2018     (2016[dash]2018)
                                                   (million)       (million)       (million)        (million)
----------------------------------------------------------------------------------------------------------------
Net Federal Savings:
    10th Percentile...........................             $80            $100             $30             $230
    Median....................................             250             290             240              780
    90th Percentile...........................             440             510             480            1,430
ACO Shared Savings:
    10th Percentile...........................             260             300             390              960
    Median....................................             300             360             470            1,130
    90th Percentile...........................             360             420             550            1,310
                                               -----------------------------------------------------------------
ACO Shared Losses:
    10th Percentile...........................               0              10               0               10
    Median....................................              10              20               0               30
    90th Percentile...........................              20              30              10               50
                                               -----------------------------------------------------------------
Costs.........................................    The estimated aggregate average start[dash]up investment and
                                                3[dash]year operating costs is $822 million. The total estimated
                                                start[dash]up investment costs average $58 million, with ongoing
                                                     costs averaging $258 million, for the anticipated mean
                                                                   participation of 300 ACOs.
Benefits......................................  Improved healthcare delivery and quality of care and better
                                                communication to beneficiaries through patient-centered care.
----------------------------------------------------------------------------------------------------------------
Note that the percentiles for each individual year do not necessarily sum to equal the corresponding percentiles
  estimated for the total 3-year impact in the column labeled CYs 2016 through 2018, due to the annual and
  overall distributions being constructed independently. Also, the cost estimates for this table reflect our
  assumptions for increased ACO participation as well as changes in the mix of new and continuing ACOs.

    There remains uncertainty as to the number of ACOs that will 
continue to participate in the program, provider and supplier response 
to the financial incentives offered by the program in the medium and 
long run, and the ultimate effectiveness of the changes in care 
delivery that may result as ACOs work to improve the quality and 
efficiency of patient care. These uncertainties continue to complicate 
efforts to assess the financial impacts of the Shared Savings Program 
and result in a wide range of potential outcomes regarding the net 
impact of the changes in this final rule on Medicare expenditures.
    To best reflect these uncertainties, we continue to utilize a 
stochastic model that incorporates assumed probability distributions 
for each of the key variables that will affect the overall financial 
impact of the Shared Savings Program. Using a Monte Carlo simulation 
approach, the model randomly draws a set of specific values for each 
variable, reflecting the expected covariance among variables, and 
calculates the program's financial impact based on the specific set of 
assumptions. We repeated the process for a total of 10,000 random 
trials, tabulating the resulting individual cost or savings estimates 
to produce a distribution of potential outcomes that reflects the 
assumed probability distributions of the incorporated variables, as 
shown in Table 10. In this way, we can evaluate the full range of 
potential outcomes based on all combinations of the many factors that 
will affect the financial impact, and with an indication of the 
likelihood of these outcomes. It is important to note that these 
indications do not represent formal statistical probabilities in the 
usual sense, since the underlying assumptions for each of the factors 
in the model are based on reasonable judgments, using independent 
expert opinion when available.
    The median result from the distribution of simulated outcomes 
represents the ``best estimate'' of the financial effect of the changes 
to the Shared Savings Program. The full distribution illustrates the 
uncertainty surrounding the mean or median financial impact from the 
simulation.
    The median estimate reflects the net effects of--
     Reduced actual Medicare expenditures due to more efficient 
care;
     Shared savings payments to ACOs; and
     Payments to CMS for shared losses when actual expenditures 
exceed the

[[Page 32823]]

benchmark. That median indicates that the policies finalized in this 
rule will result in a projected total of $780 million in net savings 
over CYs 2016 through 2018, or $240 million greater than the median 
projected total at baseline without the changes being adopted in this 
final rule.
    This net federal savings estimate, detailed at the top of Table 10, 
can be summed with the projected ACO shared savings less projected ACO 
shared losses--both also detailed in Table 10--to show the median 
expected effect on Medicare claim expenditures before accounting for 
shared savings payments (that is, the reduction in actual Medicare 
expenditures due to more efficient care).
    A net savings (cost) occurs when payments of earned and unearned 
shared savings (less shared losses collected) resulting from: (1) 
Reductions in spending; (2) care redesign; and (3) normal group claim 
fluctuation, in total are less than (greater than) assumed savings from 
reductions in expenditures.
    As continued emerging data become available on the differences 
between actual expenditures and the target expenditures reflected in 
ACO benchmarks, it may be possible to evaluate the financial effects 
with greater certainty. The estimate distribution shown in Table 11 
provides an objective and reasonable indication of the likely range of 
financial outcomes, given the chosen variables and their assumed 
distributions at this time in the program's operation.
a. Assumptions and Uncertainties
    We continue to rely on input gathered as part of the analysis for 
the existing regulation from a wide range of external experts, 
including credentialed actuaries, consultants, and academic 
researchers, to identify the pertinent variables that could determine 
the efficacy of the program, and to identify the reasonable ranges for 
each variable. We also continue to monitor emerging evidence from 
current participation in this program, the Pioneer ACO Model, and 
related published evidence where available.
    There are a number of factors that are not fully reflected in our 
current modeling that may refine our modeling in future rulemaking:
     Number of participating ACOs, including the sensitivity to 
burdens of participation and the generosity of the sharing arrangement.
     Size mix of participating ACOs.
     Type of ACO that would consider accepting risk.
     Participating ACOs' current level of integration and 
preparedness for improving the quality and efficiency of care delivery.
     Baseline per-capita costs for ACOs, relative to the 
national average.
     Number and profile of providers and suppliers available to 
participate in the Shared Savings Program as a result of Innovation 
Center model initiatives.
     Range of gross savings achieved by ACOs, and the time 
required for full phase-in.
     Local variation in expected claims cost growth relative to 
the national average.
     Quality reporting scores and resulting attained sharing 
(or loss) percentages.
     Potential ``spillover'' effects between the Shared Savings 
Program and other value-based incentive programs implemented by CMS and 
other payers.
    We assumed that overall between 0.8 million Medicare beneficiaries 
(under baseline) and 4.7 million Medicare beneficiaries (with all 
changes) would annually be assigned to between 50 and 300 ACOs 
beginning a new agreement period in 2016. Given data on current 
participation, we anticipate the program will continue to garner 
comparable levels of participation from markets exhibiting baseline 
per-capita FFS expenditures above, at, or below the national average. 
In addition, we assumed the level of savings generated by an ACO to 
positively correlate to its achieved quality performance score and 
resulting sharing percentage.
    For estimating the impact of the changes, we assume that most ACOs 
(approximately 9 out of 10, on average) will choose Track 1. This is 
because the ACOs will seek to simultaneously: (1) Avoid the potential 
for financial loss if expenditures experience a significant upward 
fluctuation or efficiency improvements are less effective than planned; 
and (2) continue to build organizational experience to achieve a per-
capita cost target as determined under the program's benchmark 
methodology.
    In contrast, we assume that a minority of ACOs--disproportionately 
represented from a more capable subset of the total program 
participation--will opt for Track 3 in their second agreement period. 
These ACOs will be enabled by experience accepting risk or achieving 
success or both in their first agreement period in this program, and 
motivated by the provision for prospective assignment of beneficiaries 
and the greater sharing percentage available under this new option. A 
particularly important cause for uncertainty in our estimate is the 
high degree of variability observed for local per-capita cost growth 
rates relative to the national average ``flat dollar'' growth (used to 
update ACO benchmarks). Performance measured against the benchmark or 
expenditure target effectively serves as the chief measure of 
efficiency for participating ACOs. Factors such as lower-than-average 
baseline per-capita expenditure and variation in local growth rates 
relative to the national average can trigger shared savings payments 
even in the absence of any efficiency gains. Similarly, some ACOs could 
find that factors, such as prevailing per-capita expenditure growth in 
their service area that is higher than the national average, limit 
efficiency gains and reduce or prevent shared savings.
b. Detailed Stochastic Modeling Results
    Table 11 shows the distribution of the estimated net financial 
impact for the 10,000 stochastically generated trials under the 
policies being adopted in this final rule. (The amounts shown are in 
millions, with negative net impacts representing Medicare savings). The 
net impact is defined as the total cost of shared savings less--(1) Any 
amount of savings generated by reductions in actual expenditures; and 
(2) any shared losses collected from ACOs that accepted risk and have 
actual expenditures exceeding their benchmark.
    The median estimate of the Shared Savings Program financial impact 
for ACOs potentially entering a second agreement period in calendar 
years 2016 through 2018 is a net federal savings of $780 million, which 
is $240 million higher than our estimate for the same period assuming a 
baseline scenario, which excludes the changes adopted in this final 
rule. This amount represents the ``best estimate'' of the financial 
impact of the Shared Savings Program during the applicable period. 
However, it is important to note the relatively wide range of possible 
outcomes. While over 97 percent of the stochastic trials resulted in 
net program savings, the 10th and 90th percentiles of the estimated 
distribution show net savings of $230 million to net savings of $1,430 
million, respectively. In the extreme maximum and minimum scenarios, 
the results were as large as $2.7 billion in savings or nearly $500 
million in costs, respectively.
    The stochastic model and resulting financial estimates were 
prepared by the CMS Office of the Actuary (OACT). The median result of 
$780 million in savings is a reasonable ``point estimate'' of the 
impact of the Shared Savings Program

[[Page 32824]]

during the period between 2016 and 2018 and reflects the changes being 
adopted in this final rule. However, we emphasize the possibility of 
outcomes differing substantially from the median estimate, as 
illustrated by the estimate distribution. As we analyze additional data 
on ACO performance in the first agreement period, we may likely improve 
the precision of future financial impact estimates.
    To the extent that the Shared Savings Program will result in net 
savings or costs to Part B of Medicare, revenues from Part B 
beneficiary premiums would also be correspondingly lower or higher. In 
addition, because MA payment rates depend on the level of spending 
within traditional FFS Medicare, savings or costs arising from the 
Shared Savings Program would result in corresponding adjustments to MA 
payment rates. Neither of these secondary impacts has been included in 
the analysis shown.
[GRAPHIC] [TIFF OMITTED] TR09JN15.002

    Table 12 shows the median estimated financial effects for the 
Shared Savings Program of ACOs entering in a new agreement period 
starting in 2016 and the associated 10th and 90th percentile ranges 
under the changes adopted in this final rule. Net savings (reflecting a 
net reduction in federal outlays) are expected to moderately contract 
over the 3-year period, from a median of $250 million in 2016 to $240 
million in 2018. This progression is related to the maturation of 
efficiencies achieved by renewing ACOs contrasted by progressive 
increases in shared savings payments due to increasing variability in 
expenditures in later performance years relative to a static benchmark 
expenditure baseline. To similar effect, the potential that Track 3 
ACOs experiencing losses may elect to voluntarily terminate their 
participation in the program could work to decrease net savings in the 
last year of the period relative to prior years. We note that the 
percentiles are tabulated for each year separately. Therefore, the 
overall net impact distribution (Table 10) will not necessarily exactly 
match the sum of distributions for each distinct year.

[[Page 32825]]

[GRAPHIC] [TIFF OMITTED] TR09JN15.003

c. Further Considerations
    The impact analysis shown is only for the 3 years 2016 through 2018 
corresponding to the second agreement period potentially available for 
the nearly 220 ACOs that will complete their first agreement period in 
2015. Additional ACOs entered the program on January 1 of 2014 and 
2015, totaling 123 and 89 new ACOs, respectively, and these ACOs would 
potentially be eligible to start a second agreement period beginning in 
2017 or 2018. For all current participating groups of ACOs, 
uncertainties exist regarding their continued engagement with program 
goals and incentives, especially for ACOs who fail to generate shared 
savings revenue comparable to the cost of effective participation in 
the program. It is possible that, notwithstanding the enhancements 
adopted in this final rule, a significant drop-off in participation 
could materialize from ACOs failing to achieve significant revenue from 
shared savings in the short run. On the other hand, the Medicare Access 
and CHIP Reauthorization Act of 2015 may influence additional ACO 
formation in order for physicians to receive maximum updates under 
future physician fee schedule updates. Independent of this recent 
legislation, value-based payment models are showing significant growth 
with arrangements being offered by state Medicaid programs, private 
insurers, and employer-sponsored plans. Moreover, we would also note 
that the number of providers and suppliers participating in these 
models and in the existing ACOs continues to grow. Therefore, providers 
may view continued participation in this program as part of a wider 
strategy for care redesign rather than be driven only by the potential 
for receiving incentives in the form of shared savings payments from 
the Medicare Shared Savings Program. Therefore, there remains a 
potential for broad gains in efficiency and quality of care delivery 
across all populations served by ACOs participating in the Shared 
Savings Program with possible additional ``spillover'' effects on 
federal savings potentially traceable to momentum originally created by 
this program. The stochastic model for estimating future program 
impacts starting in 2016 does not incorporate either of these divergent 
longer-run scenarios, but both remain possibilities. An impact estimate 
expanded to include performance beyond the 2016 through 2018 agreement 
period would likely entail a significantly wider range of possible 
outcomes. However, additional emerging results of the first performance 
cycle will help inform estimates of the ongoing financial effects of 
the Shared Savings Program.
2. Effects on Beneficiaries
    This program is still in the early stages of implementation. 
However, we continue to believe that the Shared Savings Program will 
benefit beneficiaries because the intent of the program is to--
     Encourage providers and suppliers to join together to form 
ACOs that will be accountable for the care provided to an assigned 
population of Medicare beneficiaries;
     Improve the coordination of FFS items and services; and
     Encourage investment in infrastructure and redesigned care 
processes for high quality and efficient service delivery that 
demonstrates a dedication to, and focus on, patient-

[[Page 32826]]

centered care that results in higher quality care.
    The benefits of a payment model that encourages providers and 
suppliers to become accountable for the overall care furnished to 
Medicare beneficiaries were evidenced by the PGP demonstration, upon 
which many features of the Shared Savings Program are based. Under the 
PGP demonstration, all of the PGP participants achieved improvements in 
their scores for most of the quality measures over time. While only 2 
PGP participants met all 10 quality measure targets active in their 1st 
performance year, by the 5th performance year, 7 sites met all 32, or 
100 percent of their targets, and the remaining 3 PGP participants met 
over 90 percent of the targets. More specifically, as we previously 
discussed in our November 2011 final rule (76 FR 67968), over the first 
4 years of the PGP Demonstration, physician groups increased their 
quality scores an average of 10 percentage points on the 10 diabetes 
measures, 13 percentage points on the 10 congestive heart failure 
measures, 6 percentage points on the 7 coronary artery disease 
measures, 9 percentage points on the 2 cancer screening measures, and 3 
percentage points on the 3 hypertension measures. Further analysis is 
provided in the Physician Group Practice Demonstration Evaluation 
Report (Report to Congress, 2009; https://www.cms.gov/DemoProjectsEvalRpts/downloads/PGP_RTC_Sept.pdf).
    As we have also discussed in November 2011 final rule (76 FR 
67968), in addition to the overall increases in quality scores, we can 
examine the impact of the PGP Demonstration on quality by comparing the 
values of the seven claims-based quality measures for each PGP site and 
its comparison group. Our analysis found that, on the claims-based 
measures, PGP performance exceeded that of the comparison groups (CGs) 
on all measures between the base year (BY) and performance year 2 
(PY2). It also found that the PGP sites exhibited more improvement than 
their CGs on all but one measure between the BY and PY2. Even after 
adjusting for pre-demonstration trends in the claims-based quality 
indicators, the PGP sites improved their claims-based quality process 
indicators more than their comparison groups.
    Further, for the first year of the Pioneer ACO Model, all 32 
Pioneer ACOs successfully reported quality measures and achieved the 
maximum quality score for complete and accurate reporting, earning 
incentive payments for their reporting accomplishments. Overall, 
Pioneer ACOs performed better than published rates in FFS Medicare for 
all 15 clinical quality measures for which comparable data are 
available. In the second year of the Pioneer ACO Model, organizations 
increased the mean quality score by 19 percent and showed improvement 
on 28 of the 33 quality measures. Some of these measures included 
controlling high blood pressure, screening for future fall risk, 
screening for tobacco use and cessation, and patient experience in 
health promotion and education. The Pioneer ACOs improved the average 
performance score for patient and caregiver experience in 6 out of 7 
measures.
    The Independent Office of the Actuary in the Centers for Medicare & 
Medicaid Services (CMS) has certified that the Pioneer ACO Model, as 
tested in its first 2 performance years, meets the criteria for 
expansion to a larger population of Medicare beneficiaries.
    Additionally, under the Shared Savings Program, almost all 
participating ACOs fully and completely reported quality measures for 
the 2013 reporting period, providing important information on current 
performance that can be used to improve patient engagement and make 
meaningful positive impacts on patient care.
    In addition to the early quality data generated by participating 
organizations, we have anecdotal evidence that illustrates the 
importance of encouraging participation in the Shared Savings Program. 
For example, ACO providers/suppliers report very meaningful changes in 
patient engagement through beneficiary participation on the governing 
body of the ACO and on patient advisory committees. In response to 
beneficiary input, clinical practices are offering extended office 
hours, including weekend hours, and ensuring timely appointments and 
access to clinical staff. Using the data shared by CMS, ACOs are able 
to identify high risk beneficiaries that require additional clinical 
attention, assign case managers, and actively work to improve care for 
these beneficiaries. One ACO reported that it has implemented a process 
for performing in-home medication reconciliation and review of care 
plans as a follow up to hospital discharge and for one-third of those 
patients, discovered an intervention that avoided an unnecessary 
hospital readmission. Active identification and management of these 
patients has uncovered previously unaddressed issues that factored into 
patient inability to adhere to treatment plans. For example, an ACO 
reported that it has uncovered several psycho-social issues that were 
resulting in avoidable readmissions such as the Inability to self-
medicate (the ACO arranged for home health services) and inadequate 
Access to healthy food resources (the ACO worked with community 
stakeholders to have meals delivered to the patient's home).
    Additionally, ACOs are using claims data to identify diagnoses 
prevalent in the assigned population and develop best practice 
guidelines for those conditions, and educating and alerting ACO 
participants and ACO providers/suppliers to standardize care processes 
and improve outcomes.
    We expect that the changes in this final rule, specifically those 
easing administrative requirements, smoothing the transition to a 
performance risk-based model, and expanding opportunities to share in a 
higher level of savings will encourage greater program participation by 
ACOs, which will in turn increase the number of beneficiaries that can 
potentially benefit from high quality and more coordinated care. 
Nonetheless, this program does not affect beneficiaries' freedom of 
choice regarding which providers and suppliers they see for care since 
beneficiaries assigned to an ACO continue to be in the traditional 
Medicare program. Thus, beneficiaries may continue to choose providers 
and suppliers that do not participate in ACOs under the Shared Savings 
Program.
3. Effect on Providers and Suppliers
    Based on discussions with ACOs that generated shared savings and 
demonstrated high quality care during their first performance year in 
the Shared Savings Program, we know that ACOs are busy implementing a 
variety of strategies designed to improve care coordination for 
beneficiaries and lower the rate of growth in expenditures. Most of 
these ACOs consider themselves to be ``physician-based'' organizations, 
rather than ``hospital-based'', although many state that a strong 
collaboration between inpatient and outpatient facilities is critical 
to better care coordination across sites of care. ACOs detailed several 
strategies that they believe were important such as careful pre-
participation planning, transparency between the ACO leadership and its 
ACO participants and ACO providers/suppliers, education of ACO 
providers/suppliers regarding the ACO's care processes, strong 
physician leadership, and working to streamline and transform practices 
for highly efficient coordinated care across sites of care. Several 
clinicians in ACOs have reported to us that the ACO is providing them 
with the support and structure

[[Page 32827]]

needed to practice ``how [they] always hoped [they] could.'' All of 
these ACOs recognize that they are early in the process of implementing 
their strategies to improve care coordination and reduce the rate of 
growth in expenditures and have plans to refine and improve based upon 
their early lessons learned.
    We realize that ACOs bear costs in building the organizational, 
financial and legal infrastructure that is necessary to participate in 
the Shared Savings Program and implementing the strategies previously 
articulated, as well as performing the tasks required of an ACO, such 
as: Quality reporting, conducting patient surveys, and investing in 
infrastructure for effective care coordination. While provider and 
supplier participation in the Shared Savings Program is voluntary, we 
have examined the potential costs of continued program participation.
    In this final rule, we have revised several program policies in 
order to reduce the burden associated with the infrastructure, start-up 
and ongoing annual operating costs for participating ACOs in the Shared 
Savings Program. These revisions include simplifying the application 
and renewal process for certain ACOs with experience under either the 
Pioneer ACO Model or the Shared Savings Program, streamlining sharing 
of beneficiary data while continuing to give beneficiaries the 
opportunity to decline claims data sharing, and exempting changes to 
the public reporting template from marketing review. These significant 
policy modifications are discussed in detail in sections II.B., C., D, 
and G. of this final rule. Additionally, we continue to support 
streamlined processes, for example, under current program rules, 
eligible professionals who bill through the TIN of an ACO participant 
are treated as other PQRS Group Practice Reporting Option reporters and 
meet the PQRS requirements to avoid downward adjustments to their 
payments under the PFS when the ACO satisfactorily reports quality 
measures through the GPRO web interface. Because of this alignment with 
PQRS, burden is reduced for eligible professionals who are not required 
to report quality to CMS twice.
    The Shared Savings Program is still relatively new, and the initial 
group of organizations that applied to participate has only recently 
completed the second performance year. Because of this limited 
experience with the program and flexibility regarding the composition 
of providers and suppliers within an ACO and the strategies that the 
provider community will pursue in order to improve quality and reduce 
cost of care, precise estimates of expected provider costs or changes 
to their costs due to this final rule are difficult to create.
    In our November 2011 final rule (76 FR 67968), we discussed a 
Government Accountability Office analysis of the PGP demonstration. The 
GAO study showed that both start-up and annual operating costs varied 
greatly across the participating practices. Thus, as we indicated in 
the November 2011 final rule (76 FR 67968), we use GAO's analysis not 
to predict cost investment and operating expenditures, but to 
demonstrate that we expect the range of investment to vary greatly 
across ACOs and to provide the potential scope for aspiring 
participants.
    For purposes of our current impact analysis, we are retaining the 
assumption included in our November 2011 final rule (76 FR 67969) of 
$0.58 million in average start-up investment cost but are revising our 
assumption for average ongoing annual operating costs for an ACO from 
$1.27 million to $0.86 million to reflect the lower average number of 
beneficiaries assigned to existing Shared Savings Program ACOs 
(approximately 14,700 beneficiaries) compared to the 10 PGP sites 
examined by GAO (average size approximately 22,400 beneficiaries). 
Therefore, our cost estimates for purposes of this final rule reflect 
an average estimate of $0.58 million for the start-up investment costs 
and $0.86 million in ongoing annual operating costs for an ACO 
participating in the Shared Savings Program. Assuming an expected range 
of ACOs participating in the Shared Savings Program of 50 to 300 ACOs 
(baseline scenario and all changes scenario, respectively) yields an 
estimated aggregate start-up investment cost ranging from $12 million 
to $58 million (assuming at least 1 in 3 ACOs will incur start-up 
costs), with aggregate ongoing operating costs ranging from $43 million 
to $258 million for the agreement period coinciding with CYs 2016 
through 2018. We are also assuming that ACOs participating in a track 
that includes two-sided performance-based risk will in certain cases 
drop out of the program after receiving poor results for the first 
performance period beginning in 2016. Such drop out activity is assumed 
to affect a greater proportion of ACOs at baseline than under the 
policies adopted in this because of the requirement that all renewing 
ACOs participate in Track 2 under the baseline scenario. When utilizing 
the anticipated mean participation rate of ACOs in the Shared Savings 
Program for such agreement period coupled with the average start-up 
investment and ongoing annual operating costs for the up to 3 years 
that ACOs may participate for such agreement period, this yields 
estimated aggregate average start-up investment and ongoing operating 
costs of $129 million for 50 ACOs (assuming no regulatory changes) to 
$822 million for 300 ACOs (under the policies adopted in this final 
rule) for the agreement period covering CYs 2016 through 2018, although 
actual costs for individual ACOs are likely to vary and the total costs 
could be significantly lower or greater than the estimates previously 
provided.
    While there will be a financial cost placed on ACOs that 
participate, there will be benefits to the respective organizations in 
the form of increased operational and healthcare delivery efficiency 
and potential to leverage enhanced organizational capabilities in 
value-based arrangements with other payers. Furthermore, as discussed 
previously, and explained in more detail in the preamble of this final 
rule, there will be an opportunity for financial reward for success in 
the program in the form of shared savings. As shown in Table 13, the 
estimate of the shared savings that will be paid to participating ACOs 
is a median of $1,130 million during CYs 2016 through 2018, with $960 
million and $1,310 million reflecting the 10th and 90th percentiles, 
respectively. (Similar to the previously presented stochastic 
distributions, the distribution represents uncertainty given the range 
of expert opinion, rather than a true statistical probability 
distribution.)
    Compared to shared savings payments, under our changes to the 
program and revised assumptions, we anticipate collection from 
participating ACOs of a relatively moderate $30 million in shared 
losses during the same period, with our 10th and 90th percentiles 
projecting $10 million and $50 million in shared losses collected, 
respectively. Shared losses decrease relative to the baseline (median 
of $50 million over the same 3 years) because, in contrast to the 
baseline requirement, not all renewing ACOs will be required to enter 
Track 2 and take on downside risk. This estimate has been revised since 
publication of the proposed rule based on emerging information. 
Modeling indicates that not all ACOs choosing downside risk in a second 
agreement period, whether required, as under the current regulation or 
as an alternative option under the changes in this final rule, will 
achieve shared savings and some may incur a financial loss, due to the 
requirement to repay a

[[Page 32828]]

share of actual expenditures in excess of their benchmark as shared 
losses. The significantly reduced level of shared losses anticipated 
under this final rule is largely attributable to the option for 
eligible ACOs to be able to renew under Track 1, and illustrates a key 
reason why the program would be anticipated to see significantly 
stronger continued participation under the changes than at baseline.
    Under the changes in this final rule, total median ACO shared 
savings payments ($1,130 million) net of median shared losses ($30 
million) to ACOs with agreement periods covering CYs 2016 through 2018 
are $1,100 million in net payments. Such median total net payment 
amount, coupled with the aggregate average start-up investment and 
ongoing operating cost of $822 million, incurred by the mean 
participation rate of ACOs in the Shared Savings Program during the 
same time period, yields a net private benefit of $278 million. At 
baseline, absent the changes in this final rule, the median net 
payments to ACOs over the same time period would be only $110 million 
($160 million in shared savings payments less $50 million in shared 
losses). Such lower net sharing at baseline, combined with baseline 
average start-up investment and ongoing operating costs of $129 
million, yields a net private cost of $19 million. We expect that a 
significant portion of Track 1 ACOs that are assumed to be unwilling to 
renew under the program without the protection from downside risk will 
welcome the opportunity to continue under Track 1 for a second 
agreement period. Moreover, the changes reduce the estimated per-ACO 
average shared loss liability by 90 percent compared to the baseline, 
and increase the chance an ACO renewing in 2016 will continue to 
participate for all 3 years of the new agreement period.
    We noted that our estimates of net private benefits under the 
baseline and the changes being adopted in this final rule are 
influenced by assumptions that could vary in practice and thus result 
in a very different actual result than what was estimated. First, for 
purposes of our estimates of net private benefits under the baseline, 
we assumed that savings realized by existing ACOs during their first 
agreement period are built into their benchmarks and our baseline for 
their successive agreement period; however, changes to the rebasing 
methodology in this final rule, namely equal weighting of the base 
years and adding a portion of savings, will significantly reduce this 
effect especially for ACOs that generate significant savings in their 
first agreement period. However, most ACOs will likely still have to 
achieve greater efficiencies and quality improvements during their 
successive agreement period compared to their prior one in order to 
share in savings. Moreover, the extent to which these ACOs actually 
exceed or fall short of our assumed baseline savings will result in 
higher or lower actual net private benefits relative to our estimate. 
Second, our estimates assumed a large proportion of existing Track 1 
ACOs will continue participating under Track 1 for 2016 to 2018. All 
else being equal, the extent to which ACOs actually prefer to enroll in 
Track 3 with its higher maximum sharing rate and greater overall 
incentive for efficiency could increase the actual net private benefits 
created under the program. Finally, to the extent that actual ACO 
quality performance exceeds or falls short of our estimates, the net 
private benefits could be respectively higher or lower than what we 
estimated.
    We also note that the net private benefits actually experienced by 
a given ACO may increase as a result of other benefits associated with 
participation in the Shared Savings Program. For example, an ACO that 
is participating in the Shared Savings Program and simultaneously 
receives value-based contracts from other payers may receive additional 
benefits. Such potential benefits are not considered in our analysis 
because they are not readily quantifiable. Therefore, we limit our 
benefit-cost estimate to shared savings and shared loss dollars 
received under the Shared Savings Program relative to estimated 
operational costs associated with participating in the program as 
previously described.
BILLING CODE 4120-01-P

[[Page 32829]]

[GRAPHIC] [TIFF OMITTED] TR09JN15.004

BILLING CODE 4120-01-C
    Comment: A commenter opposed the decision to revise downward the 
assumption for average ongoing annual operating costs for an ACO 
participating

[[Page 32830]]

in the Shared Savings Program from $1.27 million to $0.86 million, 
stating they believe it underestimates the growing expenses that will 
accompany participation in the program.
    Response: Our estimate reflects the average annual operating costs 
for the entire Shared Savings Program population of ACOs based on 
characteristics of ACOs that participated in 2012 and 2013. Thus, while 
particular ACOs may have higher (or lower) expenses as a result of 
their own baseline capabilities, we continue to believe that our 
estimate appropriately reflects the costs for the full range of ACOs 
participating in the program.
4. Effect on Small Entities
    The RFA requires agencies to analyze options for regulatory relief 
of small entities, if a rule has a significant impact on a substantial 
number of small entities. For purposes of the RFA, small entities 
include small businesses, nonprofit organizations, and small 
governmental jurisdictions. Most physician practices, hospitals, and 
other providers are small entities, either by virtue of their nonprofit 
status or by qualifying as small businesses under the Small Business 
Administration's size standards (revenues of less than $7.5 to $38.5 
million in any 1 year; NAIC Sector-62 series). States and individuals 
are not included in the definition of a small entity. For details, see 
the Small Business Administration's Web site at https://www.sba.gov/content/small-business-size-standards. For purposes of the RFA, 
approximately 95 percent of physicians are considered to be small 
entities. There are over 1 million physicians, other practitioners, and 
medical suppliers that receive Medicare payment under the Physician Fee 
Schedule (PFS).
    Although the Shared Savings Program is a voluntary program and 
payments for individual items and services will continue to be made on 
a FFS basis, we acknowledge that the program can affect many small 
entities and have made changes to our rules and regulations accordingly 
in order to minimize costs and administrative burden on such entities 
as well as to maximize their opportunity to participate. Small entities 
are both allowed and encouraged to participate in the Shared Savings 
Program, provided they have a minimum of 5,000 assigned beneficiaries, 
thereby potentially realizing the economic benefits of receiving shared 
savings resulting from the utilization of enhanced and efficient 
systems of care and care coordination. Therefore, a solo, small 
physician practice or other small entity may realize economic benefits 
as a function of participating in this program and the utilization of 
enhanced clinical systems integration, which otherwise may not have 
been possible.
    We have determined that this final rule will have a significant 
impact on a substantial number of small entities and we present more 
detailed analysis of these impacts, including costs and benefits to 
small entities and alternative policy considerations throughout this 
RIA. However, as detailed in this RIA, total median shared savings 
payments net of shared losses will offset about 134 percent of the 
average costs borne by entities participating in the Shared Savings 
Program, with an offset significantly greater than the cost of 
participation for the subset of ACOs that achieve shared savings in a 
given year, and no downside risk of significant shared losses for ACOs 
choosing to remain under Track 1 for a second agreement period. As a 
result, this regulatory impact section, together with the remainder of 
the preamble, constitutes our Regulatory Flexibility Analysis.
5. Effect on Small Rural Hospitals
    Section 1102(b) of the Act requires us to prepare a regulatory 
impact analysis if a rule may have a significant impact on the 
operations of a substantial number of small rural hospitals. This 
analysis must conform to the provisions of section 604 of the RFA. For 
purposes of section 1102(b) of the Act, we define a small rural 
hospital as a hospital that is located outside of a metropolitan 
statistical area and has fewer than 100 beds. Although the Shared 
Savings Program is a voluntary program, this final rule will have a 
significant impact on the operations of a substantial number of small 
rural hospitals. We have made changes to our regulations such that 
rural hospitals will have stronger incentives to participate in the 
program through offering a smoother transition to performance risk-
based models, additional opportunities to potentially share in savings 
under new Track 3, and streamlined administrative requirements. In 
addition, the ACO Investment Model being implemented by the Center for 
Medicare and Medicaid Innovation features pre-paid shared savings in 
both upfront and ongoing per beneficiary per month payments for certain 
new ACOs entering the program in 2016 (and also for ACOs that entered 
the program in 2012 through 2015), with a priority for selecting ACOs 
in rural areas and areas with few ACOs. As detailed in this RIA, the 
estimated aggregate median impact of shared savings payments to 
participating ACOs is approximately 134 percent of the average costs 
borne by entities that voluntarily participate in the Shared Savings 
Program, with an offset significantly greater than the cost of 
participation for the subset of ACOs that achieve shared savings in a 
given year, and no downside risk of significant shared loss penalties 
for ACOs choosing to remain under Track 1 for a second agreement 
period.
6. Unfunded Mandates
    Section 202 of the Unfunded Mandates Reform Act of 1995 (UMRA) also 
requires that agencies assess anticipated costs and benefits before 
issuing any rule whose mandates require spending in any 1 year of $100 
million in 1995 dollars, updated annually for inflation. In 2015, that 
is approximately $144 million. This final rule does not include any 
mandate that would result in spending by state, local or tribal 
governments, in the aggregate, or by the private sector in the amount 
of $144 million in any 1 year. Further, participation in this program 
is voluntary and is not mandated.

D. Alternatives Considered

    In the November 2011 final rule (76 FR 67971), we noted in the 
regulatory impact analysis that many tenets of the program are 
statutorily mandated and thus allow for little, if any, flexibility in 
the rulemaking process. However, in some areas, the statute does 
provide flexibility, and we made our policy decisions regarding 
alternatives by balancing the effects of alternatives on a range of 
program stakeholders, including both providers and beneficiaries, the 
effects on the Medicare Trust Funds, and operational constraints. This 
final rule contains a range of modifications to program policies that 
take this balance into consideration. The preceding preamble provides 
descriptions of the various statutory provisions that are addressed in 
this final rule, identifies those policies where discretion is allowed 
and has been exercised, presents the rationales for our final policies 
and, where relevant, alternatives that were considered.
    In addition to estimating the difference between impacts at 
baseline and under the policies adopted in this final rule, the 
stochastic model was also adapted to isolate marginal impacts for 
several alternative scenarios related to additional options for which 
the proposed rule sought comment. In one scenario, we researched the 
relationship between existing ACO base year per capita costs and our 
calculation of the corresponding county weighted average

[[Page 32831]]

FFS risk-adjusted per capita cost regional benchmarks. We observed 
significant variation in the relationship between individual ACO costs 
exhibited at baseline relative to their simulated regional benchmarks, 
with the standard error of percentage difference in costs approaching 
as high as 10 percent for samples of existing smaller-sized Shared 
Savings Program ACOs. Such variation not only would reduce the accuracy 
of savings measurements under a model using regional instead of ACO-
historical benchmarks, it would also likely allow a significant number 
of ACOs to benefit from arbitrage in selecting the higher sharing in 
Track 3 with foreknowledge that large savings would likely be measured 
regardless of any real effort to increase efficiency. Certain other 
ACOs would be likely to drop out of the program rather than face a 
large gap between their actual baseline costs and their much lower 
regional benchmark. We estimated that such selective participation 
could reduce the gross savings generated, given fewer ACOs remaining in 
the model, yet increase overall payments due to remaining ACOs 
receiving higher benchmarks and selectively participating in Track 3 at 
artificially-low level of risk for generating shared losses. The net 
federal impact of the program under this scenario was estimated to 
reach as high as a $1 billion dollar cost over the 2016 through 2018 
agreement period.
    However, we did note that information regarding regional benchmarks 
could potentially be utilized to adjust ACO benchmark calculations. For 
example, adding a portion of savings from the first agreement period 
into the second agreement period baseline (as finalized in this rule) 
could be targeted such that the resulting boost to an ACO's benchmark 
would not result in an adjusted benchmark greater than the ACO's 
regional benchmark. Such alternative policy could potentially be 
considered as part of future rulemaking to provide targeted benchmark 
rebasing relief to ACOs that demonstrate efficiency improvement in the 
form of savings in the first agreement period as well as efficiency 
attainment in the form of lower absolute cost than their region.
    Another potential use of information regarding regional spending 
could involve utilization of the change in regional spending over time 
specific to each ACO to adjust an ACO's historical benchmark as part of 
rebasing. Therefore, we also considered the option discussed in the 
proposed rule for calculating a scaling factor that would adjust for 
the difference in the ACO's cost from benchmark year 3 (of the ACO's 
first agreement period) to its regional benchmark for that same year. 
Under this option, the scaling factor would then be applied to the 
ACO's regional benchmark calculated for benchmark year 3 of the second 
agreement period. By adjusting for the relationship between the ACO and 
its region during the third benchmark year of the first agreement 
period, such methodology would be roughly equivalent to inflating the 
ACO's historical benchmark from the first agreement period to base year 
3 of the second agreement period by applying the trend observed for the 
ACO's regional benchmark over that same time period. Modeling on 
historical data including regional trends at both county and Hospital 
Referral Region (HRR) levels indicated that the resulting trended and 
updated benchmarks would exhibit increased variation that would tend to 
boost second agreement period benchmarks for ACOs showing significant 
savings in the first agreement period to a significantly greater extent 
than will occur as a result of adding a portion of first agreement 
period savings to the new baseline (as stipulated in this rule), 
thereby increasing the cost of shared savings payments to these ACOs 
that will already have benefited to a lesser extent from the new 
rebasing policies included in this rule. Conversely, this alternative 
would also tend to significantly lower benchmarks for ACOs showing 
significant losses in the first agreement period. We estimated such 
policy would only modestly decrease shared savings payments to ACOs 
that would have already faced lower benchmarks under the equal 
weighting of the base years as otherwise stipulated in this rule, and 
that such modest savings from reduced shared savings payments would 
only fractionally offset significant increases in shared savings 
payments to favored ACOs. In other words, such ACOs would already be at 
a reduced likelihood for earning future shared savings; therefore, 
further lowering their benchmarks would produce diminishing effect on 
the reduction of shared savings payments. The estimated net result 
would be lower net program savings ($540 million over 3 years) than we 
estimated under the changes in this final rule ($780 million). We also 
estimated that such alternative benchmark--if weighted by 70 percent 
and blended with a 30 percent weight for the benchmark calculated as 
stipulated in this final rule (except assuming no portion of savings 
would be added back into the second agreement period base years)--would 
mainly scale back the increase in benchmarks for favored ACOs enough to 
produce roughly the same net savings as this final rule methodology was 
estimated to produce ($780 million over 2016 to 2018). We note that 
such estimates of the impact of regional trend on benchmark rebasing 
assume that ACO assigned beneficiary populations would not be excluded 
from the calculation of each individual ACO's regional benchmark trend, 
and that risk adjustment would be accomplished without bias from 
changes in the completeness and intensity of diagnosis coding for ACO 
beneficiaries. On the other hand, we also assumed that placing a lower 
weight on ACO's historical costs in setting future benchmarks, which 
makes achieving savings more financially attractive, would not increase 
the amount of gross savings that ACOs elect to achieve. A higher or 
lower weighting on the alternative benchmark could be required to 
produce a similar net impact as this final rule if these assumptions 
were changed.
    The existing Shared Savings Program benchmarking methodology's 
reliance on rebasing has received attention in a number of recent 
analyses by academic researchers.\2\ In theory, options that partially 
or fully de-link ACOs future benchmarks from current spending decisions 
increase the incentive to provide efficient care and, therefore, are 
likely to lead ACOs to achieve greater gross savings. While we believe 
the policies in this final rule provide a meaningful incentive for all 
ACOs to continue to participate and generate efficiency in care 
delivery in a second agreement period (for ACOs generating savings in 
the first agreement period there will be an explicit meaningful 
increase in their second agreement benchmark relative to their actual 
experience, and for ACOs showing losses, rebasing will provide a 
benchmark more in line with their emerging costs at the end of their 
first agreement period), we also believe that a long-term policy 
potentially featuring a blend of regional benchmark trend alongside 
rebasing could optimize the incentive for ACOs to invest in sustainable 
efficiency improvements in care delivery. The long-term effects of 
switching to a benchmarking methodology based on the blended

[[Page 32832]]

approach described previously will differ from the short-term effects 
in a number of ways.
---------------------------------------------------------------------------

    \2\ Douven, Rudy; Thomas G. McGuire; and J. Michael McWilliams. 
(2015). ``Avoiding Unintended Incentives in ACO Payment Models.'' 
Health Affairs (34)(1), 143-149; McWilliams, Michael J., Michael E. 
Chernew, Bruce E. Landon, and Aaron L. Schwartz. (2015) 
``Performance Differences in Year 1 of Pioneer Accountable Care 
Organizations.'' New England Journal of Medicine.
---------------------------------------------------------------------------

    For example, while as noted earlier the methodology being adopted 
in this final rule likely produces higher average benchmarks for the 
first agreement period following rebasing, the average level of 
benchmarks under this blended methodology would likely eventually rise 
relative to the average level of benchmarks under the methodology being 
adopted in this final rule since the savings ACOs achieve would no 
longer be fully reflected in ACOs' benchmarks in the long run (by 
contrast under the methodology being adopted in this final rule only a 
portion of savings is added to the baseline). Higher benchmarks would 
encourage greater participation in the program, increasing overall 
efficiency gains in FFS costs of care, although these gains would be at 
least partially offset by increased shared savings payments to ACOs 
that would have participated in the program even without a higher 
benchmark. Additionally, the program will likely begin to experience 
increased selective participation.
    ACOs perceiving that losses measured in the first agreement period 
would be likely to continue to be reflected in future benchmarks to 
such an extent that they would not anticipate a legitimate opportunity 
to share in real savings they might generate in future years would be 
likely to drop out of the program. The decline in participation from 
such ACOs would grow over multiple agreement periods as the number of 
years grows between when the initial regional benchmark and scaling 
factor adjustment are calculated and the third base year of a future 
potential agreement period, leading to decreased program participation 
and lower overall efficiency gains in FFS cost of care even as shared 
savings payments to ACOs benefiting from favorable variation in 
regional trend relative to actual ACO baseline cost would likely grow.
    The cause of growing variation in cost over multiple years is 
related to many complex factors. One important factor is that the mix 
of patients assigned to an ACO will change over time, for example as 
other ACOs form and compete for patient assignment to a greater extent 
in future performance years than in the ACO's original baseline period. 
Variation is also created by changes in the providers that actually 
bill services under a given ACO participant TIN, or as the ACO makes 
wholesale changes to the list of ACO participant TINs associated with 
it. To illustrate this last factor, we note that nearly three-quarters 
of ACOs participating as of 2014 changed their list of ACO participant 
TINs for 2015, resulting in baseline assigned population per capita 
cost changes exceeding  20 percent for certain ACOs. As 
large numbers of ACOs have modified their ACO participants lists each 
year, and because assignment even to an ACO with a static ACO 
participant TIN makeup will often exhibit significant changes in the 
baseline cost of beneficiaries assigned over successive years 
(notwithstanding the effects of risk adjustment), the most recent 
historical data for an ACO remains the most accurate predictor of the 
ACO's expected future costs. We note that these differences in 
beneficiary assignment would be mitigated, but not eliminated by the 
approaches to adjusting for changes in patient mix and ACO participant 
TIN composition described in the preamble. Another important factor is 
that regions are not entirely homogenous, and the underlying trends in 
market conditions may differ among ACOs located in different portions 
of a given region. Therefore developing future benchmarks from a fixed 
ACO baseline increases the error in measuring real savings or losses 
and leads to increasing net federal costs resulting from selective 
participation, with such costs likely to grow as the gap widens between 
the static baseline and the future agreement period within which a 
benchmark is calculated.
    The importance of the improved incentives under the blended 
methodology may grow over time and work to offset the effects of 
increased selective participation, for at least two reasons. As ACOs 
gain experience with the payment model, they are likely to increasingly 
recognize the aspects in which the current benchmarking methodology 
penalizes the decision to achieve efficiencies and reduce efforts to 
achieve those efficiencies accordingly. In addition, we expect that the 
degree of gross savings that is feasible for ACOs to achieve will grow 
over time as ACOs gain experience with the payment model, making the 
extent to which the benchmarking methodology encourages ACOs to achieve 
savings increasingly important over time.

E. Accounting Statement and Table

    As required by OMB Circular A-4 under Executive Order 12866, in 
Table 14, we have prepared an accounting statement showing the change 
in (A) net federal monetary transfers, (B) shared savings payments to 
ACOs net of shared loss payments from ACOs and (C) the aggregate cost 
of ACO operations for ACO participants and ACO providers/suppliers from 
2016 to 2018 that are associated with the provisions of this final rule 
as compared to baseline.

                                Table 14--Accounting Statement Estimated Impacts
                                                 [CYs 2016-2018]
----------------------------------------------------------------------------------------------------------------
                                              Primary      Minimum      Maximum
                 Category                     estimate     estimate     estimate       Source citation (RIA,
                                             (million)    (million)    (million)          preamble, etc.)
----------------------------------------------------------------------------------------------------------------
                                                    Benefits
----------------------------------------------------------------------------------------------------------------
Annualized monetized: Discount rate: 7%...       -$63.6        $35.6      -$168.1  Change from baseline (Table
                                                                                    9) to finalized changes
                                                                                    (Table 10).
Annualized monetized: Discount rate: 3%...        -70.9         37.2       -184.7
----------------------------------------------------------------------------------------------------------------
Notes:....................................  Negative values reflect reduction in federal net cost resulting from
                                             care management by ACOs. Estimates may be a combination of benefits
                                            and transfers. To the extent that the incentives created by Medicare
                                              payments change the amount of resources society uses in providing
                                             medical care, the more accurate categorization of effects would be
                                                as costs (positive values) or benefits/cost savings (negative
                                                             values), rather than as transfers.
----------------------------------------------------------------------------------------------------------------

[[Page 32833]]

 
                                                    Benefits
----------------------------------------------------------------------------------------------------------------
Annualized monetized: Discount rate: 7%...        271.2        236.1        301.4  Change from baseline (Table
                                                                                    9) to finalized changes
                                                                                    (Table 10).
Annualized monetized: Discount rate: 3%...        293.9        255.7        326.4
----------------------------------------------------------------------------------------------------------------
Notes:....................................   Positive values reflect increase in aggregate shared savings net of
                                                shared losses. Estimates may be a combination of benefits and
                                              transfers. To the extent that the incentives created by Medicare
                                              payments change the amount of resources society uses in providing
                                             medical care, the more accurate categorization of effects would be
                                                     as benefits/cost savings, rather than as transfers.
----------------------------------------------------------------------------------------------------------------
                                                Operational Cost
----------------------------------------------------------------------------------------------------------------
Annualized monetized: Discount rate: 7%...        191.0  ...........  ...........  Change from baseline (Table
                                                                                    9) to finalized changes
                                                                                    (Table 10).
Annualized monetized: Discount rate: 3%...        205.5  ...........  ...........
----------------------------------------------------------------------------------------------------------------
Notes:....................................    Positive values reflect increase in aggregate ACO operating costs
                                             largely attributable to assumed increased participation as a result
                                              of the policies included in this final rule compared to baseline.
----------------------------------------------------------------------------------------------------------------

F. Conclusion

    The analysis in this section, together with the remainder of this 
preamble, provides a Regulatory Impact Analysis. As a result of this 
final rule, the median estimate of the financial impact of the Shared 
Savings Program for CYs 2016 through 2018 would be net federal savings 
(after shared savings payments) of $780 million. Under this final rule, 
median savings would be about $240 million higher than we estimated 
assuming no changes for this period. Although this is the ``best 
estimate'' of the financial impact of the Shared Savings Program during 
CYs 2016 through 2018, a relatively wide range of possible outcomes 
exists. While over 97 percent of the stochastic trials resulted in net 
program savings, the 10th and 90th percentiles of the estimated 
distribution show net savings of $230 million to net savings of $1,430 
million, respectively. In the extreme maximum and minimum scenarios, 
the results were as large as $2.7 billion in savings or $500 million in 
costs.
    In addition, at the anticipated mean participation rate of ACOs in 
the Shared Savings Program, participating ACOs may experience an 
estimated aggregate average start-up investment and ongoing operating 
cost of $822 million for CYs 2016 through 2018. Lastly, we estimate an 
aggregate median impact of $1,130 million in shared savings payments to 
participating ACOs in the Shared Savings Program for CYs 2016 through 
2018. The 10th and 90th percentiles of the estimate distribution, for 
the same time period, yield shared savings payments to ACOs of $960 
million and $1,310 million, respectively. Therefore, the total median 
ACO shared savings payments of $1,130 million during CYs 2016 through 
2018, net of a median $30 million shared losses, coupled with the 
aggregate average start-up investment and ongoing operating cost of 
$822 million yields a net private benefit of $278 million.
    Overall, we assumed greater participation by ACOs under the 
policies contained in this final rule due to our changes to ease the 
transition from Track 1 to Track 2, increase rebased benchmarks to 
account for a portion of savings in the prior agreement period, and 
adopt an alternative performance risk-based model--Track 3 with greater 
flexibility. These changes resulted in total shared savings increasing 
significantly, while shared losses decreased. Moreover, as 
participation in the Shared Savings Program continues to expand, we 
anticipate there will be a broader focus on care coordination and 
quality improvement among providers and suppliers within the Medicare 
program that will lead to both increased efficiency in the provision of 
care and improved quality of the care that is provided to 
beneficiaries.
    In accordance with the provisions of Executive Order 12866, this 
rule was reviewed by the Office of Management and Budget.

List of Subjects in 42 CFR Part 425

    Administrative practice and procedure, Health facilities, Health 
professions, Medicare, Reporting and recordkeeping requirements.

    For the reasons set forth in the preamble of this final rule, the 
Centers for Medicare & Medicaid Services amends 42 CFR part 425 to read 
as follows:

PART 425--MEDICARE SHARED SAVINGS PROGRAM

0
1. The authority citation for part 425 continues to read as follows:

    Authority:  Secs. 1102, 1106, 1871, and 1899 of the Social 
Security Act (42 U.S.C. 1302 and 1395hh).


Sec.  425.10  [Amended]

0
2. Amend Sec.  425.10 as follows:
0
A. In paragraph (a) by removing the phrase ``under FFS Medicare'' and 
adding in its place the phrase ``under FFS Medicare, except as 
permitted under section 1899(f) of the Act''.
0
B. In paragraph (b)(6) by removing the phrase ``two-sided model'' and 
adding in its place the phrase ``two-sided models''.

0
3. Amend Sec.  425.20 by:
0
A. Revising the definition of ``ACO participant''.
0
B. Adding the definition of ``ACO participant agreement'' in 
alphabetical order.
0
C. Revising the definitions of ``ACO professional'', ``ACO provider/
supplier'', ``Agreement period'', and ``Assignment''.

[[Page 32834]]

0
D. Adding the definition of ``Assignment window'' in alphabetical 
order.
0
E. Revising the definitions of ``Continuously assigned beneficiary'', 
``Hospital'', and ``Newly assigned beneficiary''.
0
F. Adding the definition of ``Participation agreement'' in alphabetical 
order.
0
G. In the definition of ``Performance year'' by removing the phrase 
``in the ACO's agreement'' and adding in its place the phrase ``in the 
participation agreement''.
0
H. Revising the definitions of ``Primary care physician'' and ``Primary 
care services''.
    The revisions and additions read as follows:


Sec.  425.20  Definitions.

* * * * *
    ACO participant means an entity identified by a Medicare-enrolled 
billing TIN through which one or more ACO providers/suppliers bill 
Medicare, that alone or together with one or more other ACO 
participants compose an ACO, and that is included on the list of ACO 
participants that is required under Sec.  425.118.
    ACO participant agreement means the written agreement (as required 
at Sec.  425.116) between the ACO and ACO participant in which the ACO 
participant agrees to participate in, and comply with, the requirements 
of the Shared Savings Program.
    ACO professional means an individual who is Medicare-enrolled and 
bills for items and services furnished to Medicare fee-for-service 
beneficiaries under a Medicare billing number assigned to the TIN of an 
ACO participant in accordance with applicable Medicare regulations and 
who is either of the following:
    (1) A physician legally authorized to practice medicine and surgery 
by the State in which he or she performs such function or action.
    (2) A practitioner who is one of the following:
    (i) A physician assistant (as defined at Sec.  410.74(a)(2) of this 
chapter).
    (ii) A nurse practitioner (as defined at Sec.  410.75(b) of this 
chapter).
    (iii) A clinical nurse specialist (as defined at Sec.  410.76(b) of 
this chapter).
    ACO provider/supplier means an individual or entity that meets all 
of the following:
    (1) Is a--
    (i) Provider (as defined at Sec.  400.202 of this chapter); or
    (ii) Supplier (as defined at Sec.  400.202 of this chapter).
    (2) Is enrolled in Medicare.
    (3) Bills for items and services furnished to Medicare fee-for-
service beneficiaries during the agreement period under a Medicare 
billing number assigned to the TIN of an ACO participant in accordance 
with applicable Medicare regulations.
    (4) Is included on the list of ACO providers/suppliers that is 
required under Sec.  425.118.
    Agreement period means the term of the participation agreement, 
which is 3 performance years unless otherwise specified in the 
participation agreement.
* * * * *
    Assignment means the operational process by which CMS determines 
whether a beneficiary has chosen to receive a sufficient level of the 
requisite primary care services from ACO professionals so that the ACO 
may be appropriately designated as exercising basic responsibility for 
that beneficiary's care during a given benchmark or performance year.
    Assignment window means the 12-month period used to assign 
beneficiaries to an ACO.
* * * * *
    Continuously assigned beneficiary means a beneficiary assigned to 
the ACO in the current performance year who was either assigned to or 
received a primary care service from any of the ACO participants during 
the assignment window for the most recent prior benchmark or 
performance year.
* * * * *
    Hospital means a hospital as defined in section 1886(d)(1)(B) of 
the Act.
* * * * *
    Newly assigned beneficiary means a beneficiary that is assigned to 
the ACO in the current performance year who was neither assigned to nor 
received a primary care service from any of the ACO participants during 
the assignment window for the most recent prior benchmark or 
performance year.
* * * * *
    Participation agreement means the written agreement required under 
Sec.  425.208(a) between the ACO and CMS that, along with the 
regulations in this part, govern the ACO's participation in the Shared 
Savings Program.
* * * * *
    Primary care physician means a physician included in an attestation 
by the ACO as provided under Sec.  425.404 for services furnished in an 
FQHC or RHC, or a physician who has a primary care specialty 
designation of--
    (1) For performance years 2012 through 2015, internal medicine, 
general practice, family practice, or geriatric medicine; and
    (2) For performance year 2016 and subsequent years, internal 
medicine, general practice, family practice, geriatric medicine, or 
pediatric medicine.
    Primary care services means the set of services identified by the 
following HCPCS codes:
    (1) For performance years 2012 through 2015 as follows:
    (i) 99201 through 99215.
    (ii)(A) 99304 through 99340 and 99341 through 99350.
    (B) G0402 (the code for the Welcome to Medicare visit).
    (C) G0438 and G0439 (codes for the annual wellness visits).
    (iii) Revenue center codes 0521, 0522, 0524, and 0525 submitted by 
FQHCs (for services furnished prior to January 1, 2011), or by RHCs.
    (2) For performance years 2016 and subsequent years as follows:
    (i) 99201 through 99215.
    (ii)(A) 99304 through 99340 and 99341 through 99350.
    (B) G0402 (the code for the Welcome to Medicare visit).
    (C) G0438 and G0439 (codes for the annual wellness visits).
    (iii) Revenue center codes 0521, 0522, 0524, and 0525 submitted by 
FQHCs (for services furnished prior to January 1, 2011), or by RHCs.
    (iv) 99495, 99496, and 99490.
    (3) Additional codes designated by CMS as primary care services for 
purposes of the Shared Savings Program, including new HCPCS/CPT and 
revenue center codes and any subsequently modified or replacement codes 
for the HCPCS/CPT and revenue center codes identified in paragraphs (1) 
through (2) of this definition.
* * * * *


Sec.  425.100  [Amended]

0
4. Amend Sec.  425.100 as follows:
0
A. In paragraph (b) by removing the reference ``under Sec.  425.604 or 
Sec.  425.606'' and adding in its place the reference ``under Sec.  
425.604, Sec.  425.606 or Sec.  425.610''.
0
B. In paragraph (c) by removing the phrase ``under the two-sided 
model'' and adding in its place the phrase ``under a two-sided model''.
0
C. In paragraph (c) by removing the reference ``under Sec.  425.606'' 
and adding in its place the reference ``under Sec.  425.606 or Sec.  
425.610''.

0
5. Amend Sec.  425.104 as follows:
0
A. In paragraph (b), by removing the phrase ``otherwise independent ACO 
participants must'' and adding in its place the phrase ``ACO 
participants, each of which is identified by a unique TIN, must''.

[[Page 32835]]

0
B. By adding paragraph (c).
    The addition reads as follows:


Sec.  425.104  Legal entity.

* * * * *
    (c) An ACO formed by a single ACO participant may use its existing 
legal entity and governing body, provided it satisfies the other 
requirements in Sec. Sec.  425.104 and 425.106.

0
6. Amend Sec.  425.106 as follows:
0
A. By revising paragraphs (a), (b)(3), (c)(1), and (c)(2).
0
B. By removing paragraphs (b)(4) and (b)(5).
    The revisions read as follows:


Sec.  425.106  Shared governance.

    (a) General rule. (1) An ACO must maintain an identifiable 
governing body with ultimate authority to execute the functions of an 
ACO as defined under this part, including but not limited to, the 
processes defined under Sec.  425.112 to promote evidence-based 
medicine and patient engagement, to report on quality and cost 
measures, and to coordinate care.
    (2) The governing body of the ACO must satisfy all of the following 
criteria:
    (i) Be the same as the governing body of the legal entity that is 
the ACO.
    (ii) Be separate and unique to the ACO and must not be the same as 
the governing body of any ACO participant, except as provided in Sec.  
425.104(c).
    (iii) Satisfy all other requirements of this section.
    (b) * * *
    (3) The governing body members must have a fiduciary duty to the 
ACO, including the duty of loyalty, and must act consistent with that 
fiduciary duty.
    (c) * * *
    (1) The ACO must--
    (i) Establish a mechanism for shared governance among the ACO 
participants or combinations of ACO participants (as identified in 
Sec.  425.102(a)) that formed the ACO; and
    (ii) Provide for meaningful participation in the composition and 
control of the ACO's governing body for ACO participants or their 
designated representatives.
    (2) The ACO governing body must include a Medicare beneficiary 
who--
    (i) Is served by the ACO;
    (ii) Is not an ACO provider/supplier;
    (iii) Does not have a conflict of interest with the ACO; and
    (iv) Does not have an immediate family member who has a conflict of 
interest with the ACO.
* * * * *

0
7. Amend Sec.  425.108 by revising paragraph (c) and removing paragraph 
(e) to read as follows:


Sec.  425.108  Leadership and management.

* * * * *
    (c) Clinical management and oversight must be managed by a senior-
level medical director. The medical director must be all of the 
following:
    (1) A board-certified physician.
    (2) Licensed in a State in which the ACO operates.
    (3) Physically present on a regular basis at any clinic, office or 
other location of the ACO, an ACO participant, or an ACO provider/
supplier.
* * * * *

0
8. Amend Sec.  425.110 by revising paragraphs (a)(2) and (b) to read as 
follows:


Sec.  425.110  Number of ACO professionals and beneficiaries.

    (a) * * *
    (2) CMS deems an ACO to have initially satisfied the requirement to 
have at least 5,000 assigned beneficiaries as specified in paragraph 
(a)(1) of this section if 5,000 or more beneficiaries are historically 
assigned to the ACO participants in each of the 3 benchmark years, as 
calculated using the assignment methodology set forth in subpart E of 
this part. In the case of the third benchmark year, CMS uses the most 
recent data available to estimate the number of assigned beneficiaries.
    (b) If at any time during the performance year, an ACO's assigned 
population falls below 5,000, the ACO may be subject to the actions 
described in Sec. Sec.  425.216 and 425.218.
    (1) While under a CAP, the ACO remains eligible for shared savings 
and losses and the MSR and MLR (if applicable) is set at a level 
consistent with the number of assigned beneficiaries.
    (2) If the ACO's assigned population is not at least 5,000 by the 
end of the performance year specified by CMS in its request for a CAP, 
CMS terminates the participation agreement and the ACO is not eligible 
to share in savings for that performance year.

0
9. Amend Sec.  425.112 by adding paragraphs (b)(4)(ii)(C) and (D) to 
read as follows:


Sec.  425.112  Required processes and patient-centeredness criteria.

* * * * *
    (b) * * *
    (4) * * *
    (ii) * * *
    (C) Describe how the ACO will encourage and promote use of enabling 
technologies for improving care coordination for beneficiaries. 
Enabling technologies may include one or more of the following:
    (1) Electronic health records and other health IT tools.
    (2) Telehealth services, including remote patient monitoring.
    (3) Electronic exchange of health information.
    (4) Other electronic tools to engage beneficiaries in their care.
    (D) Describe how the ACO intends to partner with long-term and 
post-acute care providers, both inside and outside the ACO, to improve 
care coordination for their assigned beneficiaries.

0
10. Add Sec.  425.116 to subpart B to read as follows:


Sec.  425.116  Agreements with ACO participants and ACO providers/
suppliers

    (a) ACO participant agreements. For performance year 2017 and 
subsequent performance years, the ACO must have an ACO participant 
agreement with each ACO participant that complies with the following 
criteria:
    (1) The only parties to the agreement are the ACO and the ACO 
participant.
    (2) The agreement must be signed on behalf of the ACO and the ACO 
participant by individuals who are authorized to bind the ACO and the 
ACO participant, respectively.
    (3) The agreement must expressly require the ACO participant to 
agree, and to ensure that each ACO provider/supplier billing through 
the TIN of the ACO participant agrees, to participate in the Shared 
Savings Program and to comply with the requirements of the Shared 
Savings Program and all other applicable laws and regulations 
(including, but not limited to, those specified at Sec.  425.208(b)).
    (4) The agreement must set forth the ACO participant's rights and 
obligations in, and representation by, the ACO, including without 
limitation, the quality reporting requirements set forth in subpart F 
of this part, the beneficiary notification requirements set forth at 
Sec.  425.312, and how participation in the Shared Savings Program 
affects the ability of the ACO participant and its ACO providers/
suppliers to participate in other Medicare demonstration projects or 
programs that involve shared savings.
    (5) The agreement must describe how the opportunity to receive 
shared savings or other financial arrangements will encourage the ACO 
participant to adhere to the quality assurance and improvement program 
and evidence-based medicine guidelines established by the ACO.
    (6) The agreement must require the ACO participant to update its 
enrollment information, including the addition and deletion of ACO 
professionals and ACO providers/

[[Page 32836]]

suppliers billing through the TIN of the ACO participant, on a timely 
basis in accordance with Medicare program requirements and to notify 
the ACO of any such changes within 30 days after the change.
    (7) The agreement must permit the ACO to take remedial action 
against the ACO participant, and must require the ACO participant to 
take remedial action against its ACO providers/suppliers, including 
imposition of a corrective action plan, denial of incentive payments, 
and termination of the ACO participant agreement, to address 
noncompliance with the requirements of the Shared Savings Program and 
other program integrity issues, including those identified by CMS.
    (8) The agreement must be for a term of at least 1 performance year 
and must articulate potential consequences for early termination from 
the ACO.
    (9) The agreement must require completion of a close-out process 
upon termination or expiration of the agreement that requires the ACO 
participant to furnish all data necessary to complete the annual 
assessment of the ACO's quality of care and addresses other relevant 
matters.
    (b) Agreements with ACO providers/suppliers. ACOs have the option 
of contracting directly with its ACO providers/suppliers regarding 
items and services furnished to beneficiaries aligned to the ACO. For 
performance year 2017 and subsequent performance years, an ACO's 
agreement with an ACO provider/supplier regarding such items and 
services must satisfy the following criteria:
    (1) The only parties to the agreement are the ACO and the ACO 
provider/supplier.
    (2) The agreement must be signed by the ACO provider/supplier and 
by an individual who is authorized to bind the ACO.
    (3) The agreement must expressly require the ACO provider/supplier 
to agree to participate in the Shared Savings Program and to comply 
with the requirements of the Shared Savings Program and all other 
applicable laws and regulations (including, but not limited to, those 
specified at Sec.  425.208(b)).
    (4) The agreement must set forth the ACO provider's/supplier's 
rights and obligations in, and representation by, the ACO, including 
without limitation, the quality reporting requirements set forth in 
subpart F of this part, the beneficiary notification requirements set 
forth at Sec.  425.312, and how participation in the Shared Savings 
Program affects the ability of the ACO provider/supplier to participate 
in other Medicare demonstration projects or programs that involve 
shared savings.
    (5) The agreement must describe how the opportunity to receive 
shared savings or other financial arrangements will encourage the ACO 
provider/supplier to adhere to the quality assurance and improvement 
program and evidence-based medicine guidelines established by the ACO.
    (6) The agreement must require the ACO provider/supplier to--
    (i) Update its enrollment information on a timely basis in 
accordance with Medicare program requirements; and
    (ii) Notify the ACO of any such changes within 30 days after the 
change.
    (7) The agreement must permit the ACO to take remedial action 
including the following against the ACO provider/supplier to address 
noncompliance with the requirements of the Shared Savings Program and 
other program integrity issues, including those identified by CMS:
    (i) Imposition of a corrective action plan.
    (ii) Denial of incentive payments.
    (iii) Termination of the ACO participant agreement.
    (c) Submission of agreements. The ACO must submit an executed ACO 
participant agreement for each ACO participant at the time of its 
initial application, participation agreement renewal process, and when 
adding to its list of ACO participants in accordance with Sec.  
425.118. The agreements may be submitted in the form and manner set 
forth in Sec.  425.204(c)(6) or as otherwise specified by CMS.

0
11. Add Sec.  425.118 to subpart B to read as follows:


Sec.  425.118  Required reporting of ACO participants and ACO 
providers/suppliers.

    (a) List requirements. (1) The ACO must maintain, update, and 
submit to CMS an accurate and complete list identifying each ACO 
participant (including its Medicare-enrolled TIN) and each ACO 
provider/supplier (including its NPI or other identifier) in accordance 
with this section.
    (2) Before the start of an agreement period, before each 
performance year thereafter, and at such other times as specified by 
CMS, the ACO must submit to CMS an ACO participant list and an ACO 
provider/supplier list. The ACO may request consideration of claims 
billed under merged and acquired Medicare-enrolled TINs in accordance 
with the process set forth at Sec.  425.204(g).
    (3) The ACO must certify the submitted lists in accordance with 
Sec.  425.302(a)(2).
    (4) All Medicare enrolled individuals and entities that have 
reassigned their right to receive Medicare payment to the TIN of the 
ACO participant must be included on the ACO provider/supplier list and 
must agree to participate in the ACO and comply with the requirements 
of the Shared Savings Program before the ACO submits the ACO 
participant list and the ACO provider/supplier list.
    (b) Changes to the ACO participant list--(1) Additions. (i) An ACO 
must submit to CMS a request to add an entity and its Medicare enrolled 
TIN to its ACO participant list. This request must be submitted at such 
time and in the form and manner specified by CMS.
    (ii) If CMS approves the request, the entity and its Medicare 
enrolled TIN is added to the ACO participant list effective January 1 
of the following performance year.
    (iii) CMS may deny the request on the basis that the entity is not 
eligible to be an ACO participant or on the basis of the results of the 
screening performed under Sec.  425.304(b).
    (2) Deletions. (i) An ACO must notify CMS no later than 30 days 
after the termination of an ACO participant agreement. Such notice must 
be submitted in the form and manner specified by CMS and must include 
the termination date of the ACO participant agreement.
    (ii) The entity is deleted from the ACO participant list as of the 
termination date of the ACO participant agreement.
    (3) Adjustments. (i) CMS annually adjusts an ACO's assignment, 
historical benchmark, the quality reporting sample, and the obligation 
of the ACO to report on behalf of eligible professionals that bill 
under the TIN of an ACO participant for certain CMS quality initiatives 
to reflect the addition or deletion of entities from the list of ACO 
participants that is submitted to CMS before the start of a performance 
year in accordance with paragraph (a) of this section.
    (ii) Absent unusual circumstances, CMS does not make adjustments 
during the performance year to the ACO's assignment, historical 
benchmark, performance year financial calculations, the quality 
reporting sample, or the obligation of the ACO to report on behalf of 
eligible professionals that bill under the TIN of an ACO participant 
for certain CMS quality initiatives to reflect the addition or deletion 
of entities from the ACO participant list that become effective during 
the performance year. CMS has sole discretion to determine whether 
unusual circumstances exist that would warrant such adjustments.

[[Page 32837]]

    (c) Changes to the ACO provider/supplier list--(1) Additions. (i) 
An ACO must notify CMS within 30 days after an individual or entity 
becomes a Medicare-enrolled provider or supplier that bills for items 
and services it furnishes to Medicare fee-for-service beneficiaries 
under a billing number assigned to the TIN of an ACO participant. The 
notice must be submitted in the form and manner specified by CMS.
    (ii) If the ACO timely submits notice to CMS, the addition of an 
individual or entity to the ACO provider/supplier list is effective on 
the date specified in the notice furnished to CMS, but no earlier than 
30 days before the date of the notice. If the ACO fails to submit 
timely notice to CMS, the addition of an individual or entity to the 
ACO provider/supplier list is effective on the date of the notice.
    (2) Deletions. (i) An ACO must notify CMS no later than 30 days 
after an individual or entity ceases to be a Medicare-enrolled provider 
or supplier that bills for items and services it furnishes to Medicare 
fee-for-service beneficiaries under a billing number assigned to the 
TIN of an ACO participant. The notice must be submitted in the form and 
manner specified by CMS.
    (ii) The deletion of an ACO provider/supplier from the ACO 
provider/supplier list is effective on the date the individual or 
entity ceased to be a Medicare-enrolled provider or supplier that bills 
for items and services it furnishes to Medicare fee-for-service 
beneficiaries under a billing number assigned to the TIN of an ACO 
participant.
    (d) Update of Medicare enrollment information. The ACO must ensure 
that all changes to enrollment information for ACO participants and ACO 
providers/suppliers, including changes to reassignment of the right to 
receive Medicare payment, are reported to CMS consistent with Sec.  
424.516. r

0
12. Amend Sec.  425.200 as follows:
0
A. By revising the section heading.
0
B. In paragraph (a), by removing the term ``three'' and adding in its 
place the figure ``3''.
0
C. In paragraphs (b) introductory text (paragraph heading), (b)(1) 
introductory text, (b)(1)(i), (b)(1)(ii), (b)(2)(ii), and (c)(1) by 
removing the term ``agreement'' each time it appears and adding in its 
place the term ``participation agreement''.
    The revision reads as follows:


Sec.  425.200  Participation agreement with CMS.

* * * * *
0
13. Amend Sec.  425.202 by revising paragraphs (b) and (c) to read as 
follows:


Sec.  425.202  Application procedures.

* * * * *
    (b) Condensed application form. (1) PGP demonstration sites 
applying to participate in the Shared Savings Program will have an 
opportunity to complete a condensed application form.
    (2) A Pioneer ACO may use a condensed application form to apply for 
participation in the Shared Savings Program if it satisfies all of the 
following criteria:
    (i) The applicant is the same legal entity as the Pioneer ACO.
    (ii) The applicant's ACO participant list does not contain any ACO 
participant TINs that did not appear on the ``Confirmed Annual TIN/NPI 
List'' (as defined in the Pioneer ACO Model Innovation Agreement with 
CMS) for the applicant ACO's last full performance year in the Pioneer 
ACO Model.
    (iii) The applicant is not applying to participate in the one-sided 
model.
    (c) Application review. CMS reviews applications in accordance with 
Sec.  425.206.

0
14. Amend Sec.  425.204 by:
0
A. In paragraph (b)(2) by removing the terms ``ACO agreement'' and 
adding in its place the terms ``participation agreement''.
0
B. In paragraph (b)(3) by removing the term ``agreement'' and adding in 
its place the terms ``participation agreement''.
0
C. Revising paragraphs (c)(1) introductory text and (c)(1)(i), (iii), 
and (iv).
0
D. In paragraph (c)(1)(vi) by removing the terms ``ACO's agreement'' 
and adding in its place the terms ``participation agreement''.
0
E. Revising paragraph (c)(3).
0
F. In paragraph (c)(4)(ii), by removing the phrase '' among multiple, 
independent ACO participants'' and adding in its place the phrase 
``among two or more ACO participants''.
0
G. Revising paragraph (c)(5)(i).
0
H. Adding paragraph (c)(6).
0
I. In paragraph (e)(1), removing the phrase ``an ACO must specify 
whether it is applying to participate in Track 1 or Track 2'' and 
adding in its place the phrase ``an ACO must specify the Track for 
which it is applying''
0
J. Revising paragraph (f).
0
K. Adding paragraph (g).
    The revisions and additions read as follows:


Sec.  425.204  Content of the application.

* * * * *
    (c) * * *
    (1) As part of its application, and upon request thereafter, an ACO 
must submit to CMS the following supporting materials to demonstrate 
that the ACO satisfies the requirements set forth in this part:
    (i) Documents (for example, ACO participant agreements, agreements 
with ACO providers/suppliers, employment contracts, and operating 
policies) sufficient to describe the ACO participants' and ACO 
providers'/suppliers' rights and obligations in and representation by 
the ACO, and how the opportunity to receive shared savings or other 
financial arrangements will encourage ACO participants and ACO 
providers/suppliers to adhere to the quality assurance and improvement 
program and evidence-based clinical guidelines.
* * * * *
    (iii) Materials documenting the ACO's organization and management 
structure, including an organizational chart, a list of committees 
(including names of committee members) and their structures, and job 
descriptions for senior administrative and clinical leaders 
specifically noted in Sec.  425.108 and Sec.  425.112(a)(2).
    (iv) Evidence that the governing body--
    (A) Is an identifiable body;
    (B) Represents a mechanism for shared governance for ACO 
participants;
    (C) Is composed of representatives of its ACO participants; and
    (D) Is at least 75 percent controlled by its ACO participants.
* * * * *
    (3) If an ACO requests an exception to the governing body 
requirement in Sec.  425.106(c)(2) or (c)(3), the ACO must describe--
    (i) Why it seeks to differ from the requirement; and
    (ii) If seeking an exception to (c)(2), how the ACO will provide 
meaningful representation in ACO governance by Medicare beneficiaries.
    (iii) If seeking an exception to the requirement at (c)(3), why the 
ACO is unable to meet the requirement and how it will involve ACO 
participants in innovative ways in ACO governance.
* * * * *
    (5) * * *
    (i) The ACO must submit a list of all ACO participants and ACO 
providers/suppliers in accordance with Sec.  425.118.
* * * * *
    (6) As part of the application process and upon request by CMS, the 
ACO must submit documents demonstrating that its ACO participants, ACO 
providers/suppliers, and other individuals or entities performing

[[Page 32838]]

functions or services related to ACO activities are required to comply 
with the requirements of the Shared Savings Program. The evidence to be 
submitted must include, without limitation, sample or form agreements 
and, in the case of ACO participant agreements, the first and signature 
page(s) of each executed ACO participant agreement. CMS may request all 
pages of an executed ACO participant agreement to confirm that it 
conforms to the sample form agreement submitted by the ACO. The ACO 
must certify that all of its ACO participant agreements comply with the 
requirements of this part.
* * * * *
    (f) Assurance of ability to repay. (1) An ACO must have the ability 
to repay all shared losses for which it may be liable under a two-sided 
model.
    (i) As part of the application or participation agreement renewal 
process, an ACO that is seeking to participate under a two-sided model 
of the Shared Savings Program must submit for CMS approval 
documentation that it is capable of repaying shared losses that it may 
incur during the agreement period.
    (ii) The documentation specified in paragraph (f)(1)(i) of this 
section must include details supporting the adequacy of the mechanism 
for repaying shared losses equal to at least 1 percent of the ACO's 
total per capita Medicare parts A and B fee-for-service expenditures 
for its assigned beneficiaries based on expenditures used to calculate 
the benchmark for the applicable agreement period, as estimated by CMS 
at the time of application or participation agreement renewal.
    (2) An ACO may demonstrate its ability to repay shared losses by 
placing funds in escrow, obtaining a surety bond, establishing a line 
of credit (as evidenced by a letter of credit that the Medicare program 
can draw upon), or establishing a combination of such repayment 
mechanisms, that will ensure its ability to repay the Medicare program.
    (3) An ACO participating under a two-sided model must demonstrate 
the adequacy of this repayment mechanism prior to the start of each 
agreement period in which it takes risk, and upon request thereafter. 
After the repayment mechanism has been used to repay any portion of 
shared losses owed to CMS, the ACO must replenish the amount of funds 
available through the repayment mechanism within 90 days.
    (4) The repayment mechanism must be in effect for a sufficient 
period of time after the conclusion of the agreement period to permit 
CMS to calculate the amount of shared losses owed and to collect this 
amount from the ACO.
    (g) Consideration of claims billed under merged and acquired 
Medicare-enrolled TINs. An ACO may request that CMS consider, for 
purposes of beneficiary assignment and establishing the ACO's benchmark 
under Sec.  425.602, claims billed by Medicare-enrolled entities' TINs 
that have been acquired through sale or merger by an ACO participant.
    (1) The ACO may include an acquired Medicare-enrolled entity's TIN 
on its ACO participant list under the following circumstances:
    (i) The ACO participant has subsumed the acquired entity's TIN in 
its entirety, including all of the providers and suppliers that 
reassigned their right to receive Medicare payment to the acquired 
entity's Medicare-enrolled TIN.
    (ii) Each provider or supplier that previously reassigned his or 
her right to receive Medicare payment to the acquired entity's TIN has 
reassigned his or her right to receive Medicare payment to the TIN of 
the acquiring ACO participant and has been added to the ACO provider/
supplier list under paragraph (c)(5) of the section.
    (iii) The acquired entity's TIN is no longer used to bill Medicare.
    (2) The ACO must submit the following supporting documentation in 
the form and manner specified by CMS.
    (i) An attestation that--
    (A) Identifies by Medicare-enrolled TIN both the acquired entity 
and the ACO participant that acquired it;
    (B) Specifies that all the providers and suppliers that previously 
reassigned their right to receive Medicare payment to the acquired 
entity's TIN have reassigned such right to the TIN of the identified 
ACO participant and have been added to the ACO provider/supplier list 
under paragraph (c)(5) of this section; and
    (C) Specifies that the acquired entity's TIN is no longer used to 
bill Medicare.
    (ii) Documentation sufficient to demonstrate that the acquired 
entity's TIN was merged with or purchased by the ACO participant.

0
15. Amend Sec.  425.206 by revising paragraph (a) to read as follows:


Sec.  425.206  Evaluation procedures for applications.

    (a) Basis for evaluation and determination. (1) CMS evaluates an 
ACO's application to determine whether an applicant satisfies the 
requirements of this part and is qualified to participate in the Shared 
Savings Program, and approves or denies applications accordingly. 
Applications are approved or denied on the basis of the following:
    (i) Information contained in and submitted with the application by 
an application deadline specified by CMS.
    (ii) Supplemental information that was submitted in response to a 
CMS request and by a deadline specified by CMS.
    (iii) Other information available to CMS.
    (2) CMS notifies an ACO applicant when supplemental information is 
required for CMS to make a determination on the ACO's application and 
provides an opportunity for the ACO to submit the information.
    (3) CMS may deny an application if an ACO applicant fails to submit 
requested information by the deadlines established by CMS.
* * * * *

0
16. Amend Sec.  425.212 by revising the section heading and paragraph 
(a) to read as follows:


Sec.  425.212  Changes to program requirements during the agreement 
period.

    (a) An ACO is subject to all regulatory changes that become 
effective during the agreement period, with the exception of the 
following program areas, unless otherwise required by statute:
    (1) Eligibility requirements concerning the structure and 
governance of ACOs.
    (2) Calculation of sharing rate.
* * * * *

0
17. Amend Sec.  425.214 by:
0
A. Revising the section heading.
0
B. Removing paragraph (a).
0
C. Redesignating paragraphs (b) and (c) as paragraphs (a) and (b), 
respectively.
0
D. Revising newly redesignated paragraph (a).
0
E. In newly redesignated paragraph (b) introductory text, removing the 
phrase ``Upon receiving'' and adding in its place the phrase ``Upon 
becoming aware of a significant change or receiving''.
0
F. In newly redesignated paragraphs (b)(2) and (4) by removing the term 
``agreement'' and adding in its place the terms ``participation 
agreement''.
    The revisions read as follows:


Sec.  425.214  Managing changes to the ACO during the agreement period.

    (a)(1) An ACO must notify CMS within 30 days of any significant 
change.
    (2) An ACO's failure to notify CMS of a significant change does not 
preclude CMS from determining that the ACO has experienced a 
significant change.

[[Page 32839]]

    (3) A ``significant change'' occurs when an ACO is no longer able 
to meet the eligibility or program requirements of this part.
* * * * *


Sec.  425.216  [Amended]

0
18. Amend Sec.  425.216(b)(2) by removing the term ``ACO's agreement'' 
and adding in its place the terms ``participation agreement''.

0
19. Amend Sec.  425.218 by:
0
A. Revising the section heading.
0
B. Adding paragraphs (b)(4) and (5).
    The revision and additions read as follows:


Sec.  425.218  Termination of the participation agreement by CMS.

* * * * *
    (b) * * *
    (4) Failure to comply with CMS requests for documentation or other 
information by the deadline specified by CMS.
    (5) Submitting false or fraudulent data or information.
* * * * *

0
20. Amend Sec.  425.220 by revising the section heading and removing 
and reserving paragraph (b).
    The revision reads as follows:


Sec.  425.220  Termination of the participation agreement by the ACO.

* * * * *

0
21. Add Sec.  425.221 to read as follows:


Sec.  425.221  Close-out procedures and payment consequences of early 
termination.

    (a) Close-out procedures. (1) An ACO whose participation agreement 
has expired or is terminated by CMS under Sec.  425.218 or by the ACO 
under Sec.  425.220 must implement close-out procedures including but 
not limited to the following issues in a form and manner and by a 
deadline specified by CMS:
    (i) Notice to ACO participants of termination.
    (ii) Record retention.
    (iii) Data sharing.
    (iv) Quality reporting.
    (v) Beneficiary continuity of care.
    (2) ACOs that fail to complete close-out procedures in the form and 
manner and by the deadline specified by CMS will not be eligible to 
share in savings.
    (b) Payment consequences of early termination. (1) An ACO whose 
participation agreement is terminated by the ACO under Sec.  425.220 is 
eligible to receive shared savings for the performance year during 
which the termination becomes effective only if--
    (i) CMS designates or approves an effective date of termination of 
December 31st of such performance year;
    (ii) The ACO has completed all close-out procedures by the deadline 
specified by CMS; and
    (iii) The ACO has satisfied the criteria for sharing in savings for 
the performance year.
    (2) An ACO that terminates its participation agreement under Sec.  
425.220 before December 31 of a performance year or whose participation 
agreement is terminated at any time by CMS under Sec.  425.218 is not 
eligible to receive shared savings for the performance year during 
which the termination becomes effective.

0
22. Amend Sec.  425.222 by revising paragraph (c) to read as follows:


Sec.  425.222  Re-application after termination.

* * * * *
    (c) An ACO whose participation agreement was previously terminated 
may reenter the program for a subsequent agreement period.
    (1) If the termination occurred less than half way through the 
agreement period, an ACO that was previously under a one-sided model 
may reenter the program under the one-sided model or a two-sided model. 
If the ACO reenters the program under the one-sided model, the ACO will 
be considered to be in the same agreement period under the one-sided 
model as it was at the time of termination.
    (2) If the termination occurred more than half way through the 
agreement period, an ACO that was previously in its first agreement 
period under the one-sided model may reenter the program under the one-
sided model or a two-sided model. If the ACO reenters the program under 
the one-sided model, the ACO will be considered to be in its second 
agreement period under the one-sided model. An ACO that was previously 
in its second agreement period under the one-sided model must reenter 
the program under a two-sided model.
    (3) Regardless of the date of termination, an ACO that was 
previously under a two-sided model may only reapply for participation 
in a two-sided model.

0
23. Add Sec.  425.224 to subpart C to read as follows:


Sec.  425.224  Renewal of participation agreements.

    (a) General rules. An ACO may request renewal of its participation 
agreement for a second or subsequent agreement period.
    (1) In order to obtain a determination regarding whether it meets 
the requirements for renewal of its participation agreement, the ACO 
must submit a complete renewal request in the form and manner and by 
the deadline specified by CMS.
    (2) An ACO executive who has the authority to legally bind the ACO 
must certify to the best of his or her knowledge, information, and 
belief that the information contained in the renewal request is 
accurate, complete, and truthful.
    (3) An ACO that seeks renewal of its participation agreement and 
was newly formed after March 23, 2010, as defined in the Antitrust 
Policy Statement, must agree that CMS can share a copy of its renewal 
request with the Antitrust Agencies.
    (b) Review of renewal request. (1) CMS determines whether to renew 
a participation agreement based on an evaluation of all of the 
following factors:
    (i) Whether the ACO satisfies the criteria for operating under the 
selected risk track.
    (ii) The ACO's history of compliance with the requirements of the 
Shared Savings Program.
    (iii) Whether the ACO has established that it is in compliance with 
the eligibility and other requirements of the Shared Savings Program, 
including the ability to repay losses, if applicable.
    (iv) Whether the ACO met the quality performance standard during at 
least 1of the first 2 years of the previous agreement period.
    (v) For ACOs under a two-sided model, whether the ACO has repaid 
losses owed to the program that it generated during the first 2 years 
of the previous agreement period.
    (vi) The results of a program integrity screening of the ACO, its 
ACO participants, and its ACO providers/suppliers (conducted in 
accordance with Sec.  425.304(b)).
    (2) Renewal requests are approved or denied on the basis of the 
following information:
    (i) Information contained in and submitted with the renewal request 
by a deadline specified by CMS.
    (ii) Supplemental information that was submitted by a deadline 
specified by CMS in response to a CMS request for information.
    (iii) Other information available to CMS.
    (3) CMS notifies the ACO when supplemental information is required 
for CMS to make such a determination and provides an opportunity for 
the ACO to submit the information.
    (c) Notice of determination. (1) CMS notifies the ACO in writing of 
its determination to approve or deny the ACO's renewal request.
    (2) If CMS denies the renewal request, the notice of 
determination--

[[Page 32840]]

    (i) Specifies the reasons for the denial; and
    (ii) Informs the ACO of its right to request reconsideration review 
in accordance with the procedures specified in subpart I of this part.


Sec.  425.304  [Amended]

0
24. Amend Sec.  425.304 by removing paragraph (d).

0
25. Revise Sec.  425.306 to read as follows:


Sec.  425.306  Participant agreement and exclusivity of ACO 
participants.

    (a) Each ACO participant must commit to the term of the 
participation agreement and sign an ACO participant agreement that 
complies with the requirements of this part.
    (b)(1) Except as specified in paragraph (b)(2) of this section, ACO 
participants are not required to be exclusive to one Shared Savings 
Program ACO.
    (2) Each ACO participant that submits claims for primary care 
services used to determine the ACO's assigned population under subpart 
E of this part must be exclusive to one Shared Savings Program ACO.

0
26. Revise Sec.  425.308 to read as follows:


Sec.  425.308  Public reporting and transparency.

    (a) ACO public reporting Web page. Each ACO must create and 
maintain a dedicated Web page on which it publicly reports the 
information set forth in paragraph (b) of this section. The ACO must 
report the address of such Web page to CMS in a form and manner 
specified by CMS and must notify CMS of changes to the web address in 
the form and manner specified by CMS.
    (b) Information to be reported. The ACO must publicly report the 
following information in a standardized format specified by CMS:
    (1) Name and location.
    (2) Primary contact.
    (3) Organizational information, including all of the following:
    (i) Identification of ACO participants.
    (ii) Identification of participants in joint ventures between ACO 
professionals and hospitals.
    (iii) Identification of the members of its governing body.
    (iv) Identification of key clinical and administrative leadership.
    (v) Identification of associated committees and committee 
leadership.
    (vi) Identification of the types of ACO participants or 
combinations of ACO participants (as listed in Sec.  425.102(a)) that 
formed the ACO.
    (4) Shared savings and losses information, including the following:
    (i) Amount of any payment of shared savings received by the ACO or 
shared losses owed to CMS.
    (ii) Total proportion of shared savings invested in infrastructure, 
redesigned care processes and other resources required to support the 
three-part aim goals of better health for populations, better care for 
individuals and lower growth in expenditures, including the proportion 
distributed among ACO participants.
    (5) The ACO's performance on all quality measures.
    (6) Use of payment rule waivers under Sec.  425.612, if applicable.
    (c) Approval of public reporting information. Information reported 
on an ACO's public reporting Web page in compliance with the 
requirements of the standardized format specified by CMS is not subject 
to marketing review and approval under Sec.  425.310.
    (d) Public reporting by CMS. CMS may publicly report ACO-specific 
information, including but not limited to the ACO public reporting Web 
page address and the information required to be publicly reported under 
paragraph (b) of this section.

0
27. Amend Sec.  425.312, effective November 1, 2015, by revising 
paragraph (a) and removing and reserving paragraph (b).
    The revision reads as follows:


Sec.  425.312  Notification to beneficiaries of participation in the 
shared savings program.

    (a) ACO participants must notify beneficiaries at the point of care 
that their ACO providers/suppliers are participating in the Shared 
Savings Program and of the opportunity to decline claims data sharing 
under Sec.  425.708.
    (1) Notification is carried out when an ACO participant posts signs 
in its facilities and, in settings in which beneficiaries receive 
primary care services, by making standardized written notices available 
upon request.
    (2) The ACO must use template language developed by CMS for 
notifications described in paragraph (a)(1) of this section.
* * * * *


Sec.  425.314  [Amended]

0
28. Amend Sec.  425.314 (c) by removing the term ``agreement'' and 
adding in its place the terms ``participation agreement''.


Sec.  425.316  [Amended]

0
29. Amend Sec.  425.316 by:
0
A. Removing paragraphs (c)(3) and (4).
0
B. Redesignating paragraph (c)(5) as (c)(3).
0
C. In newly redesignated paragraph (c)(3) by removing the phrase 
``fully and completely'' and adding in its place the phrase 
``accurately, completely, and timely''.

0
30. Amend Sec.  425.400 by--
0
A. Adding paragraph (a)(1) introductory text.
0
B. Revising paragraph (a)(1)(i).
0
C. In paragraph (a)(1)(ii), by removing the phrase ``by a physician who 
is an ACO provider/supplier during the performance year'' and adding in 
its place the phrase ``by a physician who is an ACO professional during 
each performance year''.
0
D. Adding paragraph (a)(2) subject heading and paragraph (a)(3).
    The additions read as follows:


Sec.  425.400  General.

    (a)(1) General. CMS employs the assignment methodology described in 
Sec.  425.402 and Sec.  425.404 for purposes of benchmarking, 
preliminary prospective assignment (including quarterly updates), 
retrospective reconciliation, and prospective assignment.
    (i) A Medicare fee-for-service beneficiary is assigned to an ACO if 
the--
    (A) Beneficiary meets the eligibility criteria under Sec.  
425.401(a); and
    (B) Beneficiary's utilization of primary care services meets the 
criteria established under the assignment methodology described in 
Sec.  425.402 and Sec.  425.404.
* * * * *
    (2) Assignment under Tracks 1 and 2.
* * * * *
    (3) Prospective assignment under Track 3. (i) Medicare fee-for-
service beneficiaries are prospectively assigned to an ACO under Track 
3 at the beginning of each benchmark or performance year based on the 
beneficiary's use of primary care services in the most recent 12 months 
for which data are available, using the assignment methodology 
described in Sec. Sec.  425.402 and 425.404.
    (ii) Beneficiaries that are prospectively assigned to an ACO under 
paragraph (a)(3)(i) of this section will remain assigned to the ACO at 
the end of the benchmark or performance year unless they meet any of 
the exclusion criteria under Sec.  425.401(b).
* * * * *

0
31. Add Sec.  425.401 to read as follows:


Sec.  425.401  Criteria for a beneficiary to be assigned to an ACO.

    (a) A beneficiary may be assigned to an ACO under the assignment 
methodology in Sec. Sec.  425.402 and 425.404, for a performance or 
benchmark year, if

[[Page 32841]]

the beneficiary meets all of the following criteria during the 
assignment window:
    (1)(i) Has at least 1 month of Part A and Part B enrollment; and
    (ii) Does not have any months of Part A only or Part B only 
enrollment.
    (2) Does not have any months of Medicare group (private) health 
plan enrollment.
    (3) Is not assigned to any other Medicare shared savings 
initiative.
    (4) Lives in the United States or U.S. territories and possessions, 
based on the most recent available data in our beneficiary records 
regarding the beneficiary's residence at the end of the assignment 
window.
    (b) A beneficiary will be excluded from the prospective assignment 
list of an ACO participating under Track 3 at the end of a performance 
or benchmark year and quarterly during each performance year, if the 
beneficiary meets any of the following criteria during the performance 
or benchmark year:
    (1)(i) Does not have at least 1 month of Part A and Part B 
enrollment; and
    (ii) Has any months of Part A only or Part B only enrollment.
    (2) Has any months of Medicare group (private) health plan 
enrollment.
    (3) Did not live in the United States or U.S. territories and 
possessions, based on the most recent available data in our beneficiary 
records regarding the beneficiary's residency at the end of the year.

0
32. Amend Sec.  425.402 by:
0
A. Revising paragraph (a) introductory text.
0
B. In paragraphs (a)(1)(ii) introductory text and (a)(1)(ii)(A) by 
removing the phrase ``ACO providers/suppliers'' and adding in its place 
the phrase ``ACO professionals''.
0
C. In paragraphs (a)(2) introductory text and (a)(2)(i) by removing the 
phrase ``ACO professionals who are ACO providers/suppliers in'' and 
adding in its place the phrase ``ACO professionals in''.
0
D. Adding paragraphs (b) and (c).
    The revision and additions read as follows:


Sec.  425.402  Basic assignment methodology.

    (a) For performance years 2012 through 2015, CMS employs the 
following step-wise methodology to assign Medicare beneficiaries to an 
ACO after identifying all patients that had at least one primary care 
service with a physician who is an ACO professional of that ACO:
* * * * *
    (b) For performance year 2016 and subsequent performance years, CMS 
employs the following step-wise methodology to assign Medicare fee-for-
service beneficiaries to an ACO:
    (1) Identify all beneficiaries that had at least one primary care 
service with a physician who is an ACO professional in the ACO and who 
is a primary care physician as defined under Sec.  425.20 or who has 
one of the primary specialty designations included in paragraph (c) of 
this section.
    (2) Identify all primary care services furnished to beneficiaries 
identified in paragraph (b)(1) of this section by ACO professionals of 
that ACO who are primary care physicians as defined under Sec.  425.20, 
non-physician ACO professionals, and physicians with specialty 
designations included in paragraph (c) of this section during the 
applicable assignment window.
    (3) Under the first step, a beneficiary identified in paragraph 
(b)(1) of this section is assigned to an ACO if the allowed charges for 
primary care services furnished to the beneficiary by primary care 
physicians who are ACO professionals and non-physician ACO 
professionals in the ACO are greater than the allowed charges for 
primary care services furnished by primary care physicians, nurse 
practitioners, physician assistants, and clinical nurse specialists who 
are--
    (i) ACO professionals in any other ACO; or
    (ii) Not affiliated with any ACO and identified by a Medicare-
enrolled billing TIN.
    (4) The second step considers the remainder of the beneficiaries 
identified in paragraph (b)(1) of this section who have not had a 
primary care service rendered by any primary care physician, nurse 
practitioner, physician assistant, or clinical nurse specialist, either 
inside the ACO or outside the ACO. The beneficiary will be assigned to 
an ACO if the allowed charges for primary care services furnished to 
the beneficiary by physicians who are ACO professionals with specialty 
designations as specified in paragraph (c) of this section are greater 
than the allowed charges for primary care services furnished by 
physicians with specialty designations as specified in paragraph (c) of 
this section--
    (i) Who are ACO professionals in any other ACO; or
    (ii) Who are unaffiliated with an ACO and are identified by a 
Medicare-enrolled billing TIN.
    (c) ACO professionals considered in the second step of the 
assignment methodology in paragraph (b)(4) of this section include 
physicians who have one of the following primary specialty 
designations:
    (1) Cardiology.
    (2) Osteopathic manipulative medicine.
    (3) Neurology.
    (4) Obstetrics/gynecology.
    (5) Sports medicine.
    (6) Physical medicine and rehabilitation.
    (7) Psychiatry.
    (8) Geriatric psychiatry.
    (9) Pulmonary disease.
    (10) Nephrology.
    (11) Endocrinology.
    (12) Multispecialty clinic or group practice.
    (13) Addiction medicine.
    (14) Hematology.
    (15) Hematology/oncology.
    (16) Preventive medicine.
    (17) Neuropsychiatry.
    (18) Medical oncology.
    (19) Gynecology/oncology.

0
33. Amend Sec.  425.404 by revising paragraph (b) to read as follows:


Sec.  425.404  Special assignment conditions for ACOs including FQHCs 
and RHCs.

* * * * *
    (b) Under the assignment methodology in Sec.  425.402, CMS treats a 
service reported on an FQHC/RHC claim as a primary care service --
    (1) If the claim includes a HCPCS or revenue center code that meets 
the definition of primary care services under Sec.  425.20;
    (2) Performed by a primary care physician if the NPI of a physician 
identified in the attestation provided under paragraph (a) of this 
section is reported on the claim for a primary care service (as 
described in paragraph (b)(1) of this section) as the attending 
provider; and
    (3) Performed by a non-physician ACO professional if the NPI 
reported on the claim for a primary care service (as described in 
paragraph (b)(1) of this section) as the attending provider is an ACO 
professional but is not identified in the attestation provided under 
paragraph (a) of this section.

0
34. Amend Sec.  425.600 by:
0
A. In paragraph (a)(2), by removing the phrase ``under the two-sided 
model'' and adding in its place the phrase ``under a two-sided model''.
0
B. Adding paragraph (a)(3).
0
C. Revising paragraph (b).
0
D. In paragraph (c) by removing the phrase ``net loss during the 
initial agreement period may reapply'' and adding in its place the 
phrase ``net loss during a previous agreement period may reapply''.
    The addition and revision read as follows:


Sec.  425.600  Selection of risk model.

    (a) * * *

[[Page 32842]]

    (3) Track 3. Under Track 3, the ACO operates under a two-sided 
model (as described under Sec.  425.610), sharing both savings and 
losses with the Medicare program for the agreement period.
    (b) ACOs may operate under the one-sided model for a maximum of two 
agreement periods. An ACO may not operate under the one-sided model for 
a second agreement period unless the--
    (1) Immediately preceding agreement period was under the one-sided 
model; and
    (2) The ACO meets the criteria established for ACOs seeking to 
renew their agreements under Sec.  425.224(b).
* * * * *

0
35. Amend Sec.  425.602 as follows:
0
A. By revising the section heading.
0
B. In paragraph (a)(7) introductory text by removing the phrase 
``Weights each year of the benchmark using'' and adding in its place 
the phrase ``Weights each year of the benchmark for the initial 
agreement period using''.
0
C. In paragraph (a)(8) by removing the phrase ``The ACO's benchmark may 
be adjusted'' and adding in its place the phrase ``The ACO's benchmark 
will be adjusted in accordance with Sec.  425.118(b)''.
0
D. By revising paragraph (c).
    The revisions read as follows:


Sec.  425.602  Establishing, updating, and resetting the benchmark.

* * * * *
    (c) Resetting the benchmark. (1) An ACO's benchmark will be reset 
at the start of each subsequent agreement period.
    (2) When resetting the ACO's benchmark for a subsequent agreement 
period--
    (i) Each benchmark year will be weighted equally
    (ii) An adjustment will be made to account for the average per 
capita amount of savings generated during the ACO's previous agreement 
period. The adjustment will be limited to the average number of 
assigned beneficiaries (expressed as person years) under the ACO's 
previous agreement period.

0
36. Amend Sec.  425.606 as follows:
0
A. By revising the section heading.
0
B. In paragraph (a) introductory text, by removing the phrase ``under 
the two-sided model,'' and adding in its place the phrase ``under Track 
2,''
0
C. By revising paragraph (b).
0
D. In paragraph (d), by removing the phrase ``under the two-sided 
model'' and adding in its place the phrase ``under Track 2''.
0
E. In paragraph (e)(2), by removing the phrase ``under the two-sided 
model'' and adding in its place the phrase ``under Track 2''.
0
F. In paragraph (g)(1), by removing the phrase ``in a two-sided model'' 
and adding in its place the phrase ``in Track 2''.
    The revisions read as follows:


Sec.  425.606  Calculation of shared savings and losses under Track 2.

* * * * *
    (b) Minimum savings or loss rate. (1)(i) For agreement periods 
beginning in 2012 through 2015, the ACO's MSR and MLR are set at 2 
percent.
    (ii) For agreement periods beginning in 2016 and subsequent years, 
as part of the ACO's application for, or renewal of, program 
participation, the ACO must choose from the following options for 
establishing the MSR/MLR for the duration of the agreement period:
    (A) Zero percent MSR/MLR.
    (B) Symmetrical MSR/MLR in a 0.5 percent increment between 0.5-2.0 
percent.
    (C) Symmetrical MSR/MLR that varies, based on the number of 
beneficiaries assigned to the ACO under subpart E of this part. The MSR 
for an ACO under Track 2 is the same as the MSR that would apply in the 
one-sided model under Sec.  425.604(b) and is based on the number of 
assigned beneficiaries. The MLR under Track 2 is equal to the negative 
MSR.
    (2) To qualify for shared savings under Track 2, an ACO's average 
per capita Medicare expenditures for the performance year must be below 
its updated benchmark costs for the year by at least the MSR 
established for the ACO.
    (3) To be responsible for sharing losses with the Medicare program, 
an ACO's average per capita Medicare expenditures for the performance 
year must be above its updated benchmark costs for the year by at least 
the MLR established for the ACO.
* * * * *

0
37. Add Sec.  425.610 to subpart G to read as follows:


Sec.  425.610  Calculation of shared savings and losses under Track 3.

    (a) General rule. For each performance year, CMS determines whether 
the estimated average per capita Medicare expenditures under the ACO 
for Medicare fee-for-service beneficiaries for Parts A and B services 
are above or below the updated benchmark determined under Sec.  
425.602. In order to qualify for a shared savings payment under Track 
3, or to be responsible for sharing losses with CMS, an ACO's average 
per capita Medicare expenditures under the ACO for Medicare fee-for-
service beneficiaries for Parts A and B services for the performance 
year must be below or above the updated benchmark, respectively, by at 
least the minimum savings or loss rate under paragraph (b) of this 
section.
    (1) Newly assigned beneficiaries. CMS uses an ACO's HCC prospective 
risk score to adjust for changes in severity and case mix in this 
population.
    (2) Continuously assigned beneficiaries. (i) CMS uses demographic 
factors to adjust for changes in the continuously assigned beneficiary 
population.
    (ii) If the prospective HCC risk score is lower in the performance 
year for this population, CMS adjusts for changes in severity and case 
mix for this population using this lower prospective HCC risk score.
    (3) Assigned beneficiary changes in demographics and health status 
are used to adjust benchmark expenditures as described in Sec.  
425.602(a). In adjusting for health status and demographic changes CMS 
makes separate adjustments for each of the following populations of 
beneficiaries:
    (i) ESRD.
    (ii) Disabled.
    (iii) Aged/dual eligible Medicare and Medicaid beneficiaries.
    (iv) Aged/non-dual eligible Medicare and Medicaid beneficiaries.
    (4) To minimize variation from catastrophically large claims, CMS 
truncates an assigned beneficiary's total annual Parts A and B fee-for-
service per capita expenditures at the 99th percentile of national 
Medicare fee-for-service expenditures as determined for each 
performance year.
    (5) CMS uses a 3-month claims run out with a completion factor to 
calculate an ACO's per capita expenditures for each performance year.
    (6) Calculations of the ACO's expenditures will include the payment 
amounts included in Part A and B fee-for-service claims.
    (i) These calculations will exclude indirect medical education 
(IME) and disproportionate share hospital (DSH) payments.
    (ii) These calculations will take into consideration individually 
beneficiary identifiable payments made under a demonstration, pilot or 
time limited program.
    (7) In order to qualify for a shared savings payment, the ACO's 
average per capita Medicare expenditures for the performance year must 
be below the applicable updated benchmark by at least the minimum 
savings rate established for the ACO under paragraph (b) of this 
section.

[[Page 32843]]

    (b) Minimum savings or loss rate. (1) As part of the ACO's 
application for, or renewal of, program participation, the ACO must 
choose from the following options for establishing the MSR/MLR for the 
duration of the agreement period:
    (i) Zero percent MSR/MLR
    (ii) Symmetrical MSR/MLR in a 0.5 percent increment between 0.5-2.0 
percent.
    (iii) Symmetrical MSR/MLR that varies, based on the number of 
beneficiaries assigned to the ACO under subpart E of this part. The MSR 
for an ACO under Track 3 is the same as the MSR that would apply in the 
one-sided model under Sec.  425.604(b) and is based on the number of 
assigned beneficiaries. The MLR under Track 3 is equal to the negative 
MSR.
    (2) To qualify for shared savings under Track 3, an ACO's average 
per capita Medicare expenditures for the performance year must be below 
its updated benchmark costs for the year by at least the MSR 
established for the ACO.
    (3) To be responsible for sharing losses with the Medicare program, 
an ACO's average per capita Medicare expenditures for the performance 
year must be above its updated benchmark costs for the year by at least 
the MLR established for the ACO.
    (c) Qualification for shared savings payment. To qualify for shared 
savings, an ACO must meet the minimum savings rate requirement 
established under paragraph (b) of this section, meet the minimum 
quality performance standards established under Sec.  425.502, and 
otherwise maintain its eligibility to participate in the Shared Savings 
Program under this part.
    (d) Final sharing rate. An ACO that meets all the requirements for 
receiving shared savings payments under Track 3 will receive a shared 
savings payment of up to 75 percent of all the savings under the 
updated benchmark, as determined on the basis of its quality 
performance under Sec.  425.502 (up to the performance payment limit 
described in paragraph (e)(2) of this section).
    (e) Performance payment. (1) If an ACO qualifies for savings by 
meeting or exceeding the MSR, the final sharing rate will apply to an 
ACO's savings on a first dollar basis.
    (2) The amount of shared savings an eligible ACO receives under 
Track 3 may not exceed 20 percent of its updated benchmark.
    (f) Shared loss rate. The shared loss rate--
    (1) For an ACO that is required to share losses with the Medicare 
program for expenditures over the updated benchmark, the amount of 
shared losses is determined based on the inverse of its final sharing 
rate described in Sec.  425.610(d) (that is, 1 minus the final shared 
savings rate determined under Sec.  425.610(d));
    (2) May not exceed 75 percent; and
    (3) May not be less than 40 percent.
    (g) Loss recoupment limit. The amount of shared losses for which an 
eligible ACO is liable may not exceed 15 percent of its updated 
benchmark as determined under Sec.  425.602.
    (h) Notification of savings and losses. (1) CMS notifies an ACO in 
writing regarding whether the ACO qualifies for a shared savings 
payment, and if so, the amount of the payment due.
    (2) CMS provides written notification to an ACO of the amount of 
shared losses, if any, that it must repay to the program.
    (3) If an ACO has shared losses, the ACO must make payment in full 
to CMS within 90 days of receipt of notification.


0
38. Add Sec.  425.612 to subpart G to read as follows:


Sec.  425.612  Waivers of payment rules or other Medicare requirements.

    (a) General. CMS may waive certain payment rules or other Medicare 
requirements as determined necessary to carry out the Shared Savings 
Program under this part.
    (1) SNF 3-day rule. For performance year 2017 and subsequent 
performance years, CMS waives the requirement in section 1861(i) of the 
Act for a 3-day inpatient hospital stay prior to a Medicare-covered 
post-hospital extended care service for eligible beneficiaries 
prospectively assigned to ACOs participating in Track 3 that receive 
otherwise covered post-hospital extended care services furnished by an 
eligible SNF that has entered into a written agreement to partner with 
the ACO for purposes of this waiver. All other provisions of the 
statute and regulations regarding Medicare Part A post-hospital 
extended care services continue to apply.
    (i) ACOs must submit to CMS supplemental application information 
sufficient to demonstrate the ACO has the capacity to identify and 
manage beneficiaries who would be either directly admitted to a SNF or 
admitted to a SNF after an inpatient hospitalization of fewer than 3-
days in the form and manner specified by CMS. Application materials 
include but are not limited to, the following:
    (A) Narratives describing how the ACO plans to implement the 
waiver. Narratives must include the following:
    (1) The communication plan between the ACO and its SNF affiliates.
    (2) A care management plan for beneficiaries admitted to a SNF 
affiliate.
    (3) A beneficiary evaluation and admission plan approved by the ACO 
medical director and the healthcare professional responsible for the 
ACO's quality improvement and assurance processes under Sec.  425.112.
    (4) Any financial relationships between the ACO, SNF, and acute 
care hospitals.
    (B) A list of SNFs with whom the ACO will partner along with 
executed written SNF affiliate agreements between the ACO and each 
listed SNF.
    (C) Documentation demonstrating that each SNF included on the list 
provided under paragraph (a)(1)(i)(B) of this section has an overall 
rating of 3 or higher under the CMS 5-star Quality Rating System.
    (ii) In order to be eligible to receive covered SNF services under 
the waiver, a beneficiary must meet the following requirements:
    (A) Is prospectively assigned to the ACO for the performance year 
in which they are admitted to the eligible SNF.
    (B) Does not reside in a SNF or other long-term care setting.
    (C) Is medically stable.
    (D) Does not require inpatient or further inpatient hospital 
evaluation or treatment.
    (E) Have certain and confirmed diagnoses.
    (F) Have an identified skilled nursing or rehabilitation need that 
cannot be provided as an outpatient.
    (G) Have been evaluated and approved for admission to the SNF 
within 3 days prior to the SNF admission by an ACO provider/supplier 
who is a physician, consistent with the ACO's beneficiary evaluation 
and admission plan.
    (iii) SNFs eligible to partner and enter into written agreements 
with ACOs for purposes of this waiver must do the following:
    (A) Have and maintain an overall rating of 3 or higher under the 
CMS 5-star Quality Rating System.
    (B) Sign a SNF affiliate agreement with the ACO that includes 
elements determined by CMS including but not limited to the following:
    (1) Agreement to comply with the requirements and conditions of 
this part, including but not limited to those specified in the 
participation agreement with CMS.
    (2) Effective dates of the SNF affiliate agreement.
    (3) Agreement to implement and comply with the ACO's beneficiary 
evaluation and admission plan and the care management plan.
    (4) Agreement to validate the eligibility of a beneficiary to 
receive

[[Page 32844]]

covered SNF services in accordance with the waiver prior to admission.
    (5) Remedial processes and penalties that will apply for non-
compliance.
    (2) [Reserved].
    (b) Review and determination of request to use waivers. (1) In 
order to obtain a determination regarding whether the ACO may use 
waivers under this section, an ACO must submit a waiver request to CMS 
in the form and manner and by a deadline specified by CMS.
    (2) An ACO executive who has the authority to legally bind the ACO 
must certify to the best of his or her knowledge, information, and 
belief that the information contained in the waiver request submitted 
under paragraph (b)(1) of this section is accurate, complete, and 
truthful.
    (3) CMS evaluates an ACO's waiver request to determine whether it 
satisfies the requirements of this part and approves or denies waiver 
requests accordingly. Waiver requests are approved or denied on the 
basis of the following:
    (i) Information contained in and submitted with the waiver request 
by a deadline specified by CMS.
    (ii) Supplemental information submitted by a deadline specified by 
CMS in response to a CMS request for information.
    (iii) Screening of the ACO, ACO participants, ACO providers/
suppliers, and other individuals or entities providing services to 
Medicare beneficiaries in accordance with the terms of the waiver.
    (iv) Other information available to CMS.
    (4) CMS may deny a waiver request if an ACO fails to submit 
requested information by the deadlines established by CMS.
    (c) Effective and termination date of waivers. (1) Waivers are 
effective upon CMS notification of approval for the waiver or the start 
date of the participation agreement, whichever is later.
    (2) Waivers do not extend beyond the end of the participation 
agreement.
    (3) If CMS terminates the participation agreement under Sec.  
425.218, the waiver ends on the date specified by CMS in the 
termination notice.
    (4) If the ACO terminates the participation agreement, the waiver 
ends on the effective date of termination as specified in the written 
notification required under Sec.  425.220.
    (d) Monitoring and termination of waivers. (1) ACOs with approved 
waivers are required to post their use of the waiver as part of public 
reporting under Sec.  425.308.
    (2) CMS monitors and audits the use of such waivers in accordance 
with Sec.  425.316.
    (3) CMS reserves the right to deny or revoke a waiver if an ACO, 
its ACO participants, ACO providers/suppliers or other individuals or 
entities providing services to Medicare beneficiaries are not in 
compliance with the requirements of this part or if any of the 
following occur:
    (i) The waiver is not used as described in the ACO's waiver request 
under paragraph (b)(1) of this section.
    (ii) The ACO does not successfully meet the quality reporting 
standard under subpart F of this part.
    (iii) CMS identifies a program integrity issue affecting the ACO's 
use of the waiver.
    (e) Other rules governing use of waivers. (1) Waivers under this 
section do not protect financial or other arrangements between or among 
ACOs, ACO participants, ACO providers/suppliers, or other individual or 
entities providing services to Medicare beneficiaries from liability 
under the fraud and abuse laws or any other applicable laws.
    (2) Waivers under this section do not protect any person or entity 
from liability for any violation of law or regulation for any conduct 
other than the conduct permitted by a waiver under paragraph (a) of 
this section.
    (3) ACOs must ensure compliance with all claims submission 
requirements, except those expressly waived under paragraph (a) of this 
section.

0
39. Amend Sec.  425.702 by:
0
A. Redesignating paragraphs (c)(1) introductory text, (c)(1)(i), 
(c)(1)(ii), (c)(1)(iii), and (c)(1)(iv) as paragraphs (c)(1)(i) 
introductory text, (c)(1)(i)(A), (c)(1)(i)(B), (c)(1)(i)(C), and 
(c)(1)(i)(D), respectively.
0
B. In newly redesignated paragraph (c)(1)(i) introductory text by 
removing the phrase ``At the beginning'' and adding in its place the 
phrase ``For performance years 2012 through 2015, at the beginning''.
0
C. Adding paragraph (c)(1)(ii).
    The addition reads as follows:


Sec.  425.702  Aggregate reports.

* * * * *
    (c) * * *
    (1) * * *
    (ii) For performance year 2016 and subsequent performance years, at 
the beginning of the agreement period, during each quarter (and in 
conjunction with the annual reconciliation), and at the beginning of 
each performance year, CMS, upon the ACO's request for the data for 
purposes of population-based activities relating to improving health or 
reducing growth in health care costs, process development, case 
management, and care coordination, provides the ACO with information 
about its fee-for-service population.
    (A) Under Tracks 1 and 2, the following information is made 
available regarding preliminarily prospectively assigned beneficiaries 
and beneficiaries that received a primary care service during the 
previous 12 months from one of the ACO participants that submits claims 
for primary care services used to determine the ACO's assigned 
population under subpart E of this part:
    (1) Beneficiary name.
    (2) Date of birth.
    (3) Health Insurance Claim Number (HICN).
    (4) Sex.
    (B) Under Tracks 1 and 2, information in the following categories, 
which represents the minimum data necessary for ACOs to conduct health 
care operations work is made available regarding preliminarily 
prospectively assigned beneficiaries:
    (1) Demographic data such as enrollment status.
    (2) Health status information such as risk profile and chronic 
condition subgroup.
    (3) Utilization rates of Medicare services such as the use of 
evaluation and management, hospital, emergency, and post-acute 
services, including the dates and place of service.
    (4) Expenditure information related to utilization of services.
    (C) The information under paragraphs (c)(1)(ii)(A) and 
(c)(1)(ii)(B) of this section will be made available to ACOs in Track 
3, but will be limited to the ACO's prospectively assigned 
beneficiaries.
* * * * *

0
40. Amend Sec.  425.704, effective January 1, 2016, by:
0
A. Revising the section heading.
0
B. In the introductory text, by removing the phrase ``claims data for 
preliminary prospectively assigned beneficiaries'' and adding in its 
place the phrase ``claims data for preliminarily prospectively and 
prospectively assigned beneficiaries''.
0
C. In the introductory text, by removing the phrase ``upon whom 
assignment is based during the agreement period'' and adding in its 
place the phrase ``that submits claims for primary care services used 
to determine the ACO's assigned population under subpart E of this part 
during the performance year''.

[[Page 32845]]

0
D. In paragraph (a) by removing the phrase ``ACOs may request data as 
often'' and adding in its place ``ACOs may access requested data as 
often''.
0
E. Revising paragraph (d)(1).
0
F. In paragraph (d)(2) by removing the phrase ``has been notified in 
writing how the ACO intends to use'' and adding in its place the phrase 
``has been notified in compliance with Sec.  425.708 that the ACO has 
requested access to''.
    The revisions read as follows:


Sec.  425.704  Beneficiary-identifiable claims data.

* * * * *
    (d) * * *
    (1) For an ACO participating--
    (i) In Track 1 or 2, the beneficiary's name appears on the 
preliminary prospective assignment list provided to the ACO at the 
beginning of the performance year, during each quarter (and in 
conjunction with the annual reconciliation) or the beneficiary has 
received a primary care service from an ACO participant upon whom 
assignment is based (under subpart E of this part) during the most 
recent 12-month period.
    (ii) In Track 3, the beneficiary's name appears on the prospective 
assignment list provided to the ACO at the beginning of the performance 
year.
* * * * *

0
41. Amend Sec.  425.708, effective November 1, 2015, by:
0
A. Revising the section heading and paragraph (a).
0
B. Removing paragraphs (b) and (c).
0
C. Redesignating paragraphs (d) through (f) as paragraphs (b) through 
(d), respectively.
0
D. Revising newly redesignated paragraphs (b) and (c).
0
The revisions read as follows:


Sec.  425.708  Beneficiaries may decline claims data sharing.

    (a) Beneficiaries must receive notification about the Shared 
Savings Program and the opportunity to decline claims data sharing and 
instructions on how to inform CMS directly of their preference.
    (1) FFS beneficiaries are notified about the opportunity to decline 
claims data sharing through CMS materials such as the Medicare & You 
Handbook and through the notifications required under Sec.  425.312.
    (2) The notifications provided under Sec.  425.312 must state that 
the ACO may have requested beneficiary identifiable claims data about 
the beneficiary for purposes of its care coordination and quality 
improvement work, and inform the beneficiary how to decline having his 
or her claims information shared with the ACO in the form and manner 
specified by CMS.
    (3) Beneficiary requests to decline claims data sharing will remain 
in effect unless and until a beneficiary subsequently contacts CMS to 
amend that request to permit claims data sharing with ACOs.
    (b) The opportunity to decline having claims data shared with an 
ACO under paragraph (a) of this section does not apply to the 
information that CMS provides to ACOs under Sec.  425.702(c).
    (c) In accordance with 42 U.S.C. 290dd-2 and the implementing 
regulations at 42 CFR part 2, CMS does not share beneficiary 
identifiable claims data relating to the diagnosis and treatment of 
alcohol and substance abuse without the explicit written consent of the 
beneficiary.
* * * * *

0
42. Amend Sec.  425.802 by revising paragraph (a)(2) to read as 
follows:


Sec.  425.802  Request for review.

    (a) * * *
    (2) The reconsideration review must be held on the record (review 
of submitted documentation).
* * * * *

0
43. Amend Sec.  425.804 by:
0
A. Revising paragraph (a)(3).
0
B. Removing paragraph (d).
0
C. Redesignating paragraphs (e) and (f) as paragraphs (d) and (e), 
respectively.
    The revision reads as follows:


Sec.  425.804  Reconsideration review process.

    (a) * * *
    (3) A briefing schedule that permits each party to submit only one 
written brief, including any evidence, for consideration by the 
reconsideration official in support of the party's position. The 
submission of any additional briefs or supplemental evidence will be at 
the sole discretion of the reconsideration official.
* * * * *

    Dated: May 19, 2015.
Andrew M. Slavitt,
Acting Administrator, Centers for Medicare & Medicaid Services.
    Dated: May 21, 2015.
Sylvia M. Burwell,
Secretary, Department of Health and Human Services.
[FR Doc. 2015-14005 Filed 6-4-15; 4:15 pm]
BILLING CODE 4120-01-P