Medicare Program; Medicare Shared Savings Program; Accountable Care Organizations-Revised Benchmark Rebasing Methodology, Facilitating Transition to Performance-Based Risk, and Administrative Finality of Financial Calculations, 37949-38017 [2016-13651]

Download as PDF Vol. 81 Friday, No. 112 June 10, 2016 Part V Department of Health and Human Services asabaliauskas on DSK3SPTVN1PROD with RULES Centers for Medicare & Medicaid Services 42 CFR Part 425 Medicare Program; Medicare Shared Savings Program; Accountable Care Organizations—Revised Benchmark Rebasing Methodology, Facilitating Transition to Performance-Based Risk, and Administrative Finality of Financial Calculations; Final Rule VerDate Sep<11>2014 21:42 Jun 09, 2016 Jkt 238001 PO 00000 Frm 00001 Fmt 4717 Sfmt 4717 E:\FR\FM\10JNR4.SGM 10JNR4 37950 Federal Register / Vol. 81, No. 112 / Friday, June 10, 2016 / Rules and Regulations DEPARTMENT OF HEALTH AND HUMAN SERVICES Centers for Medicare & Medicaid Services 42 CFR Part 425 [CMS–1644–F] RIN 0938–AS67 Medicare Program; Medicare Shared Savings Program; Accountable Care Organizations—Revised Benchmark Rebasing Methodology, Facilitating Transition to Performance-Based Risk, and Administrative Finality of Financial Calculations Centers for Medicare & Medicaid Services (CMS), HHS. ACTION: Final rule. AGENCY: Under the Medicare Shared Savings Program (Shared Savings Program), providers of services and SUMMARY: suppliers that participate in an Accountable Care Organization (ACO) continue to receive traditional Medicare fee-for-service (FFS) payments under Parts A and B, but the ACO may be eligible to receive a shared savings payment if it meets specified quality and savings requirements. This final rule addresses changes to the Shared Savings Program, including: Modifications to the program’s benchmarking methodology, when resetting (rebasing) the ACO’s benchmark for a second or subsequent agreement period, to encourage ACOs’ continued investment in care coordination and quality improvement; an alternative participation option to encourage ACOs to enter performancebased risk arrangements earlier in their participation under the program; and policies for reopening of payment determinations to make corrections after financial calculations have been performed and ACO shared savings and shared losses for a performance year have been determined. DATES: Effective date: The provisions of this final rule are effective on August 9, 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: Elizabeth November, (410) 786–8084. Email address: aco@cms.hhs.gov. SUPPLEMENTARY INFORMATION: Table 1 lists key changes that have an applicability date other than 60 days after the date of publication of this final rule. By indicating that 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 or agreement period. TABLE 1—APPLICABILITY DATES OF SELECT PROVISIONS OF THE FINAL RULE Preamble section Section title/description Applicability date II.A.2 ................... Integrating regional factors in resetting ACO benchmarks ...... II.A.2.e.3 ............. For factors based on National FFS expenditures used in establishing the ACO’s historical benchmark: Use expenditures for assignable beneficiaries to determine trend factors and truncation thresholds. II.A.2.e.3 ............. For factors based on National FFS expenditures used in benchmark calculations and performance year expenditure calculations during the agreement period: Use expenditures for assignable beneficiaries to determine the annual benchmark update, and the truncation thresholds for determining performance year expenditures. An additional participation option that would allow eligible Track 1 ACOs to defer by 1 year their entrance into a performance-based risk model (Track 2 or 3) for their second agreement period. Second or subsequent agreement periods beginning in 2017 and subsequent years. Agreement periods beginning in 2017 and subsequent years. For 2014 starters electing the participation option to defer by 1 year entrance into a second agreement period under a two-sided model, 2015 starters, and 2016 starters/renewals, historical benchmarks will be adjusted for the 2017 performance year and any subsequent years in the current agreement period. Performance year 2017 and subsequent performance years. II.C ...................... asabaliauskas on DSK3SPTVN1PROD with RULES Acronyms ACO Accountable Care Organization APM Alternative Payment Model AWI Area Wage Index BY Benchmark Year CAHPS Consumer Assessment of Healthcare Providers and Systems CBSA Core Based Statistical Area CMS Centers for Medicare & Medicaid Services CSA Combined Statistical Area CY Calendar Year DSH Disproportionate Share Hospital ESRD End Stage Renal Disease FFS Fee for service GAO Government Accountability Office GPCI Geographic Practice Cost Index HCC Hierarchical Condition Category IME Indirect Medical Education MA Medicare Advantage VerDate Sep<11>2014 21:42 Jun 09, 2016 Jkt 238001 Second agreement period beginning in 2017 and subsequent years. MACRA Medicare Access and CHIP Reauthorization Act of 2015 MedPAC Medicare Payment Advisory Commission MIPS Merit-Based Incentive Payment System MLR Minimum Loss Rate MSA Metropolitan Statistical Area MSR Minimum Savings Rate NPI National Provider Identifier OACT Office of the Actuary PGP Physician Group Practice PUF Public Use File PY Performance Year RHC Rural Health Clinic RIA Regulatory Impact Analysis TIN Taxpayer Identification Number PO 00000 Frm 00002 Fmt 4701 Sfmt 4700 I. Executive Summary and Background A. Executive Summary 1. Purpose Section 1899 of the Social Security Act (the Act) established the Shared Savings Program, which promotes accountability for a patient population, fosters coordination of items and services under Medicare Parts A and B, and encourages investment in infrastructure and redesigned care processes for high quality and efficient health care service delivery. We published the proposed rule entitled ‘‘Medicare Program; Medicare Shared Savings Program; Accountable Care Organizations—Revised Benchmark Rebasing Methodology, Facilitating E:\FR\FM\10JNR4.SGM 10JNR4 Federal Register / Vol. 81, No. 112 / Friday, June 10, 2016 / Rules and Regulations asabaliauskas on DSK3SPTVN1PROD with RULES Transition to Performance-Based Risk, and Administrative Finality of Financial Calculations’’ (2016 proposed rule), which appeared in the February 3, 2016 Federal Register (81 FR 5824). In the 2016 proposed rule, we proposed changes to the regulations for the Shared Savings Program that were promulgated in November 2011 and June 2015, and codified at 42 CFR part 425. Our intent in this rulemaking is to make refinements to the Shared Savings Program to address concerns raised by stakeholders regarding the benchmarking methodology, and to establish additional options for ACOs to enter performance-based risk arrangements, as well as to address policies for reopening of payment determinations to make corrections after financial calculations have been performed and ACO shared savings and shared losses for a performance year have been determined. 2. Summary of the Major Provisions The policies adopted in this final rule are designed to improve program function and transparency in the following areas: • Modifying the methodology for rebasing and updating ACO historical benchmarks when an ACO renews its participation agreement for a second or subsequent agreement period to incorporate regional expenditures, thereby making the ACO’s cost target more independent of its historical expenditures and more reflective of FFS spending in its region. • Applying a methodology for risk adjustment to account for the health status of the ACO’s assigned population in relation to FFS beneficiaries in the ACO’s regional service area in determining the regional adjustment that is applied to the ACO’s rebased historical benchmark. • Adding a participation agreement renewal option to encourage ACOs to enter performance-based risk arrangements earlier in their participation in the Shared Savings Program. • Defining circumstances under which we would reopen payment determinations to make corrections after the financial calculations have been performed and ACO shared savings and shared losses for a performance year have been determined. Although we proposed revisions to the methodology for adjusting ACO benchmarks to account for changes in ACO participant (TIN) composition, we will not finalize that proposal and are deferring any revisions to the methodology until future rulemaking. However, we are finalizing conforming VerDate Sep<11>2014 21:42 Jun 09, 2016 Jkt 238001 changes to the current methodology for adjusting ACO benchmarks for ACO Participant List changes, to specify that the regional adjustment to the ACO’s rebased historical benchmark will be redetermined annually using the most recent certified ACO Participant List for the relevant performance year. 3. Summary of Costs and Benefits As a result of this final rule, the median estimate of the financial impact of the Shared Savings Program for CYs 2017 through 2019 is net federal savings of $110 million greater than what would have been saved if no changes were made. Although this is the best estimate of the financial impact of the Shared Savings Program during CYs 2017 through 2019, a relatively wide range of possible outcomes exists. While approximately two-thirds of the stochastic trials resulted in an increase in net program savings, the 10th and 90th percentiles of the estimated distribution show a net increase in costs of $240 million to net savings of $480 million, respectively. Overall, our analysis projects that improvements in the accuracy of benchmark calculations, including through the introduction of a regional adjustment to the ACO’s rebased historical benchmark, are expected to result in increased overall participation in the program. These changes are also expected to improve the incentive for ACOs to invest in effective care management efforts, increase the attractiveness of participation under performance-based risk in Track 2 or 3 for certain ACOs with lower beneficiary expenditures, and result in overall greater gains in savings on FFS benefit claims costs than the associated increase in expected shared savings payments to ACOs. We intend to monitor emerging results for effects on claims costs, changing participation (including risk for cost due to selective changes in participation), and unforeseen bias in benchmark adjustments due to diagnosis coding intensity shifts. Such monitoring will be used to inform future rulemaking, such as if the Secretary determines that a lower weight should be used in calculating the regional adjustment amount. B. 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 Public Law 111–148. Collectively known as the Affordable Care Act, these PO 00000 Frm 00003 Fmt 4701 Sfmt 4700 37951 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. Section 3022 of the Affordable Care Act amended Title XVIII of the Act (42 U.S.C. 1395 et seq.) by adding 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. 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. Consistent with the purpose of the Shared Savings Program, in establishing the 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 published the final rule entitled ‘‘Medicare Program; Medicare Shared Savings Program: Accountable Care Organizations’’ (November 2011 final rule), which appeared in the November 2, 2011 Federal Register (76 FR 67802) to establish the program. We viewed this 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 (Innovation Center) under section 1115A of the Act. Thereafter, we published a subsequent final rule entitled ‘‘Medicare Program; Medicare Shared Savings Program: Accountable Care Organizations’’ (June 2015 final rule), which appeared in the June 9, 2015 Federal Register (80 FR 32692). In that rule, we adopted policies designed to codify existing guidance, reduce E:\FR\FM\10JNR4.SGM 10JNR4 asabaliauskas on DSK3SPTVN1PROD with RULES 37952 Federal Register / Vol. 81, No. 112 / Friday, June 10, 2016 / Rules and Regulations administrative burden, and improve program function and transparency in a number of areas, such as eligibility for program participation and data sharing. Additionally, we modified policies related to the financial model, in response to stakeholder feedback, to encourage greater and continued ACO participation, for example, by offering ACOs the opportunity to continue participating under the one-sided model for a second agreement period, modifying the existing two-sided performance-based risk track (Track 2), and offering an alternative two-sided performance-based risk track (Track 3). Track 3 includes prospective beneficiary assignment and a higher sharing rate for shared savings as well as the potential for greater liability for shared losses, among other features, informed by CMS’ experience with the Pioneer ACO Model. We finalized new policies for resetting an ACO’s financial benchmark in a second or subsequent agreement period, by adding back a portion of the ACO’s savings generated during the previous agreement period and equally weighting the historical benchmark years, to encourage ACOs to seek to continue their participation in the program and to address stakeholder concerns about the benchmark rebasing methodology. We also stated our intention to address other modifications to program rules in future rulemaking in the near term including modifying the methodology for resetting benchmarks by incorporating regional trends and costs. We are encouraged by the high degree of interest in participation in the Shared Savings Program. As of January 1, 2016, over 400 ACOs were participating in the Shared Savings Program. This includes 147 ACOs with 2012 and 2013 agreement start dates that entered into a new 3-year agreement effective January 1, 2016, to continue their participation in the program, and 100 ACOs that entered the program for a first agreement period beginning January 1, 2016. See Fact Sheet: CMS Welcomes New Medicare Shared Savings Program (Shared Savings Program) Participants, (January 11, 2016) available online at https://www.cms.gov/Newsroom/ MediaReleaseDatabase/Fact-sheets/ 2016-Fact-sheets-items/2016-01-112.html. We continue to look to experience gained by the Innovation Center in testing ACO models. In January 2016, we announced that 21 ACOs would be participating in the first performance year of the Next Generation ACO Model, a new ACO initiative being tested by the Innovation Center. The Next Generation ACO Model allows ACOs that are VerDate Sep<11>2014 21:42 Jun 09, 2016 Jkt 238001 experienced in coordinating care for populations of patients to assume higher levels of financial risk and reward than are available under the Pioneer ACO Model and Shared Savings Program. See HHS press release: New hospitals and health care providers join successful, cutting-edge federal initiative that cuts costs and puts patients at the center of their care (January 11, 2016) available online at https://www.hhs.gov/about/ news/2016/01/11/new-hospitals-andhealth-care-providers-join-successfulcutting-edge-federal-initiative.html. In the 2016 proposed rule (81 FR 5824), we proposed further modifications to the program’s regulations, addressing several policy areas that we believed should be revisited in light of the additional experience we have gained during program implementation, including the methodology for resetting benchmarks, participation options to encourage ACOs to enter performance-based risk tracks, and reopening of payment determinations to make corrections. II. Provisions of the Final Regulations and Responses to Public Comments We received a total of 74 timely comments on the 2016 proposed rule (81 FR 5824). Stakeholders offered comments that addressed both high level issues related to the Shared Savings Program as well as our specific proposals and requests for comments. We extend our deep appreciation to the public for their interest in the program and the many thoughtful comments that were made in response 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 Shared Savings Program quality performance standard; suggestions for implementing the Skilled Nursing Facility (SNF) 3-day rule waiver for eligible Shared Savings Program ACOs; requests to modify the approach used to account for the costs of Critical Access Hospitals participating in Shared Savings Program ACOs; suggestions for limiting the liability of individual providers for shared losses incurred by ACOs; suggestions for modifying the financial incentives within the Shared Savings Program to encourage ACOs to use innovative treatments, technologies and diagnostics; suggestions for CMS to provide greater support for beneficiary engagement in their health care; and suggestions for the development of regulations pursuant to the Medicare Access and CHIP Reauthorization Act of 2015 (MACRA). These comments will not be addressed in this final rule, but we have shared them with the PO 00000 Frm 00004 Fmt 4701 Sfmt 4700 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 this 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: Some commenters are encouraged by the momentum of the program in attracting organizations and advancing our goal of transitioning providers away from traditional FFS to arrangements focused on value-based payments. However, some pointed to the statistics on the number of ACOs eligible for shared savings payments in the initial performance years of the Shared Savings Program and the attrition rate from the program as evidence of the need for changes to the program including: (1) Policy changes to provide greater rewards to ACOs for their cost reductions and quality improvements for Medicare beneficiaries; (2) policy options to reward organizations of differing provider compositions, sophistication and cost history; and (3) additional resources from CMS, such as more timely and actionable data, to support their success. Commenters addressing the sustainability of the program over the longer term often pointed to the intersections of various policy factors as being influential, most commonly the need for a benchmarking methodology that allows ACOs to continue to generate sufficient returns over time to support their care coordination and quality improvement activities to meet the program’s goals, and the need for policies to reduce beneficiary churn in an ACO’s assigned beneficiary population (for example, through prospective beneficiary assignment in all program Tracks and implementation of an attestation process for beneficiaries to voluntarily align to an ACO). Some commenters underscored the challenges for ACOs in moving FFS providers towards payment models based on value instead of volume and for already efficient organizations to realize further reward within the Shared Savings Program. In general, some commenters pointed to the need for sufficient stability and predictability in the program to E:\FR\FM\10JNR4.SGM 10JNR4 asabaliauskas on DSK3SPTVN1PROD with RULES Federal Register / Vol. 81, No. 112 / Friday, June 10, 2016 / Rules and Regulations effectively drive ACOs to enter performance-based risk models. Some commenters, including commenters representing rural providers, suggested CMS consider allowing ACOs to remain under a one-sided model for a long period, and perhaps even indefinitely, particularly ACOs that continue to generate savings. Response: We thank all commenters for helping us continue to develop the Shared Savings Program. We appreciate commenters’ support for the program generally, as well as their thoughtful remarks on overarching considerations for the future of the Shared Savings Program. The ACOs participating in the Shared Savings Program are recognized as being a critical part of the Administration’s goal to help drive Medicare and the health care system at large towards rewarding the quality of care as opposed to the quantity of care provided to beneficiaries. In January 2015, the Administration announced an 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 (https://www.cms.gov/ Newsroom/MediaReleaseDatabase/Factsheets/2015-Fact-sheets-items/2015-0126-3.html). In March 2016, the Administration announced that it estimated having achieved this first goal, 11 months ahead of schedule, in part a result of entry by new ACOs in CMS ACO initiatives including the Shared Savings Program (https:// www.cms.gov/Newsroom/ MediaReleaseDatabase/Fact-sheets/ 2016-Fact-sheets-items/2016-03-032.html). With these goals in mind, we believe this final rule will further strengthen the Shared Savings Program. In particular we believe it is critical to ensuring the sustainability of the program to make an ACO’s benchmark incrementally less dependent on the ACO’s historical spending and more reflective of spending in the ACO’s region as the ACO continues in the program for multiple agreement periods. We also believe that the benchmarking methodology is only one of several factors that are important to ACOs’ success in the Shared Savings Program. For example, we believe refinements to the Shared Savings Program’s data sharing policies, finalized in the June 2015 final rule, including a streamlined process for ACOs to access Medicare beneficiary claims data and expanding the data that is made available through informational program reports, will facilitate ACOs’ health care operations. VerDate Sep<11>2014 21:42 Jun 09, 2016 Jkt 238001 Further, we believe that ACOs are more likely to become successful in achieving the goals of the accountable care model over time, as indicated by performance results showing that ACOs with more experience in the program are more likely to generate shared savings (CMS Fact Sheet: Medicare ACOs Provide Improved Care While Slowing Cost Growth in 2014, available online at https://www.cms.gov/Newsroom/ MediaReleaseDatabase/Fact-sheets/ 2015-Fact-sheets-items/2015-0825.html). We also recognize the needs of the Shared Savings Program are dynamic and will continue to change as CMS and ACOs gain more experience with the accountable care model being implemented on a national scale. We welcome and encourage stakeholders’ engagement with CMS on future program improvements and policy considerations, including through the rulemaking process. Comment: Some commenters requested that CMS address broader market dynamics, particularly in relation to aligning financial and quality targets between the Shared Savings Program and Medicare Advantage (MA). Several commenters pointed to this alignment as allowing for more equitable comparison between traditional FFS Medicare, MA and ACOs. Some pointed to the need for this alignment when indicating that Shared Savings Program ACOs and MA plans compete. A commenter explained that competition between traditional FFS Medicare, ACOs and MA plans would maximize value for Medicare beneficiaries and the Medicare program. Response: We appreciate commenters’ continued interest in developing the design of the Shared Savings Program to foster greater comparability between Medicare payment models. As explained in the June 2015 final rule, we continue to believe there are important distinctions between MA plans and the accountable care model in the Shared Savings Program. The Shared Savings Program is not a managed care program like MA. Under the Shared Savings Program, providers and suppliers receive traditional FFS Medicare payments, and Medicare FFS beneficiaries retain all rights and benefits under traditional Medicare, including the right to see any physician of their choosing. In addition, Medicare FFS beneficiaries do not enroll in the Shared Savings Program (see 80 FR 32696). However, in the 2016 proposed rule we acknowledged that one consideration in developing the proposed methodology for use of county-FFS data in calculating PO 00000 Frm 00005 Fmt 4701 Sfmt 4700 37953 expenditures for an ACO’s regional service area was to align more closely with the MA ratesetting methodology (see 81 FR 5829). Although we have relied on our experience in other Medicare programs, including MA, 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 MA or other Medicare programs (see 80 FR 32697). As discussed elsewhere in this final rule, we are finalizing, with certain modifications, our proposal to determine an ACO’s regional FFS expenditures based on the county FFS expenditures for the ACO’s regional service area for populations of beneficiaries according to Medicare enrollment type (ESRD, disabled, aged/ dual eligible, aged/non-dual eligible). Although this approach differs from the MA rate-setting methodology (with respect to calculation of values for the ESRD population, and the number of years of data used in the calculating county FFS expenditures), we believe it continues to be a substantial step towards aligning the Shared Savings Program benchmarking methodology with the MA rate-setting methodology. A. Modifications to the Benchmarking Methodology 1. Background on Establishing, Updating, and Resetting the Benchmark 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 3 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 FFS program, as estimated by the Secretary. Such benchmark shall be reset at the start of each agreement period. In addition to the statutory benchmarking methodology established in section 1899(d) of the Act, 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 E:\FR\FM\10JNR4.SGM 10JNR4 asabaliauskas on DSK3SPTVN1PROD with RULES 37954 Federal Register / Vol. 81, No. 112 / Friday, June 10, 2016 / Rules and Regulations 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. In the November 2011 final rule establishing the Shared Savings Program, we adopted policies for establishing, updating and resetting the benchmark at § 425.602. Under this methodology, we use national FFS spending and trends as part of establishing, updating and resetting ACO-specific benchmarks. Specifically, we calculate a benchmark for each ACO using a risk-adjusted average of per capita Parts A and B expenditures for original Medicare FFS beneficiaries who would have been assigned to the ACO in each of the 3 calendar years prior to the start of the agreement period. In calculating an ACO’s benchmark expenditures, we include individually beneficiary identifiable payments made under a demonstration, pilot or time limited program, and we make an adjustment to exclude IME payments and DSH and uncompensated care payments. We trend forward each of the first 2 benchmark years’ 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). In establishing the benchmark for an ACO’s first agreement period, 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. For each performance year, we adjust the ACO’s historical benchmark for changes in the health status and demographic factors of the ACO’s assigned beneficiaries (§ 425.604(a), § 425.606(a), § 425.610(a)). Consistent with section 1899(d)(1)(B)(ii) of the Act, we update the ACO’s benchmark annually, based on our estimate of the projected absolute amount of growth in national per capita expenditures for Parts A and B services under the original FFS program. Additionally, as described further in section II.B of this final rule, we also adjust ACO historical benchmarks annually based on changes to the ACO’s certified ACO Participant List. In making this adjustment, the historical benchmark period remains constant, but beneficiary assignment is VerDate Sep<11>2014 21:42 Jun 09, 2016 Jkt 238001 revised to reflect the influence of the ACO Participant List changes. In trending forward the historical benchmark, adjusting for changes in beneficiary characteristics, and annually updating the benchmark by growth in national per capita Medicare FFS expenditures, we make calculations for populations of beneficiaries in each of the following Medicare enrollment types: ESRD, disabled, aged/dual eligible, aged/non-dual eligible. Furthermore, 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 for the applicable Medicare enrollment type (ESRD, disabled, aged/dual eligible, aged/nondual eligible). Under section 1899(d)(1)(B)(ii) of the Act and § 425.602(c) of the Shared Savings Program regulations, an ACO’s benchmark must be reset at the start of each new agreement period. In the June 2015 final rule, we revised § 425.602(c) to specify that in resetting the historical benchmark for ACOs in their second or subsequent agreement period we: (1) Weight each benchmark year equally; and (2) make an adjustment to reflect the average per capita amount of savings earned by the ACO in its prior agreement period, reflecting the ACO’s financial and quality performance, during that prior agreement period. The additional per capita amount is applied as an adjustment 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 prior agreement period. If an ACO was not determined to have generated net savings in its prior agreement period, we do not make any adjustment to the ACO’s rebased historical benchmark. We use performance data from each of the ACO’s performance years under its prior agreement period in resetting the ACO’s benchmark for its second or subsequent agreement period. In the June 2015 final rule, in which this adjustment was finalized, we stated that we believed it would 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 future changes to the benchmarking methodology to incorporate regional FFS expenditures (see 80 FR 32791; see also 80 FR 32795 through 32796). The June 2015 final rule also included a discussion of several options and PO 00000 Frm 00006 Fmt 4701 Sfmt 4700 methods for incorporating regional factors when establishing, updating, and resetting the benchmark, and CMS committed to engaging in additional rulemaking around modifications to the Shared Savings Program’s methodology for resetting benchmarks (see 80 FR 32791 through 32796; see also 79 FR 72839 through 72843 (discussing options for revising the methodology for resetting an ACO’s historical benchmark)). The 2016 proposed rule expanded upon the issues discussed in the June 2015 final rule. The proposed changes (reviewed in greater detail within this final rule) focused on incorporating regional FFS expenditures into the methodology for establishing, adjusting, and updating an ACO’s historical benchmark for its second or subsequent agreement period. 2. Integrating Regional Factors When Resetting ACOs’ Benchmarks a. Overview In the June 2015 final rule, we summarized comments received on three approaches to account for regional FFS expenditures in ACO benchmarks and technical issues related to these alternatives (80 FR 32791 through 32796). We committed to engaging in additional rulemaking to propose modifications to the Shared Savings Program’s methodology for resetting ACO benchmarks. We signaled our anticipated policy direction by outlining an approach to rebasing that would account for regional expenditures and identified additional methodological issues we would need to address in implementing this approach (80 FR 32795 through 32796). In the 2016 proposed rule, we acknowledged that any proposed changes to the benchmark rebasing policies would require consideration of tradeoffs among several criteria that were initially described in the June 2015 final rule (81 FR 5828): • 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. • Generating benchmarks that reflect ACOs’ actual costs in order to avoid potential selective participation by (and excessive shared payments to) ACOs with high benchmarks. E:\FR\FM\10JNR4.SGM 10JNR4 asabaliauskas on DSK3SPTVN1PROD with RULES Federal Register / Vol. 81, No. 112 / Friday, June 10, 2016 / Rules and Regulations Further, we explained the addition of the following guiding principles to our considerations for modifying the benchmarking methodology (81 FR 5828): • Transparency: Developed based on identifiable sources of data, and where possible publicly available data and data sets, in order to allow stakeholders to understand and model impacts. • Predictability: Enable ACOs to anticipate their updated benchmark targets and their likely performance under the program. • Simplicity: Methodology can be explained in relatively simple terms and in sufficient detail to be readily understood by ACOs and stakeholders. • Accuracy: Methodology generates benchmarks that are an accurate reflection of the ACOs’ expenditures and relevant regional expenditures, and can be accurately implemented and calculated, validated and disseminated in a timely manner. • Maintain program momentum and market stability by providing sufficient notice of methodological changes and phase-in of these changes. Applying these principles, we proposed the following changes, to the methodology for resetting an ACO’s benchmark for a second or subsequent agreement period beginning on or after January 1, 2017: • Replace the national trend factors with regional trend factors for establishing the ACO’s rebased historical benchmark, and remove the adjustment to explicitly account for savings generated under the ACO’s prior agreement period. • Make an adjustment when establishing the ACO’s rebased historical benchmark, to reflect a percentage of the difference between regional FFS expenditures in the ACO’s regional service area and the ACO’s historical expenditures. A higher percentage would be used in calculating this adjustment to the ACO’s rebased historical benchmark for the ACO’s third agreement period and all subsequent agreement periods. We further proposed to apply this phased approach to transitioning to the use of a higher weight in the calculation of the regional adjustment for ACOs with 2012 and 2013 agreement start dates that elected to continue their participation in the program for a second 3-year agreement period effective January 1, 2016, beginning in their third agreement period (starting in 2019). • Annually, update the rebased benchmark to account for changes in regional FFS spending, replacing the current update, which is based solely on VerDate Sep<11>2014 21:42 Jun 09, 2016 Jkt 238001 the absolute amount of projected growth in national FFS spending. We proposed to define an ACO’s regional service area to include any county where one or more assigned beneficiaries reside and to weight county-level FFS costs by the proportion of the ACO’s assigned beneficiaries in the county. We proposed to calculate risk adjusted county FFS expenditures for the ACO’s regional service area using the assignable beneficiary population, as a subset of the broader FFS population, residing in counties included in the ACO’s regional service area. We proposed to align the calculation of regional FFS expenditures with the approach to calculating an ACO’s benchmark and performance year expenditures. We also proposed a program-wide policy, to use beneficiaries eligible for ACO assignment instead of all FFS beneficiaries as the basis for program calculations using regional and national FFS expenditures. As part of the process of incorporating the revised rebasing methodology, we also proposed a number of technical changes to the program regulations to clarify the regulations text on the benchmarking methodology. In the 2016 proposed rule we explained that the proposed approach to incorporating regional expenditures would make the ACO’s cost target more independent of its historical expenditures and more reflective of FFS spending in its region (81 FR 5825). We also explained that adding the regional adjustment and replacing the current benchmark trend factor and annual update (calculated based on National FFS expenditures) with regional growth rates, would have mixed effects on ACOs overall by increasing or decreasing benchmarks for ACOs in various circumstances. For example, we explained that the proposed regional adjustment would likely benefit existing low spending ACOs operating in regions with relatively higher spending and/or higher growth in expenditures (81 FR 5834). We further explained that a phased-approach to transitioning to use of a higher weight in the calculation of the regional adjustment balanced our preference for quickly transitioning ACOs to a rebasing methodology that is more reflective of expenditures in the ACO’s region than the ACO’s historical expenditures with our concerns about the opportunity for arbitrage, and the potential for ACOs to alter their healthcare provider and beneficiary compositions or take other such actions in order to achieve more favorable performance relative to their region PO 00000 Frm 00007 Fmt 4701 Sfmt 4700 37955 without actually changing their efficiency (81 FR 5834 through 5836). We also explained that the use of regional trend factors in resetting ACO benchmarks and regional growth rates to update benchmarks annually would likely result in relatively higher benchmarks for ACOs that are low growth in their region compared to benchmarks for ACOs that are high growth relative to their region (81 FR 5838 through 5840). We anticipated these changes would strengthen the incentives for ACOs to invest in infrastructure and care redesign necessary to improve quality and efficiency and meet the goals of the Shared Savings Program (81 FR 5859). However, we expressed uncertainty about the effect on the level of ACO participation, provider and supplier response to the financial incentives under the program, interactions with other value-based payment models and programs, and the ultimate effectiveness of the changes in care delivery (81 FR 5860). In section II.A.2 of this final rule, we discuss our final actions on the proposals for modifying the Shared Savings Program benchmarking methodology. Table 2 summarizes the final actions discussed in this section of the final rule. We begin this discussion by addressing comments on broader considerations for revising the benchmarking methodology. Comment: Most commenters addressed the proposed changes to the benchmarking methodology, with the majority expressing support, in general, for incorporating regional FFS expenditures into ACOs’ benchmarks. Many commenters offered specific suggestions on the proposed policies. Some commenters detailed concerns, more generally, about the sustainability of the current rebasing methodology. A principal concern raised by commenters is that the current rebasing methodology forces ACOs to continually beat their own performance, by using historical expenditures from the performance years under an ACO’s prior agreement period to reset the benchmark. Commenters raised a variety of concerns about the effects of this approach, including: ACOs that have performed well in the past are penalized under this methodology, while those who have performed poorly are rewarded; ACOs with lower spending have relatively lower benchmarks (and less opportunity for reward) compared to those with higher historical spending, including ACOs operating in different markets (with differing spending trends) as well as ACOs operating within the same market; over time there will be E:\FR\FM\10JNR4.SGM 10JNR4 asabaliauskas on DSK3SPTVN1PROD with RULES 37956 Federal Register / Vol. 81, No. 112 / Friday, June 10, 2016 / Rules and Regulations diminishing opportunities to produce savings, that are used in part to support ACO operations (including investments that result in the provision of high value care), and ACOs will ultimately be forced to leave the program or participation in the program will be discouraged more generally. Many commenters explained that making an ACO’s benchmark more independent of its historical expenditures and performance and more reflective of FFS spending and the healthcare environment in the ACO’s region would be an improvement over the current approach. Several commenters recognized that incorporating regional factors when resetting ACO benchmarks accounts for geographic variation in healthcare utilization. While some commenters considered this a necessary methodological development to ensure the sustainability of the Shared Savings Program, a commenter specified that this would be antithetical to CMS’ larger goal of decreasing variability in per beneficiary spending on a nationwide scale. A commenter suggested CMS delay finalizing the proposed changes in light of CMS’ concerns (including the potential for arbitrage or behavioral changes by ACOs) and the uncertainties about the impact of the alternative rebasing methodology, and further suggested CMS revisit the proposed changes in future rulemaking, after further analysis and once the MeritBased Incentive Payment System (MIPS) and Alternative Payment Model (APM) requirements are proposed. However, even among those commenters that raised concerns about the details of the proposed policies, very few suggested that CMS abandon altogether an approach for incorporating regional FFS expenditures into ACO benchmarks. The discussion in the comments also reflects commenters’ consideration of the tradeoffs CMS identified in the proposed rule related to providing sufficiently strong incentives for ACOs to improve efficiency and continue participation in the program, while guarding the Trust Funds against the possibility that over inflating certain ACOs’ reset benchmarks would result in selective participation by and excessive payments to ACOs with high benchmarks. Commenters illuminated that the balance of these concerns is complicated due to the diversity of the program’s participants and regional variations/market circumstances. Many commenters recognized that the benchmarking methodology, including any changes adopted in this final rule, will be crucial for determining the profile/characteristics of organizations VerDate Sep<11>2014 21:42 Jun 09, 2016 Jkt 238001 that will have an incentive to enter and remain in the program over time. Comments discussed the effects of the proposed changes to the benchmarking methodology, including the following: • Many commenters generally agreed that the proposed changes would encourage participation by ACOs that are historically efficient (low spending) in relation to their region, especially in high spending regions. Many commenters expressed support for the proposed policies to encourage participation by efficient ACOs. However, some commenters believe the resulting incentives would still be inadequate to encourage these ACOs to enter or remain in the program over the long term, citing concerns about diminishing returns when a component of the ACO’s rebased historical benchmark continues to be based on expenditures under the ACO’s prior agreement period and thereby reflects the ACO’s past success. • Some commenters expressed concern there may be little incentive for ACOs with spending equal to or higher than their region to enter the Shared Savings Program or continue participating under the proposals. • Several commenters expressed concerns that the proposed changes could disadvantage certain ACOs, especially those in ACO-heavy markets and ACOs in existing low cost regions, as well as smaller ACOs comprised of geographically distant small- and midsized providers. • Others expressed concern about the potential that the proposed changes would have unanticipated effects on particular organizations, pointing to the discussion in the proposed rule that ‘‘a wide range of potential outcomes’’ exist regarding financial performance under the proposed changes. Some commenters expressed uncertainty about the potential effects of the proposed changes and indicated that they lacked sufficient information to determine what outcomes they may have. Some commenters addressed these concerns by suggesting CMS offer various benchmarking options to allow ACOs greater flexibility in determining the methodology that would be applied to determine their benchmark. Some commenters also suggested CMS stratify the regional benchmarking methodologies for historically low and high cost ACOs (in relation to their regions). Response: We appreciate commenters’ thoughtful remarks on the proposed changes to the benchmarking methodology, including the tradeoffs that we identified as relevant to the PO 00000 Frm 00008 Fmt 4701 Sfmt 4700 consideration of any revisions to the methodology for resetting an ACO’s historical benchmark for a second or subsequent agreement period. The discussion in the latter sections of this final rule reflect our continued consideration of these important issues during the development of the policies in this final rule, and we believe the policies we are finalizing represent a balance of these considerations. We also believe the policies we are finalizing are responsive to a principal concern among stakeholders, as reflected in the comments, about the way in which ACOs’ past performance is reflected in their benchmarks over time. As explained in the 2016 proposed rule, the policy modifications are designed to reduce the impact of past performance and better reflect regional expenditures. We continue to believe an approach that incorporates regional FFS expenditures into an ACO’s rebased historical benchmark will have mixed effects, increasing or decreasing benchmarks for ACOs in various circumstances. However, we believe that taking an incremental approach to incorporating regional elements when resetting the ACO’s benchmark offers a balance between requests for faster or slower phase-in of these changes, and is responsive to the circumstances of differently situated organizations as we transition to this revised approach. When taking these issues into consideration, on the whole, we believe that this approach is consistent with a sustainable vision for the future of the Shared Savings Program, under which a variety of organizations will have sufficient incentive to enter and continue in the program, working to achieve the program’s goals of better care for individuals, better health for populations, and lower growth in expenditures. While we acknowledge the variation across ACOs participating in the program, in terms of their patient populations, location, and organizational structure, among other factors, we do not believe it is desirable or operationally feasible to implement an approach that would allow each ACO to select from a menu of options for customizing the benchmark methodology that would apply in any given performance year or agreement period. Doing so would introduce considerable operational complexity into the program’s benchmarking methodology. Further an approach that allows an ACO to choose the more favorable of several methodologies for establishing its cost target would exacerbate our concerns about the potential for benchmarks to become E:\FR\FM\10JNR4.SGM 10JNR4 asabaliauskas on DSK3SPTVN1PROD with RULES Federal Register / Vol. 81, No. 112 / Friday, June 10, 2016 / Rules and Regulations overly inflated to the point where ACOs need to do little to maintain or change their care practices to generate savings. We are concerned that this flexibility could lead to opportunities for arbitrage and may dull incentives for ACOs to improve their performance under the Shared Savings Program. Comment: Several commenters also, generally, agreed with the importance of transparency, predictability, simplicity, accuracy, and stability as guiding principles in developing a revised rebasing methodology, and provided feedback on how to accomplish these aims. Response: We appreciate commenters’ acknowledgement and support of the principles that guided our consideration of potential revisions to the methodology for resetting an ACO’s historical benchmark for a second or subsequent agreement period. These principles also guided the development of our final policies, as reflected in the discussion throughout this section of this final rule. Comment: A few commenters suggested alternative rebasing methodologies exceeding the scope of the modifications described in the proposed rule (for instance, allowing ACOs, particularly small and rural ACOs, to choose whether to move to the revised rebasing methodology; transitioning to pure regional benchmarks, or pure national benchmarks, or using a combination of ACO historical costs and blended regional/national costs in benchmarks; adopting the Next Generation ACO model methodology into the Shared Savings Program; and eliminating rebasing or reducing the frequency of rebasing). A commenter questioned whether CMS could establish a benchmark floor, an actuarial number beyond which CMS would not lower an ACO’s benchmark. Another commenter suggested CMS adopt an option to allow Shared Savings Program ACOs to transition to a different payment model altogether such as a capitated payment model or population-based payments. Response: Although we appreciate commenters’ thoughtful recommendations for alternative methodologies for resetting the ACO’s historical benchmark, and other approaches for improving the rewards under the Shared Savings Program, we consider these suggestions to be beyond the scope of this final rule, and decline at this time to adopt commenters’ recommendations. Comment: A commenter expressed concern about CMS’ use of inconsistent terminology when describing the benchmarking methodology. In VerDate Sep<11>2014 21:42 Jun 09, 2016 Jkt 238001 particular, the commenter noted that CMS used the words ‘‘reset’’ or ‘‘rebase’’ interchangeably. The commenter also noted a lack of clarity regarding the use of ‘‘trend’’ or ‘‘trending.’’ This commenter, pointing to the length of the program’s rulemaking documents and the complexity of the policies discussed therein, encouraged CMS to be precise in its language. Response: We thank the commenter for raising this concern about the language used in technical discussions within rulemaking for the Shared Savings Program. To clarify, we consider the references to reset/resetting and rebase/rebasing an ACO’s historical benchmark to be synonymous (see for example, 76 FR 67912 (specifying ‘‘. . . the benchmark would be reset (or rebased) [at] the start of each agreement period.’’)) However, the use of the words trend and trending could have a meaning specific to the context in which the term is used. For example, we refer to the use of trend factors (or trending) when discussing the existing policy for restating BY1 and BY2 expenditures in terms of BY3 expenditures when establishing an ACO’s historical benchmark. However, ‘‘trends’’ may refer more generally to historical Medicare spending and cost experience. b. Regional Definition As explained in the 2016 proposed rule (see 81 FR 5829 through 5830), we consider an ACO’s region to be synonymous with the service area from which it derives its assigned beneficiaries. Furthermore, as discussed in this section of this final rule, issues related to the definition of an ACO’s regional service area include: (1) The selection of the geographic unit of measure to define this area; and (2) identification of the population of beneficiaries to include in this area. Calculation of the FFS expenditures for this area is discussed in detail in sections II.A.2.b.2 and II.A.2.e.2 of this final rule. A fundamental concept underlying our consideration of the definition of an ACO’s regional service area is that this geographic definition bear a relationship to the area of residence of the ACO’s assigned beneficiaries, as a means of accounting for the geographic spread of the ACO’s assigned population. In some cases, an ACO’s assigned beneficiary population may span multiple geographic boundaries, for example in cases where an ACO provides services to beneficiaries residing in multiple counties within a single state or multiple states. The approach of defining an ACO’s regional service area PO 00000 Frm 00009 Fmt 4701 Sfmt 4700 37957 based on the area of residence of its assigned beneficiaries would therefore reflect regionally-related factors unique to the region the ACO serves, including the health status of the region’s population, the geographic composition of the region (such as rural versus urban areas), and socio-economic differences within the regional population. (1) Defining the ACO’s Regional Service Area In the 2016 proposed rule, we considered the geographic unit of measure to use in defining an ACO’s regional service area for the purpose of determining the corresponding regional FFS expenditures to be used in calculations based on regional spending in the modified approach to establishing, adjusting and updating the ACO’s rebased historical benchmark (see 81 FR 5829). We explained that these regional FFS expenditures would be used in determining the regional adjustment to an ACO’s rebased historical benchmark and in calculating the growth rates in regional spending used in establishing and updating the ACO’s rebased historical benchmark. We proposed to determine an ACO’s regional service area by the counties of residence of the ACO’s assigned beneficiary population. We explained our belief that county-level data offers a number of advantages over the other options, including Core Based Statistical Areas (CBSAs), Metropolitan Statistical Area (MSAs), Combined Statistical Area (CSAs), States/territories, and Hospital Referral Regions (HRR). Our considerations included the following: • Counties tend to be stable regional units compared to some alternatives, as the definition of county borders tends not to change. • The agency has experience with identifying populations of beneficiaries by county of residence and calculating county-level rates based on their costs, including using county-level data to set cost targets for value based purchasing initiatives. CMS used counties to define the service areas of Physician Group Practice (PGP) demonstration sites (a predecessor of CMS’ ACO initiatives) and used Parts A and B spending by county as part of setting benchmarks for these organizations. We also use countylevel FFS expenditure data, in combination with other adjustments, to establish the benchmarks used for setting local MA rates. • In terms of determining regional costs, smaller areas (such as counties) better capture regional variation in Medicare expenditures, and allow for more customized regional definitions for each ACO, but risk being dominated E:\FR\FM\10JNR4.SGM 10JNR4 asabaliauskas on DSK3SPTVN1PROD with RULES 37958 Federal Register / Vol. 81, No. 112 / Friday, June 10, 2016 / Rules and Regulations by expenditures from a single ACO or group of ACOs, which could potentially reduce ACO benchmarks in clustered markets. We explained that we can guard against the potential bias from this effect by using a sufficiently large county-based population. • Currently, we produce quarterly and annual reports for Shared Savings Program ACOs that include aggregate data on distribution of assigned beneficiary residence by county. Consistent with this proposed definition of regional service area, we proposed to define regional costs as county FFS expenditures for the counties in which the ACO’s assigned beneficiaries reside calculated using the methodology discussed in section II.A.2.e.2 of this final rule. We explained that use of county-level FFS data in calculating expenditures for an ACO’s regional service area would permit ACOs to be viewed as being on the spectrum between traditional FFS Medicare and MA, a concept some commenters in response to the December 2014 proposed rule and stakeholders have urged CMS to articulate. Additionally, we noted that use of county FFS expenditure data, which are publicly available, would allow for increased transparency in ACO benchmark calculations and would ease ACOs’ and stakeholders’ access to data for use in modeling and predictive analyses. These proposals were reflected in our proposed addition of a new definition of ‘‘ACO’s regional service area’’ to § 425.20 and in a proposed new § 425.603 describing the calculations that would be used in resetting an ACO’s historical benchmark for a second or subsequent agreement period. We sought comment on these proposals and on the alternatives for defining an ACO’s regional service area, specifically use of CBSA, MSA, CSA or State/ territory designations. Comment: Many of the commenters addressing the regional definition favored the proposed use of counties of residence of an ACO’s assigned beneficiaries as the geographic unit of measure in defining an ACO’s regional service area. Commenters explaining their support for the proposal cited a variety of reasons, including: Counties provide a stable, clearly defined geographic unit; counties will be effective in capturing regional variation, and allow for greater customization of the ACO’s regional definition; and use of county-level data will further align ACOs with MA and other CMS initiatives. Of the few comments on alternatives discussed in the proposed rule (CBSAs, MSAs, CSAs, HRRs, states/ VerDate Sep<11>2014 21:42 Jun 09, 2016 Jkt 238001 territories), opinions tended to split for and against these approaches. A commenter pointed to the need for CMS to more consistently use the same geographic unit of measure for defining a region across its initiatives, preferring use of MSAs, which are also used by CMS in other payment systems and models. Several commenters raised alternatives not considered in the proposed rule. For instance, a commenter suggested CMS consider using a more sophisticated and granular methodology such as Primary Care Service Areas (PCSAs), pointing to consideration for use of this geographic unit in the Part B Drug Payment Model. Another commenter advised against using census regions. Response: We are finalizing our proposal to define an ACO’s regional service area by the counties of residence of the ACO’s assigned beneficiary population. We continue to believe that using counties as the geographic unit of measure offers advantages over other approaches, as supported by some commenters. Counties tend to be stable geographic units. Use of counties in setting the ACO’s regional service area more easily allows for the use of county FFS expenditures in calculating regional factors, an approach that will more closely align the Shared Savings Program methodology for incorporating regional FFS expenditures into ACO benchmarks with the MA rate-setting methodology. We have experience with use of county level data not only through MA but also previously with the PGP demonstration. In addition, we currently provide informational reports to Shared Savings Program ACOs that include aggregate data on distribution of assigned beneficiary residence by county. Given the short timeframe for implementing the changes in the benchmarking methodology described in this final rule, we believe this operational experience with use of county-level data within the Shared Savings Program will facilitate implementation of the revised methodology. We also believe that by using counties, rather than larger geographic units, we can more accurately reflect the geographic areas that the ACO serves. We decline at this time to use a different methodology to establish an ACO’s regional service area, particularly alternatives that were not contemplated in the 2016 proposed rule, which may prove challenging to implement within a short period of time for the Shared Savings Program and without notice to ACOs and other stakeholders. We also recognize that CMS uses different geographic units of PO 00000 Frm 00010 Fmt 4701 Sfmt 4700 measure across payment models, but continue to believe that use of counties, similar to the approach used in Medicare Advantage, is an appropriate methodology for the Shared Savings Program. FINAL ACTION: We are finalizing our proposal to determine an ACO’s regional service area by the counties of residence of the ACO’s assigned beneficiary population. Furthermore, we are finalizing our proposal to define regional costs as county FFS expenditures for the counties in which the ACO’s assigned beneficiaries reside calculated using the methodology discussed in greater detail in section II.A.2.e of this final rule. These final policies are reflected in the addition of a new definition of ‘‘ACO’s regional service area’’ to § 425.20 and new § 425.603 describing the calculations that will be used in resetting an ACO’s historical benchmark for a second or subsequent agreement period. (2) Establishing the Beneficiary Population Used To Determine Expenditures for an ACO’s Regional Service Area In the 2016 proposed rule we explained that the population that is the basis for calculating regional FFS costs must be sufficiently large to produce statistically stable mean expenditure estimates (avoiding biases that result from small numbers), and must be representative of the demographic mix, health status and cost trends of the beneficiary population within the ACO’s regional service area. Therefore, as discussed in section II.A.2.b.1 of this final rule, we proposed to define the ACO’s regional service area to include any county where one or more of the ACO’s assigned beneficiaries reside. We also proposed to calculate county FFS expenditures using the expenditures for all assignable FFS beneficiaries (a subset of the broader FFS population) residing within the county, including ACO assigned beneficiaries. We stated that we believed that this approach would result in the most accurate and predictable regional expenditure factor for each ACO (81 FR 5831). We detailed in a different section of the 2016 proposed rule proposals related to the definition of assignable FFS beneficiaries (81 FR 5843). (See also the discussion in section II.A.2.e of this final rule.) In discussing which expenditures should be included in these calculations, we explained that the overall FFS population includes beneficiaries who are not eligible for assignment to an ACO. Including expenditures for all FFS beneficiaries E:\FR\FM\10JNR4.SGM 10JNR4 asabaliauskas on DSK3SPTVN1PROD with RULES Federal Register / Vol. 81, No. 112 / Friday, June 10, 2016 / Rules and Regulations would introduce bias into the calculation of the ACO’s regional service area expenditures. We also considered whether to include the ACO’s assigned beneficiaries within the population used to determine expenditures for the ACO’s regional service area. We concluded that attempting to identify regional FFS expenditures for only non-ACO beneficiaries (or customizing the calculation of regional FFS expenditures for each ACO by excluding its own beneficiaries) would add significant complexity and create potential bias. Furthermore, excluding the ACO’s assigned beneficiaries from the population used to determine regional FFS expenditures may also produce biased results where an ACO tends to serve beneficiaries of a particular Medicare enrollment type, demographic or socio-economic status (for example, ACOs serving largely dual-eligible populations) and when an ACO tends to dominate (serve a large proportion of FFS beneficiaries) in a region. We considered addressing the circumstance of ACOs that are dominant in their region, by expanding the scope of the ACO’s region (for example, by including adjoining counties) to allow the ACO’s regional service area to include a greater mix of beneficiaries who are not assigned to the ACO. However, we explained our belief that this approach may be challenging to apply consistently and accurately given the potential for variation of populations across and within regional areas, and would be a potentially cumbersome policy to maintain as ACOs continue to develop across the country. Therefore, we indicated we would monitor for cases where an ACO tends to serve a large proportion of FFS beneficiaries in its region, and consider the effect of these circumstances on ACO benchmarks. If warranted, we would explore developing adjustments to the definition of an ACO’s regional service area to account for this circumstance in future rulemaking. Further, we proposed to weight an ACO’s regional expenditures relative to the proportion of its assigned beneficiaries in each county, determined by the number of the ACO’s assigned beneficiaries residing in the county in relation to the ACO’s total number of assigned beneficiaries. We explained that absent this weighting, we could overstate or understate the influence of the expenditures for a county where relatively few or many of an ACO’s assigned beneficiaries reside. These proposals on the calculation of county FFS expenditures and regional FFS expenditures were reflected in the VerDate Sep<11>2014 21:42 Jun 09, 2016 Jkt 238001 proposed new § 425.603. We sought comment on alternatives to the proposal to use assignable beneficiaries, including beneficiaries assigned to the ACO, in establishing the expenditures for an ACO’s regional service area, such as using all Medicare FFS beneficiaries in determining these expenditures. Comment: While some commenters expressed support for the proposal to include any county in which at least one assigned beneficiary resides in an ACO’s regional service area, many other commenters opposed this proposal. Some commenters questioned whether including data from counties with small numbers of assigned beneficiaries sufficiently improves the accuracy of the benchmark to justify the added complexity and administrative burden. The most commonly suggested alternative was to specify a higher threshold for the minimum number of assigned beneficiaries residing in a county included in the ACO’s regional service area. For instance, commenters suggested we include in the definition of the ACO’s regional service area counties where at least 1 percent of an ACO’s assigned beneficiaries reside. Commenters also pointed out that publicly available ACO assignment data files (made available to support modeling of the proposed policies) as well as the PGP Demonstration methodology, omitted counties with less than 1 percent of ACO assigned beneficiaries. Response: We are finalizing our proposal to include in the definition of an ACO’s regional service area any county where one or more beneficiaries assigned to the ACO reside. We continue to believe this approach is necessary to accurately reflect the diversity of the ACO’s assigned beneficiary population and to provide a complete picture of the ACO’s regional service area. Based on our initial modeling of this policy using preliminary assignment data for 433 ACOs participating in the program for performance year 2016, we observed that ACOs have on average about 7 percent of their assigned beneficiaries residing in counties in which less than 1 percent of the ACO’s total assigned beneficiary population resides. In this analysis, we observed a median of approximately 6 percent of assigned beneficiaries residing in counties where less than 1 percent of the ACO’s total assigned beneficiary population resides, a minimum of approximately 2 percent, and a maximum of approximately 44 percent. We also observed that for nearly 20 percent of these ACOs (78 of the 433) more than 10 percent of the ACO’s assigned beneficiaries were PO 00000 Frm 00011 Fmt 4701 Sfmt 4700 37959 dispersed across counties in which less than 1 percent of the ACO’s total assigned beneficiary population resides. Applying a threshold for including counties within the ACO’s regional service area would likely affect ACOs differently depending on the size of the ACO’s assigned beneficiary population residing in counties below the threshold because the remaining counties would need to be weighted proportionately higher, which could have a significant impact on the calculation of regional expenditures for an ACO. Further, we believe our approach to weighting county FFS expenditures, described later in this section of this final rule, will result in counties with very few assigned beneficiaries having a proportionately small effect on the expenditures for the ACO’s regional service area. Comment: The vast majority of commenters discussing the proposal to base regional FFS expenditures on assignable beneficiaries (instead of all FFS beneficiaries), favored an approach that would exclude from these calculations beneficiaries who would not meet the requirements for being assigned (such as non-utilizers of primary care services). A commenter expressed support for use of all Medicare beneficiaries from a particular region, instead of only assignable beneficiaries, in calculating regional expenditures. This commenter indicated that including expenditures for all Medicare FFS beneficiaries in these calculations accounts for beneficiaries seeking care within and outside the ACO, addresses concerns about smaller populations biasing the calculation, and is in line with other CMS initiatives that use calculations based on the entire Medicare population. While some commenters favored the proposed inclusion of ACO assigned beneficiaries in the regional expenditure calculations, many opposed this proposal. Those opposed usually suggested that CMS exclude from these calculations either the ACO’s assigned beneficiaries or all beneficiaries assigned to participants in any CMS ACO initiative (Shared Savings Program, Pioneer ACO Model, Next Generation ACO Model) or more broadly to participants in any alternative payment model. Commenters expressed concerns that including ACO beneficiaries’ expenditures would skew regional expenditure calculations by reflecting ACOs’ efforts to coordinate care and reduce expenditures for their assigned populations. Commenters indicated these concerns were more pronounced for ACOs that have significant market saturation, for E:\FR\FM\10JNR4.SGM 10JNR4 asabaliauskas on DSK3SPTVN1PROD with RULES 37960 Federal Register / Vol. 81, No. 112 / Friday, June 10, 2016 / Rules and Regulations example, in cases where an ACO is dominant in its market, or where many ACOs have formed within the same market (referred to as ‘‘ACO-heavy’’ regions). A commenter expressed a concern which was also reflected in other comments, that this would create another dynamic where an ACO must compete against its own historical performance. Another commenter noted that inclusion of an ACO’s assigned population in a comparison group would be unusual in a commercial ACO contract. Among the commenters expressing support for the inclusion of the ACO’s assigned beneficiaries in expenditure calculations for the ACO’s regional service area, some indicated that the approach would protect both ACOs and the Trust Funds. A commenter explained this approach would reduce the impact of the regional adjustment impact, particularly in less densely populated areas, but did not detail the reason for this belief. Another commenter specified that if ACOs are successful in limiting growth of expenditures, then including their beneficiaries in calculations of county FFS spending would serve to control the growth in calculated regional FFS spending, and ultimately allow the Medicare program to capture further savings as ACOs’ benchmarks move toward the regional average. Several commenters explained that removing the ACO’s assigned beneficiaries from the population used to determine regional FFS expenditures could bias results, but did not explain the nature of this potential bias. A commenter expressed concern that excluding the ACO’s assigned beneficiaries from the population used to determine regional FFS expenditures could effectively penalize ACOs for caring for the sickest patients, particularly if these ACOs are dominant in their markets. Some commenters also urged CMS to consider whether the proposed use of assignable beneficiaries in regional benchmark calculations could disadvantage rural ACOs, by showing artificially lower utilization rates in rural communities. Response: We are finalizing as proposed the policy to include the expenditures for all assignable FFS beneficiaries (including ACO assigned beneficiaries) residing in the counties that make up the ACO’s regional service area in calculating county FFS expenditures. We discuss in detail, in section II.A.2.e.3 of this final rule, the definition of assignable beneficiaries. Some commenters seemed to misunderstand the scope of beneficiaries included within the assignable population VerDate Sep<11>2014 21:42 Jun 09, 2016 Jkt 238001 (perceiving it as a broader population than the population currently used to calculate factors based on national FFS expenditures). To clarify, assignable FFS beneficiaries are a subset of the broader FFS population (see 81 FR 5843). The assignable beneficiary population, as defined in this final rule, would include any beneficiary receiving a primary care service from a primary care physician or from a physician with one of the primary specialty designations included in § 425.402(c). This primary care service must be one that is billed for under traditional FFS Medicare with a date of service during the 12-month assignment window as defined under § 425.20. For the reasons discussed in the proposed rule, and as summarized previously in this section of the final rule, we continue to believe that including the ACO’s assigned beneficiaries within the assignable population used to calculate county FFS expenditures for the ACO’s regional service area will reduce the chance of bias in the calculations, particularly in the case of ACOs serving higher cost beneficiaries within the region. We believe that including the ACO’s assigned beneficiaries among the population used to calculate risk adjusted county level expenditures (applying full CMS–HCC risk adjustment, as discussed in section II.A.2.e.2 of this final rule) is critical to ensuring regional expenditures accurately reflect the cost and acuity of beneficiaries in the ACO’s region. Additionally, we have significant operational concerns with commenters’ suggestions that CMS remove each ACO’s assigned beneficiaries from the ACO’s regional service area. This approach would entail calculating county rates tailored for each ACO for each benchmark and performance year, as opposed to the proposed approach of calculating county rates program-wide and determining on an ACO-specific basis which county expenditures to use and how to weight these expenditures. We are deeply concerned that this alternative approach would not be transparent because of the highly individualized nature of the exclusions that would be required for each ACO’s county FFS expenditure calculations. In addition, we believe determining ACOspecific county-level FFS expenditures would be time intensive given the complexity of these calculations, and prevent timely provision of program reports based on these data to ACOs. Furthermore, we continue to believe that the approach to determining county FFS expenditures based on assignable Medicare beneficiaries (as opposed to PO 00000 Frm 00012 Fmt 4701 Sfmt 4700 all Medicare beneficiaries) may avoid bias in these calculations, including biases that may be more pronounced in certain geographic regions as a result of healthcare patterns and population demographics. In the 2016 proposed rule, we explained our belief that including expenditures for all FFS beneficiaries would introduce bias into the calculations of the ACO’s regional service area expenditures. We explained that regional FFS expenditures, which are calculated based on relatively smaller populations than the national FFS population currently used in benchmark calculations based on national FFS expenditures, may be more susceptible to the influence of this bias. For example, in counties where the health status of the overall beneficiary population leads more beneficiaries to be non-utilizers of services, a bias in the direction of relatively lower regional expenditures may be more pronounced. On the other hand, a bias in the direction of relatively higher regional expenditures may be more pronounced in counties where there are established patterns of accessing primary care services through specialists who are not the basis for assignment. We also noted that ultimately, such differences could factor more prominently in certain counties that are used to compute an ACO’s regional service area expenditures (see 81 FR 5830 and 5831). Thus, using only assignable beneficiaries in expenditure calculations avoids biases that could result from including non-utilizers, among other factors, and that would be present in calculations based on the larger Medicare FFS population. Comment: Commenters concerned about the situation of ACOs that have a regional service area population that is too small (particularly as a result of excluding ACO assigned beneficiaries) suggested alternatives for expanding the ACO’s regional service area and encouraged CMS to adopt such an approach in the final rule (as opposed to monitoring the issue). Most commonly, commenters suggested including adjacent counties in the ACO’s regional definition (for example, citing the approach used in the Pioneer ACO model, or describing details of an alternative approach), as well as increasing the number of years of data included in the calculations (for example, using a 5-year rolling average for county-level spending estimates, along the lines of the approach used by MA). Some commenters suggested increasing the weight given to the counties that have a lower proportion of ACO assigned beneficiaries in relation E:\FR\FM\10JNR4.SGM 10JNR4 asabaliauskas on DSK3SPTVN1PROD with RULES Federal Register / Vol. 81, No. 112 / Friday, June 10, 2016 / Rules and Regulations to the population of Medicare FFS beneficiaries. However, a commenter acknowledged that any methodology for expanding the scope of an ACO’s region would be both cumbersome and challenging to apply consistently. Response: We appreciate commenters’ suggestions for alternative approaches to defining the ACO’s regional service area. In section II.A.2.e.2 of this final rule, we address commenters’ suggestions to use additional years of data to calculate county FFS expenditures. We decline at this time to adopt alternatives suggested by commenters for expanding the ACO’s regional service area population, particularly in relation to requests to exclude ACO assigned beneficiaries from the assignable population. We do not believe these adjustments are necessary under the methodology we are finalizing for determining the ACO’s regional service area using the assignable FFS beneficiary population, including ACO assigned beneficiaries. As we implement the revised rebasing methodology established with this final rule, we will consider the impact of including ACO assigned beneficiaries within the population used to calculate the regional FFS expenditures, including the potential for bias in regional FFS expenditure calculations for ACOs that are dominant in their regions and ACO-heavy regions. In the event we determine that any changes to are necessary to address these issues, we will address them in future rulemaking. Comment: Although not discussed in the proposed rule, a few commenters made suggestions to include or exclude MA beneficiaries in the population used to determine expenditures for the ACO’s regional service area. Response: As an initial matter, we wish to clarify the following: (1) The assignable population under this final rule could include beneficiaries who are enrolled in MA during part of the 12month assignment-window; and (2) the assignable population excludes beneficiaries who have no primary care services billed under traditional FFS Medicare and thus do not meet the definition of an ‘‘assignable beneficiary’’ under this final rule, such as beneficiaries who received services only through a MA plan for the entirety of the 12-month assignment window. Underlying our proposal to use assignable beneficiaries in calculating regional and national FFS expenditures was our intent to ensure these calculations were based on beneficiaries that have some chance of being assigned to the ACO. Accordingly, we decline at this time to include in regional FFS expenditure calculations beneficiaries VerDate Sep<11>2014 21:42 Jun 09, 2016 Jkt 238001 who have only received services through a MA plan during the 12-month assignment window used to determine assignable beneficiaries and who could not be eligible to be assigned to an ACO. However, we wish to clarify that some beneficiaries who meet the definition of ‘‘assignable beneficiary’’ adopted in this final rule will ultimately be excluded from assignment to an ACO for purposes of determining the ACO’s benchmark or performance year expenditures because they fail to meet the assignment criteria specified under § 425.401(a). Comment: Almost all commenters discussing the proposal to weight expenditures by the proportion of the ACO’s assigned beneficiaries in each county supported the proposed approach. Commenters underscored the importance of this weighting for accurately reflecting expenditure levels in the ACO’s market in regional calculations. Absent this weighting, CMS could over or understate the influence of expenditures for a county. A commenter indicated that the need to perform this weighting illustrated the inaccuracies and lack of precision with using county-level data, and recommended the use of an alternative methodology to define the ACO’s regional service area (such as CBSAs, MSAs, and CSAs). Some commenters requested clarification of what the proposed methodology for establishing an ACO’s regional service area would mean for ACOs that use a model of geographically distant providers to aggregate to the required minimum number of 5,000 assigned beneficiaries. Response: We are finalizing as proposed the policy of weighting an ACO’s regional expenditures relative to the proportion of its assigned beneficiaries in each county, determined by the number of the ACO’s assigned beneficiaries residing in the county in relation to the ACO’s total number of assigned beneficiaries. For the reasons discussed in the proposed rule and raised by commenters who supported this approach, we believe that weighting county-level FFS expenditures by the proportion of assigned beneficiaries in each county will accurately reflect expenditure levels in the ACO’s market in regional FFS expenditure calculations. We also note that the need to weight the expenditures is not necessarily specific to the choice of counties as the geographic unit in the regional definition. Some approach to weighting would be necessary in any methodology for calculating expenditures for an ACO’s regional service area, since ACOs often serve beneficiaries in multiple counties within a state or across several PO 00000 Frm 00013 Fmt 4701 Sfmt 4700 37961 states as discussed in the 2016 proposed rule (81 FR 5831). As a result, we disagree with the comment indicating that use of weighting in a methodology for calculating regional FFS expenditures is somehow indicative of a lack of precision with using countylevel data. Further, in response to the request for clarification on the application of the weighting methodology to smaller ACOs with geographically dispersed ACO participants, we note that the methodology for determining an ACO’s regional service area and calculating regional FFS expenditures will be applied consistently across ACOs, regardless of ACO size, composition, or geographic location. We did not receive comments specifically addressing how countylevel FFS expenditures should be weighted for purposes of determining regional FFS expenditures for the ACO’s regional service area. In the proposed rule, we outlined an approach in the proposed § 425.603(f). However, following further consideration of this issue, we now believe that the proposed provision should be revised to more clearly reflect our intended approach. We wish to clarify that when determining expenditures for an ACO’s regional service area, we intend to calculate each county’s expenditures by enrollment type, and to weight these expenditures by the ACO’s proportion of assigned beneficiaries in the county for the applicable enrollment type. We will then aggregate these values, across counties within the ACO’s regional service area, for each population by Medicare enrollment type. This will result in a separate value for each of the four populations identified by Medicare enrollment type, representing countyweighted regional FFS expenditures for that Medicare enrollment type. We will apply to each of these aggregate expenditure values (specific to a Medicare enrollment type) a weight reflecting the ACO’s overall proportion of assigned beneficiaries in that Medicare enrollment type, as determined in relation to its entire assigned population for the relevant benchmark or performance year in order to determine the ACO’s risk adjusted regional expenditures for that enrollment type. We are making clarifying revisions to the provision at § 425.603(f) to reflect this approach. FINAL ACTION: We are finalizing our proposal to define the ACO’s regional service area to include any county where one or more assigned beneficiaries reside, and to reflect this policy through the addition of a new definition of ‘‘ACO’s regional service E:\FR\FM\10JNR4.SGM 10JNR4 37962 Federal Register / Vol. 81, No. 112 / Friday, June 10, 2016 / Rules and Regulations area’’ to § 425.20. We are finalizing several proposals, among others described elsewhere in this final rule, on the calculation of county FFS expenditures and an ACO’s regional FFS expenditures as reflected in new § 425.603 to: (1) Include expenditures for all assignable FFS beneficiaries (including ACO assigned beneficiaries) residing within the county to calculate the county’s FFS expenditures; and (2) weight an ACO’s regional expenditures relative to the ACO’s proportion of its assigned beneficiaries in each county, determined by the number of the ACO’s assigned beneficiaries residing in the county in relation to the ACO’s total number of assigned beneficiaries. As discussed in this section of this final rule, we are making revisions to § 425.603(f), to clarify the weighting of county-level expenditures by the ACO’s proportion of beneficiaries by Medicare enrollment type (ESRD, disabled, aged/ dual eligible, aged/non-dual eligible) in each county for purposes of determining the ACO’s regional expenditures. We will monitor the effects of this methodology on calculations of regional FFS expenditures, particularly for bias in the calculations among ACOs that are dominant in their regions, as well as in ACO-heavy regions, and will address any necessary adjustments to this methodology through future rulemaking. asabaliauskas on DSK3SPTVN1PROD with RULES c. Applying Regional Expenditures to the ACO’s Rebased Benchmark (1) Background In the 2016 proposed rule (81 FR 5832), we summarized our discussion of benchmark alternatives in recent rulemaking, indicating there is an array of options for incorporating regional expenditures in ACO benchmarks. We explained our agreement with commenters on the previous rulemaking regarding the benefits of incorporating regional expenditures in rebased benchmarks, and indicated our interest in moving to an alternative rebasing approach that builds on the program’s existing benchmarking methodology established under the authority of section 1899(d)(1)(B)(ii) of the Act and codified in the Shared Savings Program regulations at § 425.602. As we stated in the proposed rule, over 400 ACOs have voluntarily entered the Shared Savings Program under the financial models (Track 1 and Track 2) established in the November 2011 final rule and as modified by the June 2015 final rule (adding a choice of Track 3 for agreement periods beginning January 1, 2016). Furthermore, 147 ACOs with 2012 and 2013 agreement start dates VerDate Sep<11>2014 21:42 Jun 09, 2016 Jkt 238001 elected to continue their participation in the program for a second 3-year agreement period effective January 1, 2016, to which the current rebasing methodology, finalized in the June 2015 final rule applies. We explained that the value proposition of the program’s financial models, which is largely determined by the methodology used to establish ACO benchmarks, is an important consideration for organizations deciding whether to engage (or continue to engage) in this new approach to the delivery of health care. Therefore, in considering how to incorporate regional expenditures into the benchmarking methodology, we expressed our belief that building from the existing benchmarking methodology will help maintain the stability of the program and ultimately result in revised policies that are more easily understood by ACOs and program stakeholders, and more readily implemented by CMS. Principally, we considered using the Secretary’s discretion under section 1899(d)(1)(B)(ii) of the Act to adjust the historical benchmark by ‘‘such other factors as the Secretary determines appropriate’’ in order to incorporate regional FFS expenditures into the rebased historical benchmark. In the 2016 proposed rule (81 FR 5832 through 5836), we discussed two approaches to calculating an adjustment to an ACO’s rebased historical benchmark to account for regional FFS expenditures for the ACO’s regional service area, and described how the adjustment would be applied to the rebased historical benchmark. We discussed our belief that although the plain language of section 1899(d)(1)(B)(ii) of the Act demonstrates Congress’ intent that the benchmark established for a Shared Savings Program ACO would reflect the ACO’s historical expenditures in the 3 most recent years prior to the start of the ACO’s agreement period, Congress also recognized that this historical benchmark should be adjusted ‘‘for beneficiary characteristics and such other factors as the Secretary determines appropriate.’’ Therefore, to the extent an ACO’s rebased benchmark continues to be based on the ACO’s historical expenditures in the 3 years preceding the start of the new agreement period, we expressed our belief that adjusting those historical expenditures to account for regional FFS expenditures for the ACO’s regional service area falls within the Secretary’s discretion to make adjustments to the historical benchmark for ‘‘other factors’’ under section 1899(d)(1)(B)(ii) of the Act. We explained that we currently make several adjustments to an ACO’s PO 00000 Frm 00014 Fmt 4701 Sfmt 4700 historical benchmark under the Secretary’s discretion under section 1899(d)(1)(B)(ii) of the Act, including to: (1) Adjust benchmark year expenditures to exclude IME and DSH payments (§ 425.602(a)(1)(i)); (2) adjust the historical benchmark for the addition and removal of ACO participants (§ 425.602(a)(8)); (3) adjust the rebased historical benchmark to account for the average per capita amount of savings generated during the ACO’s previous agreement period (§ 425.602(c)(2)(ii)); and (4) adjust the historical benchmark for changes in demographics and health status of the ACO’s performance year assigned beneficiary population (§§ 425.604(a)(1) through (3), 425.606(a)(1) through (3), 425.610(a)(1) through (3)). We expressed our belief that it is appropriate to further adjust ACO historical benchmarks to reflect FFS expenditures in the ACO’s regional service area. Furthermore, in relation to the use of regional FFS expenditures in developing the ACO’s rebased benchmark, we explained our belief that it is appropriate to forgo making an additional adjustment to account for savings generated by the ACO in its prior agreement period (81 FR 5832). (2) Adjusting the Reset ACO Historical Benchmark To Reflect Regional FFS Expenditures In the 2016 proposed rule we described two options for calculating the regional FFS adjustment and the ACO’s rebased historical benchmark. The first option would be to calculate a regional adjustment based on a regionally-trended version of the ACO’s prior historical benchmark. The second option would be based on a regional average determined using county FFS expenditures (81 FR 5832 and 5833). We proposed to adopt the second option. Specifically, we proposed to calculate the ACO’s rebased historical benchmark using the current rebasing methodology established in the June 2015 final rule under which an ACO’s rebased benchmark is calculated based on the 3 years prior to the start of its current agreement period. Consistent with the current policy we would equally weight the 3 benchmark years. However, in trending forward benchmark year (BY) 1 and BY2 expenditures to BY3 dollars, we proposed to use regional growth rates (instead of national growth rates) for Parts A and B FFS expenditures (81 FR 5833 and 5838). Furthermore, in calculating the ACO’s rebased historical benchmark, we proposed not to apply the current adjustment to account for savings generated by the ACO under its prior agreement period. We explained our E:\FR\FM\10JNR4.SGM 10JNR4 asabaliauskas on DSK3SPTVN1PROD with RULES Federal Register / Vol. 81, No. 112 / Friday, June 10, 2016 / Rules and Regulations observation that for ACOs generating savings, a rebasing methodology that accounts for regional FFS expenditures would generally leave a similar or slightly greater share of measured savings in an ACO’s rebased benchmark for its ensuing agreement period. By contrast, for ACOs generating losses, a rebasing methodology that accounts for regional FFS expenditures would tend to carry forward a significant portion of measured losses into their rebased benchmarks and push benchmarks lower than the current rebasing policy. We expressed our belief that in transitioning to a benchmark rebasing methodology that incorporates an adjustment for regional FFS expenditures, it is important to forgo the current adjustment to account for shared savings generated by the ACO under its prior agreement period. We proposed to calculate the regional FFS adjustment to the ACO’s rebased historical benchmark based on a regional average determined using county FFS expenditures. The calculation of regional average expenditures would generally involve the following key steps: • Calculate risk adjusted regional per capita FFS expenditures using county level Parts A and B expenditures for the ACO’s regional service area for each Medicare enrollment type (ESRD, disabled, aged/dual eligible, aged/nondual eligible); weighted based on the proportion of ACO assigned beneficiaries residing in each county for the most recent benchmark year. We also proposed a risk adjustment approach that would be used in these calculations to adjust for differences in health status between an ACO and its regional service area (81 FR 5846 through 5848; and as discussed in detail elsewhere within this section of this final rule). • Weight the resulting regional expenditures by the proportion of assigned beneficiaries for the most recent benchmark year for each Medicare enrollment type (ESRD, disabled, aged/dual eligible, aged/nondual eligible). We described in detail and sought comment on the alternative option, under which we would calculate the regional FFS adjustment based on a regionally-trended version of the ACO’s prior historical benchmark (81 FR 5833). In comparing the features of the two options, we expressed our belief that using regional average expenditures offered a preferred approach. While we believed both options would avoid penalizing ACOs that improve their spending relative to that of their region, the approach of using regional average VerDate Sep<11>2014 21:42 Jun 09, 2016 Jkt 238001 expenditures would not depend on older historical data in calculations as would be required under the alternative involving calculation of a regionallytrended amount. In general, from an operational standpoint, we anticipated that using a regional average as part of calculating regional FFS expenditures for an ACO’s regional service area would be easier for ACOs and other stakeholders to understand as well as for us to implement in comparison to the alternative considered, and would more closely align with the MA ratesetting methodology. We also considered how the adjustment based on regional FFS expenditures should be applied to the ACO’s rebased historical benchmark. Our preferred approach was to use the following steps to adjust the ACO’s rebased historical benchmark: • Calculations of the ACO’s rebased historical benchmark and regional average expenditures, as described previously in this section of the final rule, would result in average per capita values of expenditures for each Medicare enrollment type (ESRD, disabled, aged/dual eligible, aged/nondual eligible). • For each Medicare enrollment type (ESRD, disabled, aged/dual eligible, aged/non-dual eligible) we would determine the difference between the average per capita regional amount and the average per capita amount of the ACO’s rebased historical benchmark. These values may be positive or negative. For example, for a particular Medicare enrollment type, if the value of the ACO’s rebased historical benchmark is greater than the regional average amount, the difference between these values will be expressed as a negative number. • Multiply the resulting difference, for each Medicare enrollment type by a percentage determined for the relevant agreement period. The value of this percentage is described in detail later in this section of the final rule. The products (one for each Medicare enrollment type) resulting from this step are the amounts of the regional adjustments that will be applied to the ACO’s historical benchmark. • Apply the adjustment to the ACO’s rebased historical benchmark by adding the adjustment amount for the Medicare enrollment type to the truncated, trended and risk adjusted average per capita value of the ACO’s rebased historical benchmark for the same Medicare enrollment type. • Multiply the adjusted value of the ACO’s rebased historical benchmark for each Medicare enrollment type by the proportion of the ACO’s assigned PO 00000 Frm 00015 Fmt 4701 Sfmt 4700 37963 beneficiary population for that Medicare enrollment type, based on the ACO’s assigned beneficiary population for benchmark year 3 of the rebased historical benchmark. • Sum expenditures across the four Medicare enrollment types to determine the ACO’s adjusted rebased historical benchmark. In a separate section of the 2016 proposed rule, we considered issues related to risk adjustment when using regional expenditures in resetting ACO benchmarks, including considerations raised in prior rulemaking (see 81 FR 5846 through 5848). We discussed our concern that using CMS–HCC risk scores for an ACO’s assigned beneficiary population in resetting the ACO’s benchmark has the potential to benefit ACOs that have systematically engaged in coding initiatives during their prior agreement period. We explained that this effect would have been limited in the corresponding performance years due to the application of our current approach to risk adjusting during the agreement period according to the ACO’s newly and continuously assigned beneficiary populations. We noted that initial financial performance results (for the performance years ending December 31, 2013 and 2014) do not show strong evidence that concerns about systematic coding practices by ACOs have materialized, but complete data are not yet available to analyze the effect of coding initiatives in the initial rebasing of ACO benchmarks, as initial program entrants (ACOs with 2012 and 2013 agreement start dates) only began their second agreement periods on January 1, 2016. To balance our concerns regarding ACO coding practices with the recommendations of commenters received through earlier rulemaking, we proposed to risk adjust to account for the health status of the ACO’s assigned population in relation to FFS beneficiaries in the ACO’s regional service area as part of the methodology for determining the adjustment to the ACO’s rebased historical benchmark to reflect regional FFS expenditures, and indicated we would rigorously monitor for the impact of coding initiatives on ACO benchmarks and make necessary refinements to the program’s risk adjustment methodology through future rulemaking if program results show adverse impacts due to increased coding intensity. We outlined the methodology of the proposed risk adjustment approach. We indicated that we would compute for each Medicare enrollment type a measure of risk-adjusted regional expenditures that would account for the differences between the average CMS– E:\FR\FM\10JNR4.SGM 10JNR4 asabaliauskas on DSK3SPTVN1PROD with RULES 37964 Federal Register / Vol. 81, No. 112 / Friday, June 10, 2016 / Rules and Regulations HCC risk scores of the ACO’s assigned beneficiaries and the average CMS–HCC risk scores in the ACO’s regional service area. This adjustment would also capture differences in patient mix between the ACO’s assigned population and the FFS population in the ACO’s regional service area. We noted our belief that this combined approach (risk adjustment in combination with monitoring for coding intensity) was reasonable given the lack of strong evidence to date that ACOs are engaging in more intensive coding practices and given a number of factors, described in the 2016 proposed rule (81 FR 5847 through 5848), that we believe would mitigate the potential impact of coding intensity on ACO financial calculations. We noted that the proposed approach would not apply in the calculation of benchmarks for ACOs in their first agreement period or in the second agreement period for ACOs that started the program in 2012 and 2013 and started a new agreement period on January 1, 2016. We also noted that for all ACOs we would continue to use the current methodology to adjust the ACO’s benchmark annually to account for the health status and demographic factors of the ACO’s performance year assigned beneficiaries (according to the newly and continuously assigned populations). We sought comment on this proposed approach and on the alternatives considered that might be employed in the future to limit the impacts of intensive coding while still accounting for changes in health status within an ACO’s assigned beneficiary population, including: (1) Applying the methodology currently used to adjust the ACO’s benchmark annually to account for the health status and demographic factors of the ACO’s performance year assigned beneficiaries (according to newly and continuously assigned populations) when rebasing the ACO’s historical benchmark; or (2) developing a coding intensity adjustment by looking at risk score changes over time for beneficiaries assigned to the ACO for at least two consecutive years, as well as in each respective diagnosis collection year (similar to the population referred to as stayers under the MA methodology) relative to the greater FFS population. In another section of the 2016 proposed rule, we proposed programwide changes to the methodology used to adjust the ACO’s benchmark for changes in ACO participant (TIN) composition (81 FR 5850 and 5851). In that discussion, we proposed to redetermine the regional FFS adjustment to account for changes to the VerDate Sep<11>2014 21:42 Jun 09, 2016 Jkt 238001 ACO’s certified ACO Participant List. Specifically, we would redetermine the ACO’s regional service area during the reference year (benchmark year 3 (BY3)) based on the residence of the ACO’s assigned beneficiaries for the reference year determined using the new ACO Participant List. We would also use this assigned population to determine the ACO’s proportion of beneficiaries by Medicare enrollment type (ESRD, disabled, aged/dual eligible, aged/nondual eligible) to be used in calculating the regional adjustment. We would then redetermine the regional FFS adjustment to the ACO’s rebased historical benchmark, based on regional average expenditures for the ACO’s updated regional service area. In redetermining the regional FFS adjustment, we would also adjust for differences between the health status of the ACO’s assigned beneficiaries determined using the new ACO Participant List and the population of assignable beneficiaries in the ACO’s regional service area based on the reference year (BY3). Although we will discuss our proposed revisions to the methodology for adjusting benchmarks to account for changes in ACO participant composition in more detail in section II.B of this final rule, we believe it is appropriate to address the issue of redetermining the regional FFS adjustment based on changes in the ACO’s participant composition in this section of this final rule. Consistent with our proposal to incorporate an adjustment for regional expenditures into an ACO’s rebased benchmark, we proposed to revise § 425.602 in order to limit the scope of the provision to establishing, adjusting, and updating the benchmark for an ACO’s first agreement period. We proposed to explain how the benchmark would be reset for a subsequent agreement period, including the methodology for adjusting an ACO’s rebased historical benchmark to reflect FFS expenditures in the ACO’s regional service area in the ACO’s second or subsequent agreement period starting on or after January 1, 2017, in a new provision of the Shared Savings Program regulations at § 425.603. We also proposed to include the risk adjustment approach to account for differences in health status between the ACO’s assigned beneficiary population and the broader FFS population in the ACO’s regional service area in the revised benchmark rebasing methodology under § 425.603. In addition, we proposed to specify in the new provision at § 425.603 that CMS will redetermine the regional PO 00000 Frm 00016 Fmt 4701 Sfmt 4700 adjustment amount annually based on the ACO’s assigned beneficiaries for BY3 determined using the most recent certified ACO Participant List for the relevant performance year. Furthermore, we proposed to make conforming and clarifying revisions to the provisions of § 425.602, including to: Revise the title of the section; remove paragraph (c) and incorporate this paragraph in the new § 425.603; and add a paragraph that describes the adjustments made to the ACO’s historical benchmark during an ACO’s first agreement period to account for changes in severity and case mix for newly and continuously assigned beneficiaries as presently specified under § 425.604, § 425.606, and § 425.610. We also proposed to specify in § 425.20 that the acronym ‘‘BY’’ stands for benchmark year. We sought comments on our proposals for incorporating regional expenditures into rebased ACO benchmarks and on the alternative approach of using a regionally-trended amount developed from the ACO’s historical benchmark for a prior agreement period instead of regional average expenditures to adjust the ACO’s rebased historical benchmark. In particular, we welcomed comments on the design of the approaches for calculating the regional adjustment to the ACO’s rebased historical benchmark described in the 2016 proposed rule, as well as any concerns about implementing the regional adjustment. Comment: A few commenters supported the proposal to eliminate the adjustment to the ACO’s historical benchmark for savings achieved by the ACO in the previous agreement period. However, most commenters strongly opposed the proposal to discontinue the current adjustment to the ACO’s rebased benchmark for savings generated in the prior agreement period. Commenters explained that eliminating the adjustment makes it harder for ACOs that have successfully met the goals of the program in a prior agreement period to achieve future savings. These commenters were critical of CMS’ explanation that incorporating regional expenditures sufficiently offsets the loss of the adjustment for savings in the prior agreement period. Some commenters specified that removing the adjustment would undermine the sustainability of the program, citing concerns including the following: • Further reducing benchmarks for ACOs with higher historical costs compared to their region that would be negatively affected by the introduction of a regional adjustment. Several commenters suggested that retaining the E:\FR\FM\10JNR4.SGM 10JNR4 Federal Register / Vol. 81, No. 112 / Friday, June 10, 2016 / Rules and Regulations asabaliauskas on DSK3SPTVN1PROD with RULES adjustment could have the effect of more gradually lowering the rebased benchmarks for ACOs harmed by the integration of regional expenditures over subsequent agreement periods. • Discouraging successful ACOs from remaining in the program as they face increasingly lower benchmarks and diminishing returns, with a commenter indicating that the current adjustment helps the many existing ACOs that have generated savings but not been eligible to share in those savings. • The need to provide further incentives to retain ACOs with comparatively lower historical spending compared to their regions. Some commenters pointed to CMS’ rationale for the adjustment specified in earlier rulemaking as reason to retain it.1 Several commenters pointed to the need to allow for additional time to evaluate the effects of the adjustment, which was applicable beginning in 2016, before changing the policy. Some commenters urged CMS to evaluate the rationale for accounting for savings in a prior agreement period separately from its consideration of incorporating regional cost data into benchmarks, believing these to be distinct issues that have distinguishable effects on ACOs. A commenter, urged that the adjustment be retained, pointing to the need for alignment between federal and state value based payment programs, citing as an example a state of New York initiative that has committed to including shared savings (or losses) when calculating its program benchmarks. Many commenters favored CMS maintaining the current adjustment. Some commenters made suggestions, creating opposing alternatives, for CMS broadening or narrowing the amount of the adjustment. Although not discussed in the proposed rule, several 1 For example, in the June 2015 final rule we explained our belief that the adjustment for savings generated in the ACO’s prior agreement period is important for encouraging ongoing program participation by ACOs that were successful 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 that 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 (see 80 FR 32788). However, as noted elsewhere in this final rule, in the June 2015 final rule we stated our belief that it would 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 future changes to the benchmarking methodology to incorporate regional FFS expenditures (see 80 FR 32791). See also discussion of the policy in the December 2014 proposed rule (79 FR 72838 through 72839). VerDate Sep<11>2014 21:42 Jun 09, 2016 Jkt 238001 commenters suggested incrementally lowering the adjustment amount over time. For example, a commenter suggested adding a percentage of prior savings that would be reduced in relation to the proposed phase-in to a higher weight in calculating the regional adjustment. A commenter, anticipating that ACOs in efficient, low-cost areas will be harmed by the proposed transition to benchmarks reflecting regional expenditures, encouraged CMS to abandon the proposed benchmark rebasing changes, including the removal of the adjustment for prior savings and the proposed regional FFS adjustment to the ACO’s rebased benchmark, and recommended CMS continue to explore alternative methodologies for rebasing ACO benchmarks. Some comments regarding the adjustment for savings generated in a prior agreement period seemed to reflect commenters’ misunderstanding of the methodology for calculating the adjustment described in the June 2015 final rule (see 80 FR 32788 through 32791). For example, some commenters incorrectly described the methodology as based on savings earned (indicating only the amount of shared savings payments to eligible ACOs) as opposed to savings generated (accounting for savings by ACOs that may have lowered expenditures, but not by enough to earn a shared savings payment). A commenter stated that the current adjustment accounts for half of the savings achieved by the ACO. However, the adjustment takes into account the ACO’s final sharing rate, which depends on the ACO’s track as well as its quality performance. Response: We believe our intent to propose eliminating the adjustment for prior savings was made clear in the discussion in the June 2015 final rule of moving to a rebasing approach that accounts for regional FFS costs and trends. In outlining our preferred methodology, we specified we would calculate the ACO’s rebased historical benchmark—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 (80 FR 32796). We also specified that in a future rule we would put forward details on a revised rebasing approach that would address, among other issues, 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 PO 00000 Frm 00017 Fmt 4701 Sfmt 4700 37965 methodology finalized in the June 2015 final rule. We also indicated that we would consider whether additional adjustment would be needed to transition ACOs to the revised benchmark rebasing methodology when they have been previously rebased under the methodology established with the June 2015 final rule (80 FR 32796). We continue to believe that for ACOs generating savings, a rebasing methodology that accounts for regional FFS expenditures would generally leave a similar or slightly greater share of measured savings in an ACO’s rebased benchmark for its ensuing agreement period. We disagree with comments suggesting that we either maintain the current adjustment without modification or broaden the scope of the adjustment for savings generated in the ACO’s prior agreement period to make it more generous. We believe that as a result, benchmarks could become overly inflated for some ACOs (particularly those benefiting from the regional FFS adjustment) to the point where ACOs would need to do little to maintain or change their care practices to generate savings. Further, continued application of the current adjustment for savings generated in an ACO’s prior agreement period, without modification, further ties an ACO’s historical benchmark to its past performance, rather than making an ACO’s benchmark more reflective of FFS spending in its region, an important aim of the revisions to the rebasing methodology in this final rule. Therefore, as proposed, we will apply the revised rebasing methodology in the new regulation at § 425.603 to reset an ACO’s historical benchmark for a second or subsequent agreement period beginning in 2017 and subsequent years, and will not include an adjustment for savings generated in the ACO’s prior agreement period. Comment: Most commenters discussing the regional adjustment to the ACO’s rebased historical benchmark favored the proposed use of regional average expenditures in the calculation. Some commenters cited reasons for preferring the proposed approach instead of the alternative considered in the proposed rule, under which we would calculate the regional FFS adjustment using a regionally-trended amount based on an ACO’s historical benchmark from a prior agreement period, including that the use of regional averages more closely aligns with the MA rate-setting methodology and would not depend on older historical data. A commenter explained that the reliance on older historical data under the regionally-trended approach would decrease the attainability and E:\FR\FM\10JNR4.SGM 10JNR4 asabaliauskas on DSK3SPTVN1PROD with RULES 37966 Federal Register / Vol. 81, No. 112 / Friday, June 10, 2016 / Rules and Regulations accuracy of the resulting benchmarks over time. In particular, the commenter indicated that the: (1) Comparison of ACO assigned beneficiaries to non-ACO assigned beneficiaries will not remain stable over time as ACO participation in the Shared Savings Program grows or declines in a region; and (2) risk adjustment under this approach may not be adequate to account for changes in the ACO’s composition over time in relation to its region. A few commenters expressed support for the alternative (use of a regionallytrended amount) or a somewhat similar approach. For example, a commenter cited concerns that use of regional averages would disadvantage ACOs with historically high-cost providers, such as skilled nursing facilities, and ultimately incent ACOs to remove these providers as participants in order to generate savings below their benchmark. Another commenter, detailing findings based on extensive modeling, favored an approach under which the historical benchmark for the initial agreement period would be updated for subsequent agreement periods to account for regional spending growth and for compositional changes in ACO beneficiaries or providers without rebasing it to reflect the historical costs for the ACO from the most recent years prior to the start of the subsequent agreement period. Some commenters addressed the anticipated effects of the regional FFS adjustment on benchmarks of ACOs with spending relatively lower and higher than their region. Commenters explained that the proposed approach rewards an ACO with lower spending than its region by increasing the ACO’s benchmark value. For an ACO with higher spending than its region, the proposed approach was anticipated to decrease the ACO’s benchmark value. Some commenters expressed particular concern about the latter group, explaining that the proposed policy could create a disincentive for continued participation by ACOs that were successful in earning shared savings payments in their initial agreement period, but have spending higher than the regional average for their regional service area. Response: We are finalizing our proposal to calculate the regional adjustment to the ACO’s historical benchmark as a percentage of the difference between the average per capita expenditure amount for the ACO’s regional service area and the average per capita amount of the ACO’s rebased historical benchmark for each Medicare enrollment type (ESRD, disabled, aged/dual eligible, aged/non- VerDate Sep<11>2014 21:42 Jun 09, 2016 Jkt 238001 dual eligible). We continue to believe there are benefits to using a regional average in calculating the adjustment, rather than the alternative approach of using a regionally-trended amount, including: greater alignment with the MA rate-setting methodology; lack of dependence on older historical data; greater transparency for ACOs and other stakeholders; and easier integration and alignment with our existing approach to adjusting the historical benchmark when an ACO makes ACO Participant List changes. We agree with commenters that the regional FFS adjustment will have differing effects on an ACO’s benchmark depending on whether the ACO’s spending is relatively lower or higher than the spending for its regional service area. As discussed in this section of this final rule, we outlined our preferred approach to calculating the adjustment in the 2016 proposed rule (see 81 FR 5833 and 5834). We specified that we would determine the difference between the average per capita regional amount and the average per capita amount of the ACO’s rebased historical benchmark for each Medicare enrollment type (ESRD, disabled, aged/ dual eligible, aged/non-dual eligible). We indicated that the difference would be expressed as a negative number if the value of the ACO’s rebased historical benchmark for a particular Medicare enrollment type is greater than the regional average amount for that enrollment type. The difference would be expressed as a positive number if the value of the ACO’s rebased historical benchmark for a particular Medicare enrollment type is less than the regional average amount. We anticipate the regional adjustment value will differ by Medicare enrollment type for each ACO, and it will be possible to have a mix of positive and negative values for the regional adjustment amount across these Medicare enrollment types. Generally, we anticipate several aspects of the revised rebasing methodology will mitigate concerns about the potential negative effects of the regional adjustment. First, as discussed in section II.A.2.b of this final rule, we believe the inclusion of ACO assigned beneficiaries in the calculation of regional FFS expenditures will be important in capturing the cost and health status of the beneficiary population served by the ACO. For example, for a high spending ACO operating in a lower spending region, including the ACO’s assigned population in the regional FFS expenditures would likely result in a relatively higher regional adjustment value than if these beneficiaries were PO 00000 Frm 00018 Fmt 4701 Sfmt 4700 excluded. Second, we anticipate the risk adjustment methodology used in calculating the regional FFS adjustment will help mitigate the incentive for ACOs to avoid relatively higher cost providers and higher cost, higher acuity beneficiaries. As discussed in section II.A.2.e.2 of this final rule, we will use CMS–HCC scores to risk adjust county FFS expenditures when determining expenditures for the ACO’s regional service area, thereby accounting for the severity of health status and case mix of this population. Additionally, as discussed elsewhere in this section of this final rule, we are finalizing our proposal to account for the difference in health status between the ACO’s population and the ACO’s regional service area in calculating the regional FFS adjustment. Under this approach, if an ACO’s population is healthier than the assignable beneficiaries in the ACO’s regional service area, with lower average risk scores for the relevant period, the risk adjustment would reduce the amount of the regional FFS adjustment. Similarly, if the ACO’s assigned beneficiary population is comparably sicker than the assignable beneficiaries in the ACO’s regional service area, with higher average risk scores for the relevant period, the risk adjustment would increase the amount of the regional FFS adjustment. Third, we believe our proposed phase-in approach, as described in section II.A.2.c.3. of this final rule, will ease the transition to this revised methodology for ACOs with historical spending higher than that of their region. With respect to a more technical consideration for calculating the regional FFS adjustment, we note that the proposed regulations text specified that in calculating the regional adjustment we would determine the ACO’s regional expenditures for benchmark year 3. We did not receive comments specifically addressing this proposal. We are finalizing the policy of using benchmark year 3 data in calculating the regional average used to determine the regional FFS adjustment as proposed. We believe that calculating the regional adjustment based on data from the most recent year prior to the start of the ACO’s new agreement period will ensure the adjustment reflects the most recent historical expenditures. Although there were no comments directed specifically to the number of years of data used in calculating the regional adjustment, we believe comments suggesting CMS consider use of additional years of data in calculating county FFS expenditures (described in section II.A.2.e.2 of this final rule) raise E:\FR\FM\10JNR4.SGM 10JNR4 asabaliauskas on DSK3SPTVN1PROD with RULES Federal Register / Vol. 81, No. 112 / Friday, June 10, 2016 / Rules and Regulations an important issue. These comments provoked our consideration of the possibility of using additional years of data in calculating the regional average, including what factors to use to trend the multiple years of data in computing the regional average. We anticipate continuing to explore this issue as we gain experience with the methodology described in this final rule. For example, we will consider whether use of additional years of data would add greater precision to calculation of regional averages. In the event we determine that any changes to the methodology would be appropriate, we would address this issue in future rulemaking, particularly in advance of applying a higher weight (70 percent) in the regional adjustment calculation as discussed in section II.A.2.c.3. of this final rule. Comment: Many commenters expressed support for CMS’ proposal to adjust for an ACO’s risk relative to that of assignable beneficiaries in its region when determining the regional adjustment to the rebased historical benchmark. A commenter expressed support generally for a risk adjustment approach that adequately accounts for the higher costs of ACOs that include providers and health systems that care for the sickest patients and are providing medically necessary care to chronically-ill populations. Further, a commenter recommended that in blending regional FFS spending with ACO historical spending, the per capita spending for each should be similarly risk adjusted. However, a commenter disagreed with CMS’ proposal to compute a measure of risk-adjusted regional expenditures for each Medicare enrollment type that would account for differences in the average CMS–HCC score of the ACO’s assigned beneficiary population and the average CMS–HCC risk scores in the ACO’s regional service area, describing this as a change in methodology. This commenter expressed concern about the accuracy of using averages in risk adjustment calculations. Some commenters raised a variety of concerns about the Shared Savings Program’s use of the CMS–HCC prospective risk adjustment model, or offered alternative risk adjustment approaches. For example, some commenters encouraged CMS to consider factors beyond CMS–HCC risk scores when performing risk adjustment in the Shared Savings Program, including socio-economic and/or sociodemographic factors. Some commenters questioned whether the CMS–HCC risk adjustment model could effectively account for increasing acuity in a VerDate Sep<11>2014 21:42 Jun 09, 2016 Jkt 238001 patient’s condition over time, clinically complex patients, case mix among patient populations, and geographic variation. A commenter explained that concerns regarding the current risk adjustment methodology have the effect of discouraging participation in the program. A few commenters supported better aligning risk adjustment in the Shared Savings Program with MA, for example, suggesting that the Shared Savings Program adopt the proposed refinements to the MA risk adjustment model aimed at improving the accuracy of payments to plans serving lowincome and dual eligible beneficiaries. Other commenters suggested greater transparency by CMS in regards to its use of CMS–HCC scores. For example commenters suggested making publicly available additional resources on the specifications of the CMS–HCC risk adjustment process and developing educational resources about improved coding for providers. Response: We are finalizing our proposal to risk adjust to account for the health status of the ACO’s assigned population in relation to FFS beneficiaries in the ACO’s regional service area as part of the methodology for adjusting the ACO’s rebased historical benchmark to reflect regional FFS expenditures in the ACO’s regional service area as proposed. We will use full CMS–HCC risk scores in performing this adjustment. We agree with comments received in support of our proposal. We believe that failure to risk adjust regional FFS expenditures to reflect differences between the risk of the ACO’s assigned beneficiary population and the risk of the broader FFS population in the ACO’s regional service area would provide an incentive for ACOs to avoid serving sicker beneficiaries, an undesired result. While the incorporation of riskadjusted regional expenditures into historical benchmarks is a new approach, we disagree that the use of average risk scores when performing risk adjustment constitutes a change of methodology. Our current methodology risk-adjusts expenditures between years using mean CMS–HCC risk scores among an ACO’s assigned beneficiaries within a particular enrollment type. We therefore believe that the approach for risk-adjusting the regional adjustment amount that we are adopting in this final rule is consistent with current riskadjustment practices. We appreciate the concerns raised by commenters and the suggestions offered for refining the Shared Savings Program’s general risk adjustment methodology, which relies on the CMS– HCC prospective risk adjustment model. PO 00000 Frm 00019 Fmt 4701 Sfmt 4700 37967 We consider these suggestions beyond the scope of this final rule. We decline at this time to adopt commenters’ suggestions for use of alternative risk adjustment models, for example accounting for socio-economic or sociodemographic factors outside of the CMS–HCC risk adjustment model. To the extent that new information, such as social determinants of health, is incorporated into the CMS–HCC risk adjustment model in the future, we will account for this when using risk scores in the Shared Savings Program methodology. Comment: Few commenters directly addressed CMS’ plan to rigorously monitor for coding intensity efforts in combination with the agency’s proposal to risk adjust for the health status of an ACO’s assigned beneficiaries relative to the FFS population in its regional service area. A few commenters appreciated CMS’ concerns about the potential for upcoding and a commenter explicitly supported the agency’s monitoring plans, noting that differences in coding practices between ACO clinicians and other FFS clinicians should be taken into account when blending regional FFS spending into ACO benchmarks to ensure equity. A number of commenters expressed the belief that additional coding intensity adjustments are not justified, given the various mitigating factors cited by CMS in the 2016 proposed rule such as routine changes in the assignment of beneficiaries to the ACO from year to year, and the inability of ACOs to submit supplemental codes as occurs in MA. Some commenters specified that the proposed use of regional trend calculations in resetting the benchmark served as a mitigating factor as well. Another commenter warned that even if high levels of coding are observed, this could be the direct result of providing more comprehensive, patient-centered care and that provider efforts to care for complex, chronically ill patients should not be penalized. Several commenters expressed opinions, sometimes conflicting, on what type of coding intensity adjustment CMS should adopt for the Shared Savings Program if some type of adjustment is deemed necessary. Several commenters supported an approach similar to that used in MA in which a coding intensity adjustment is developed based on beneficiaries assigned for at least 2 consecutive risk adjustment data years. Another commenter expressed opposition to adopting a MA-like approach because they believe it unfairly penalizes E:\FR\FM\10JNR4.SGM 10JNR4 asabaliauskas on DSK3SPTVN1PROD with RULES 37968 Federal Register / Vol. 81, No. 112 / Friday, June 10, 2016 / Rules and Regulations physician organizations engaged in accurate coding practices. Although CMS sought comment on whether the methodology currently used to adjust the ACO’s benchmark annually to account for the health status and demographic factors of the ACO’s performance year assigned beneficiaries (according to newly and continuously assigned populations) should also be applied when rebasing the ACO’s historical benchmark, many commenters expressed their opposition to the current use of this methodology in adjusting an ACO’s benchmark for each performance year and requested that the agency revise the policy. A chief concern raised by many commenters is that the approach does not accurately reflect the potential for individuals to become sicker and more expensive to care for over time (circumstances referred to by some commenters as resulting in a higher ‘‘disease burden’’). Several commenters noted that it was unreasonable to assume that a provider organization, however effective, can manage a population such that patient conditions never worsen. Some commenters added that this policy particularly disadvantages ACOs that care for more complex patients, such as those that include tertiary care facilities or academic medical centers. A commenter noted that while it appreciated concerns about the potential for upcoding, it believed such concerns to be irrelevant relative to the negative impact it perceives the current policy for risk adjusting an ACO’s benchmark for each performance year has on program participants. A number of commenters also expressed the belief that the continued use of the newly/continuously assigned policy as a remedy for upcoding lacks justification. A commenter believed that CMS has not provided evidence that actual upcoding is occurring among ACOs, or that it would occur in the future. Another commenter opined that any adjustments for coding intensity should reflect actual, not perceived, coding intensity. Among other concerns raised about the methodology, a commenter opined that the approach transfers too much risk to ACOs and is responsible for deterring ACOs from entering two-sided risk models. Another commenter noted that the policy makes the role of the risk scores opaque to participating providers, making it difficult to anticipate how risk scores may affect performance. In light of the previously noted concerns, many commenters urged CMS to allow risk scores to increase yearover-year within an agreement period VerDate Sep<11>2014 21:42 Jun 09, 2016 Jkt 238001 for the continuously assigned beneficiary population, or to allow them to increase within limits. A commenter recommended that if CMS is unwilling to allow risk scores to increase yearover-year for all ACOs, the agency should consider allowing increases for participants in two-sided risk models, which could encourage progression to higher levels of risk. Another commenter thought that CMS should, at a minimum, develop a list of conditions that are high cost and not subject to efforts to improve documentation and coding (for example, ESRD and cancer) and allow the CMS–HCC score for beneficiaries with these conditions to increase to reflect the increased illness of the beneficiary. Some commenters suggested approaches for limiting the impact of intensive coding not discussed in the 2016 proposed rule. For example, some commenters recommended that if CMS deems a coding adjustment necessary, the agency should consider a method that compares CMS–HCC risk scores with changes in self-reported health status through the Consumer Assessment of Healthcare Providers and Systems (CAHPS) survey. Several other commenters thought CMS should consider approaches used by the Next Generation ACO model, including accounting for the difference in average CMS–HCC risk scores for the baseline and performance-year assigned beneficiaries, and limiting the change in an ACO’s average risk score between the baseline and performance year to plus or minus 3 percent. Response: We appreciate the suggestions made by commenters regarding the development of a coding intensity adjustment for the Shared Savings Program. We also appreciate commenters’ feedback on the current policy for adjusting an ACO’s historical benchmark for the health status of the ACO’s performance year assigned population. At this time, we believe that continued use of this policy in the determination of an ACO’s updated benchmark in combination with the use of full CMS–HCC risk adjustment in the calculation of the rebased historical benchmark strikes a balance between the need to recognize changes in beneficiary health status over time with the need to protect against intensive coding practices. We plan to monitor for the impact of coding initiatives on ACO benchmarks, particularly as we gain more experience with the new rebasing methodology. In the event that a formal coding intensity adjustment is deemed necessary in the future, we would make necessary refinements to the program’s risk PO 00000 Frm 00020 Fmt 4701 Sfmt 4700 adjustment methodology through future rulemaking. FINAL ACTION: We are finalizing our proposals to revise the methodology used to rebase ACO benchmarks for new agreement periods starting on or after January 1, 2017 to incorporate a regional FFS adjustment to the ACO’s rebased historical benchmark. We are finalizing the proposed approach to calculating the regional FFS adjustment using average per capita expenditures for benchmark year 3 for assignable beneficiaries in the ACO’s regional service area, and to risk adjust to account for the health status of the ACO’s assigned population in relation to the assignable FFS beneficiaries in the ACO’s regional service area in determining the regional FFS adjustment. We are also finalizing our proposal to add new § 425.603 that incorporates our policies for resetting, adjusting and updating the benchmark for a second or subsequent agreement period. We did not receive any comments on the specific proposal to redetermine the regional FFS adjustment to account for changes to the ACO’s certified ACO Participant List. We believe this redetermination is necessary to ensure that the regional FFS adjustment reflects the ACO’s participant composition under the new ACO Participant List. Therefore, we are finalizing our proposal to redetermine the regional FFS adjustment, consistent with the current approach to adjusting an ACO’s historical benchmark to account for changes in the ACO’s certified ACO Participant List during the agreement period. This policy is also incorporated in new § 425.603. We are also finalizing as proposed the conforming and clarifying revisions to the provisions of § 425.602, including to: Revise the title of the section; remove paragraph (c) and incorporate this paragraph in new § 425.603 to address the methodology for establishing, adjusting, and updating the historical benchmark for ACOs that entered a second agreement period in 2016; and to add a paragraph that describes the adjustments made to the ACO’s historical benchmark during an ACO’s first agreement period to account for changes in severity and case mix for newly and continuously assigned beneficiaries as presently specified under § 425.604, § 425.606, and § 425.610. We are also finalizing as proposed a change to § 425.20, to specify that the acronym ‘‘BY’’ stands for benchmark year. E:\FR\FM\10JNR4.SGM 10JNR4 asabaliauskas on DSK3SPTVN1PROD with RULES Federal Register / Vol. 81, No. 112 / Friday, June 10, 2016 / Rules and Regulations (3) Transitioning to a Higher Weight in Calculating the Adjustment for Regional FFS Expenditures In the 2016 proposed rule, we considered both the potential positive and negative consequences of quickly transitioning to use of a greater weight (70 percent) in calculating the regional adjustment to ACOs’ rebased historical benchmarks. We explained our belief that placing a greater weight on regional expenditures in adjusting an ACO’s historical benchmark will encourage existing low spending ACOs in higher spending and/or higher growth regions to enter and continue their participation in the Shared Savings Program. We reiterated our view, expressed in the June 2015 final rule, that the benchmarking methodology should be revised to help ensure that an ACO that has previously achieved success in the program will be rebased under a methodology that encourages its continued participation in the program (see 80 FR 32788). Further, we again noted the importance of quickly moving to a benchmark rebasing approach that accounts for regional FFS expenditures and trends in addition to the ACO’s historical expenditures and trends (see 81 FR 5834). We also explained our concern that existing low spending ACOs operating in regions with relatively higher spending and/or higher growth in expenditures may be positioned to generate savings under the proposed revisions to the rebasing methodology because of the regional adjustment to their rebased historical expenditures rather than as a result of actual gains in efficiency, creating an opportunity for arbitrage. In particular, we expressed concern about the potential for ACOs to alter their healthcare provider and beneficiary compositions or take other such actions in order to achieve more favorable performance relative to their region without actually changing their efficiency. We anticipated these effects would be more pronounced the larger the percentage that is applied to the difference between the average expenditures for the ACO’s regional service area and the ACO’s rebased historical expenditures when calculating the regional adjustment. However, we expressed our belief that there is uncertainty around the magnitude of these possible negative consequences of adjusting the ACO’s rebased benchmark based on regional expenditures in the ACO’s regional service area which have yet to be observed. We noted that we believed these concerns are likely to be outweighed by the benefits of VerDate Sep<11>2014 21:42 Jun 09, 2016 Jkt 238001 encouraging more efficient care through a benchmark rebasing methodology that encourages continued participation by ACOs that are efficient relative to their regional service area by placing greater weight on regional expenditures when resetting the ACO’s benchmark over subsequent agreement periods. We explained that the use of a higher percentage in calculating the regional adjustment would create strong incentives for higher spending ACOs to be more efficient relative to their regional service areas while also improving the quality of care provided to their beneficiaries. Furthermore, we explained that this approach would also ensure that ACOs’ rebased benchmarks continue to reflect in part their historical spending. To balance these concerns, we proposed to adopt a phased approach to transitioning to greater weights in calculating the adjustment amount, expressed as a percentage of the difference between regional average expenditures for the ACO’s regional service area and the ACO’s rebased historical expenditures. Under this approach we would increase the weight used in calculating the adjustment over time, making an ACO’s benchmark gradually more reflective of expenditures in its region and less reflective of the ACO’s own historical expenditures. This proposed phase-in approach included the following features: • Maintain the current methodology for establishing the benchmark for an ACO’s first agreement period in the Shared Savings Program based on the historical expenditures for beneficiaries assigned to the ACO with no adjustment for expenditures in the ACO’s regional service area in order to provide continued stability to the program and the momentum for attracting new organizations. As over 400 ACOs have voluntarily entered the program under this methodology, we believe the current methodology is an important part of facilitating entry into the program by organizations located throughout the nation that have differing degrees of experience with accountable care models and have varying provider compositions. • Increase the percentage used in calculating the regional adjustment amount, applied to the ACO’s rebased historical benchmark, over subsequent agreement periods. ++ We proposed to calculate the regional adjustment in the ACO’s second agreement period by applying a weight of 35 percent to the difference between regional average expenditures for the ACO’s regional service area and PO 00000 Frm 00021 Fmt 4701 Sfmt 4700 37969 the ACO’s rebased historical benchmark expenditures. ++ We proposed that in the ACO’s third and subsequent agreement periods, the percentage used in this calculation would be set at 70 percent unless the Secretary determines a lower weight should be applied as specified through future rulemaking. We discussed that in making a determination of whether a lower weight should be used in calculating the adjustment, the Secretary would assess what effects the regional adjustment (and other modifications to the program made under this rule) are having on the Shared Savings Program, considering factors such as, but not limited to: The effects on net program costs; the extent of participation in the Shared Savings Program; and the efficiency and quality of care received by beneficiaries. As part of this determination, the Secretary may also take into account other factors, such as the effect of implementation of the Medicare Access and CHIP Reauthorization Act of 2015 (MACRA) on the Shared Savings Program by incentivizing physicians and certain other practitioners to participate more broadly in alternative payment models (APMs). We noted that such a determination could potentially occur in advance of the first application of this higher percentage. For example, the determination could be made in advance of the agreement period beginning January 1, 2020, which is the start of the third agreement period for ACOs that entered the program in January 2014 and the first group of ACOs to which the revised rebasing methodology being adopted in this final rule will apply. Any necessary modifications to program policies as a result of the Secretary’s determination, such as reducing the long-term weight used in calculating the regional adjustment below 70 percent or making other program changes (for example, refinements to the risk adjustment methodology) would be proposed in future rulemaking, such as through the calendar year (CY) 2020 Physician Fee Schedule rule. Subsequently, we would periodically assess the effects of the regional adjustment over time and address any needed modifications to program policies in future rulemaking. • For ACOs that started in the program in 2012 and 2013 and started their second agreement period on January 1, 2016, we proposed to apply this phased approach when rebasing for their third and fourth (and subsequent) agreement periods, as discussed in section II.A.2.f. of this final rule. E:\FR\FM\10JNR4.SGM 10JNR4 asabaliauskas on DSK3SPTVN1PROD with RULES 37970 Federal Register / Vol. 81, No. 112 / Friday, June 10, 2016 / Rules and Regulations We explained our belief that this phased approach to moving to a higher percentage in calculating the adjustment for regional expenditures would give ACOs sufficient notice of the transition to benchmarks that reflect regional expenditures. Furthermore, we believed this approach to phasing in the use of a greater percentage to calculate the regional adjustment provides a smoother transition for ACOs to benchmarks reflective of regional FFS expenditures, giving ACOs more time to prepare for this change and therefore ultimately maintaining the stability of ACOs, the Shared Savings Program and the markets where ACOs operate. Accordingly, we proposed to incorporate these policies regarding the transition to greater weights in calculating the regional adjustment amount in the new regulation at § 425.603. We sought public comment on our proposed approach to phase in the weight used in calculating the regional adjustment. We were particularly interested in understanding commenters’ thoughts and suggestions about the percentage that should be used in calculating the adjustment for regional FFS expenditures. We also sought comment on the alternatives we considered in the proposed rule including: (1) Limiting the weight used in the calculation of the adjustment to 50 percent (instead of 70 percent) in the ACO’s third and subsequent agreement period; (2) a more gradual transition to use of a higher percentage in calculating the adjustment (such as 35 percent in the second agreement period, 50 percent in the third agreement period, and 70 percent in the fourth and subsequent agreement period); and (3) a phase-in approach that uses regional (instead of national) FFS expenditures to trend benchmark year expenditures when establishing and updating the benchmark during an ACO’s first agreement period (for agreement periods beginning on or after January 1, 2017). We also sought comment on alternative approaches to address our concerns about selective program participation and arbitrage opportunities that would facilitate our use of a higher percentage in calculating the amount of the adjustment. Comment: A few commenters shared CMS’ concerns about the potential for negative consequences that could result from transitioning to use of factors based on regional FFS expenditures in resetting ACO historical benchmarks, including selective participation creating an opportunity for arbitrage. These commenters were somewhat divided as to the ultimate outcome of VerDate Sep<11>2014 21:42 Jun 09, 2016 Jkt 238001 these changes. For example, a commenter explained that benchmarking ACOs against their region will have the effect of more seamlessly encouraging transformative physician care, while simultaneously discouraging agreements with entities unwilling or unable to make meaningful changes in care delivery. Further, this commenter encouraged CMS to implement safeguards that deter the negative consequences of transitioning to the use of factors based on regional FFS expenditures in resetting ACO benchmarks (for instance, protecting against ACOs that increase their spending to lock in a higher benchmark, and protecting against benchmarks becoming overly inflated to the point where ACOs need to do little to maintain or change their care practices to generate savings). Another commenter, concerned about discouraging participation by ACOs with expenditures higher than their regions and those with losses in their first agreement period, and behavioral responses by providers to the revised methodology (for example, ACO avoidance of high-cost beneficiaries), encouraged CMS to delay finalizing the proposed modifications. A commenter identified the availability of traditional FFS, under which providers and suppliers can continue to be paid based on the quantity of services provided (thereby maintaining their status quo for reimbursement rather than entering value based payment models), as being a greater concern for the Trust Funds than the potential threat of arbitrage by ACOs under the revised rebasing methodology. The commenter also noted that the fact that only a portion of ACOs have actually been eligible to share in savings to date is an indication that there is little reason for concern about arbitrage by ACOs. Another commenter counseled that the arbitrage concerns overestimate the flexibility of markets, pointing to the existence of ongoing relationships between healthcare providers, tied to a range of risk bearing contracts, as an example of a mitigating factor. A few commenters specifically encouraged CMS to engage in ongoing monitoring of the effects of the changes, if implemented, with a commenter suggesting CMS address arbitrage concerns by requiring additional reporting by ACOs regarding their use of shared savings payments. Response: We greatly appreciate commenters’ careful consideration of the concerns we specified in the 2016 proposed rule, including the participation incentives that could result from the transition to a rebasing PO 00000 Frm 00022 Fmt 4701 Sfmt 4700 methodology that places a greater weight on a regional FFS adjustment over time. We decline to delay finalizing the changes to rebasing methodology altogether because of concerns about the potential negative effects that could result from these changes, as recommended by a commenter. For the reasons we described in the 2016 proposed rule (and reiterated in this final rule), we believe a phased approach to transitioning to a higher weight in calculating the regional adjustment offers the appropriate balance between our concerns about the potential negative effects of a revised rebasing approach that places a greater weight on regional FFS expenditures and the anticipated benefits of the revised rebasing policies for the sustainability of the program. Elsewhere in this section of this final rule, we discuss in detail issues related to the application of the revised rebasing methodology to ACOs with higher spending than their region. In addition, we will consider the concerns raised in the comments as we monitor the effects of the revised rebasing methodology and as we consider whether further modifications to the rebasing policies are necessary. Any changes to the rebasing methodology would be addressed in future rulemaking. Comment: Most of the commenters discussing the phase-in of the weights used in calculating the adjustment, generally expressed support for taking an incremental approach to incorporating regional elements when resetting an ACO’s benchmark. Some commenters expressed support for the proposed phased-approach to applying an increasing weight in calculating the regional adjustment: To initially calculate the adjustment using a 35 percent weight in rebasing the ACO’s second agreement period benchmark and then increase to using a 70 percent weight for subsequent agreement periods. A commenter explained that the proposed phased approach to incorporating regional spending into the benchmark gives ACOs ample time to adjust to the methodological changes. Several commenters were supportive of monitoring the weight (percentage) used in calculating the regional adjustment over time, to assure balance is struck in setting benchmarks. A commenter expressed support for examining the results of the adjustment before switching to a higher weight for the regional spending component. A commenter emphasized the need to assess the effects of the modifications to the benchmarking methodology and to make needed revisions to the policies in E:\FR\FM\10JNR4.SGM 10JNR4 asabaliauskas on DSK3SPTVN1PROD with RULES Federal Register / Vol. 81, No. 112 / Friday, June 10, 2016 / Rules and Regulations future rulemaking in order to ensure small entities and hospitals (more generally), particularly those in rural and underserved areas, are not placed at a disadvantage. Many commenters urged CMS to provide more options and greater flexibility to ACOs (referred to by some as establishing a ‘‘glide path’’) as they transition to benchmarks containing regional cost data. A few commenters cited the importance of this flexibility to encourage continued participation by small and rural ACOs. Commenters’ suggestions focused on allowing ACOs the choice of the proposed approach, as well as options for a faster or slower phase-in, ultimately reaching a weight of 70 percent, over the course of one to three agreement periods (beginning with the ACO’s first agreement period), including options for incremental increases in the weight used to calculate the regional adjustment within an agreement period. Some commenters suggested that CMS apply the phase-in differently for individual ACOs depending on certain characteristics, such as their historical spending, financial performance in the program, or their participation in performance-based risk tracks (Tracks 2 and 3). Some commenters suggested phasing-in the weight differently depending on whether an ACO’s historical expenditures were above or below the regional average, encouraging adoption of faster phase-in options to more quickly benefit ACOs with low spending compared to their region, and slower phase-in options to mitigate the anticipated benchmark reductions for ACOs with high spending compared to their region. Commenters suggested allowing additional flexibility on the pace of the phase-in for high performing ACOs and ACOs entering a performance-based risk model (Track 2 or 3). Many commenters suggested a variety of alternatives to afford ACOs greater choice over the timing of applicability (in particular for ACOs that entered the Shared Savings Program in 2012 and 2013 and started their second agreement period January 1, 2016, as discussed in greater detail in section II.A.2.f of this final rule), and the phase-in to the proposed maximum percentage (for example, within an agreement period). Commenters supporting incorporation of regional cost data into an ACO’s benchmark for its first agreement period in the Shared Savings Program cited perceived benefits including: consistent application of the benchmarking methodology across the program; the potential to create more equitable benchmarks within a market (noting VerDate Sep<11>2014 21:42 Jun 09, 2016 Jkt 238001 that urban and suburban ACOs tend to have overlapping service areas); and attracting new participants to the Shared Savings Program. When discussing the weight that should be applied when calculating the regional adjustment for an ACO’s first agreement period, commenters suggested a range of options, typically with a maximum weight of either 30 or 35 percent. Some commenters suggested applying an increasing weight when calculating the adjustment for the ACO’s first agreement period, such as 10 percent in year 1, 20 percent in year 2, and 30 percent (or 35 percent) in year 3. Several commenters suggested alternative approaches to the methodology proposed, such as: (1) Applying a 100 percent weight when calculating the regional FFS adjustment for ACOs with costs lower than their region, and zero percent weight when calculating the adjustment for ACOs with costs higher than their region; (2) an alternative methodology for calculating the adjustment that would both lower the weight on the regional component and slow its rate of increase; and (3) setting limits on the amount of reduction in the benchmark value that could occur as a result of the regional FFS adjustment. Response: We are finalizing with modifications our proposal to phase-in a higher weight in calculating the regional adjustment over time starting in an ACO’s second agreement period beginning in 2017 and subsequent years and to apply this phased approach to ACOs that entered the program in 2012 and 2013 (that started a second agreement period on January 1, 2016) when rebasing for their third and subsequent agreement periods (as discussed in section II.A.2.f of this final rule). We are persuaded by commenters’ concerns that the phase-in outlined in the proposed rule would be too rapid for ACOs with relatively higher spending compared to their region, for which the regional FFS adjustment will be negative and result in lower benchmark values. We are especially concerned that the revised benchmarking methodology could result in attrition from the Shared Savings Program by ACOs that are striving to meet the program’s goals, including ACOs that have been previously successful in generating shared savings. We agree with comments suggesting a phase-in approach that applies differing weights in the regional adjustment calculation depending on whether an ACO’s historical expenditures were above or below the regional average for the same period. Specifically, we agree with the commenters that suggested use of a PO 00000 Frm 00023 Fmt 4701 Sfmt 4700 37971 lower weight in calculating the adjustment for ACOs with higher spending compared to their region. Accordingly, we are finalizing an approach that will apply a lower weight in calculating the regional adjustment the first and second time that an ACO’s benchmark is rebased under the revised rebasing methodology, for those ACOs determined to have spending higher than their region. However, we will ultimately apply a weight of 70 percent in calculating the adjustment for all ACOs beginning no later than the third time the ACO’s benchmark is rebased using the revised methodology. Under this approach, we will make an initial determination about whether the ACO has higher spending compared to its regional service area as part of establishing the ACO’s rebased historical benchmark for the applicable agreement period. Consistent with the approach we are finalizing for redetermining the regional FFS adjustment when an ACO makes changes to its certified ACO Participant List within an agreement period, we will also redetermine whether the ACO has higher spending compared to its region, and therefore whether the lower weight should be used in calculating the regional adjustment. The determination of whether to apply the lower weight in calculating the regional FFS adjustment will include the following steps: • For each Medicare enrollment type (ESRD, disabled, aged/dual eligible, aged/non-dual eligible) we will determine the difference between the average per capita expenditure amount for the ACO’s regional service area and the average per capita amount of the ACO’s rebased historical benchmark. We will multiply the difference for each Medicare enrollment type by the proportion of the ACO’s assigned beneficiary population for that Medicare enrollment type, based on the ACO’s assigned beneficiary population for benchmark year 3 of the rebased historical benchmark. • Take the sum of the differences weighted by the ACO’s proportion of assigned beneficiaries by Medicare enrollment type (determined in the previous step). As summarized in Table 2, the result of this step will determine the percentage weight applied in calculating the regional FFS adjustment: ++ If this sum is a net positive value, we will apply the proposed weights for calculating the regional FFS adjustment for the agreement period: 35 percent the first time the benchmark is rebased using the revised methodology; 70 percent the second time the benchmark E:\FR\FM\10JNR4.SGM 10JNR4 37972 Federal Register / Vol. 81, No. 112 / Friday, June 10, 2016 / Rules and Regulations is rebased under this methodology, and in all subsequent agreement periods. ++ If this sum is a net negative value, we will apply a relatively lower weight in calculating the regional FFS adjustment in the first two rebasings for which the regional adjustment applies: 25 percent the first time the benchmark is rebased under the revised methodology; and 50 percent the second time the benchmark is rebased under this methodology. A weight of 70 percent will be used in the calculation of the regional adjustment for ACOs that are determined to have higher spending compared to their regional service area during the third rebasing in which this regional adjustment is applied, and in all subsequent agreement periods. TABLE 2—PERCENTAGE WEIGHT APPLIED IN CALCULATING THE REGIONAL FFS ADJUSTMENT Agreement period (for example, 2014 starters renewing for 2017) ACO’s spending relative to its region ACO spending service area. ACO spending service area. Performance year within an agreement period to which regional adjustment is ap- ACO spending plied for the second time (for example, third agreement period beginning in 2020). service area. ACO spending service area. Performance year within an agreement period to which regional adjustment is ap- ACO spending plied for the third time (for example, fourth agreement period beginning in 2023 service area. and subsequent years). ACO spending service area. asabaliauskas on DSK3SPTVN1PROD with RULES Performance year within an agreement period to which regional adjustment is applied for the first time (for example, second agreement period beginning in 2017). After making the determination of the weight to be applied in calculating the regional FFS adjustment, we follow the remaining steps for calculating the regional FFS adjustment described in section II.A.2.c.2 of this final rule: • Multiply the difference between the average per capita expenditure amount for the ACO’s regional service area and the average per capita amount of the ACO’s rebased historical benchmark for each Medicare enrollment type by the applicable percentage shown in Table 2. This is the adjustment amount for each Medicare enrollment type. • Apply the adjustment to the ACO’s rebased historical benchmark by adding the adjustment amount for the Medicare enrollment type to the truncated, trended and risk adjusted average per capita value of the ACO’s rebased historical benchmark for the same Medicare enrollment type. • Multiply the adjusted value of the ACO’s rebased historical benchmark for each Medicare enrollment type by the proportion of the ACO’s assigned beneficiary population for that Medicare enrollment type, based on the ACO’s assigned beneficiary population for benchmark year 3 of the rebased historical benchmark. • Sum expenditures across the four Medicare enrollment types to determine the ACO’s adjusted rebased historical benchmark. We reiterate that, as we explained in the 2016 proposed rule, the Secretary will assess what effects the regional adjustment (and other modifications to the program made under this rule) are VerDate Sep<11>2014 21:42 Jun 09, 2016 Jkt 238001 having on the Shared Savings Program to determine whether a lower weight (than 70 percent) should be used in calculating the regional adjustment. Any necessary modifications to program policies as a result of the Secretary’s determination, such as reducing the long-term weight used in calculating the regional adjustment below 70 percent or making other program changes would be proposed in future rulemaking. We believe this phased approach represents a middle ground between the comments supporting the proposal, as well as recommendations for relatively faster or slower phase-in of the adjustment based on the historical costs of the ACO compared to its region. We chose the lower weights of 25 percent (compared to 35 percent) and 50 percent (compared to 70 percent) to balance providing a more gradual phase in to ACOs with higher spending compared to their region with our projected estimates of the impact of this policy on the Medicare Trust Funds. We believe these lower weights align with commenters’ suggestions for application of a weight less than 35 percent (for example, between 10 percent and 30 percent), as well as our consideration of a more gradual phase-in of the adjustment by applying weights of 35 percent, 50 percent, and 70 percent in calculating the regional adjustment over the course of 3 agreement periods under the revised rebasing methodology as discussed in the 2016 proposed rule. Incrementally lowering benchmarks for ACOs determined to have higher spending than their region over the PO 00000 Frm 00024 Fmt 4701 Sfmt 4700 Weight used to calculate regional adjustment (percent) is higher than its regional 25 is lower than its regional 35 is higher than its regional 50 is lower than its regional 70 is higher than its regional 70 70 is lower than its regional course of multiple agreement periods will afford these ACOs time to adapt to the revised rebasing methodology. This gradual phase in may be especially important for successful ACOs with relatively higher costs that may otherwise leave the program if faced with a more rapid phase-in to a rebased benchmark reflecting factors based on regional FFS expenditures. We decline to forgo applying the regional adjustment altogether to ACOs with costs higher than their region, as recommended by the comment suggesting use of a zero percent weight in calculating the regional adjustment for these ACOs. We believe such an approach, which would ensure that the benchmark for these ACOs would continue to be based largely on their own historical spending, would undermine the purpose of a policy that seeks to incrementally make an ACO’s benchmark less dependent on its own historical spending and more reflective of spending in its regional service area. We also continue to believe this phased approach mitigates our concerns about the opportunity for arbitrage that could result from establishing higher benchmarks for ACOs with relatively lower spending compared to their region; a concern that is heightened when considering a more rapid phasein to a higher weight in calculating the regional adjustment. Specifically, an approach that would more quickly produce more generous benchmarks for ACOs could hasten organizations to alter their behavior or composition to E:\FR\FM\10JNR4.SGM 10JNR4 asabaliauskas on DSK3SPTVN1PROD with RULES Federal Register / Vol. 81, No. 112 / Friday, June 10, 2016 / Rules and Regulations better position themselves to achieve favorable performance relative to their region under this methodology without actually changing their efficiency. For this reason, we decline to adopt alternative approaches recommended by commenters that would apply higher weights in the regional adjustment calculation for ACOs that are lower spending compared to their regions (such as applying a 100 percent weight in calculating the adjustment). The approach we are finalizing recognizes that changes in the ACO’s certified ACO Participant List during an agreement period could result in changes in the ACO’s historical spending patterns and accordingly would result in a change to the weight used in calculating the regional adjustment. We believe this approach is responsive to commenters’ requests for a flexible approach, particularly because it would ensure that we always apply the most advantageous weight in calculating the adjustment for each performance year within the agreement period according to whether the ACO’s historical spending based on its most recent certified ACO Participant List is relatively higher or lower compared to spending in its regional service area. We decline at this time to adopt commenters’ suggestions to apply differing weights in the calculation of the regional adjustment depending on other characteristics of ACOs, such as past performance in the Shared Savings Program, or participation in a performance-based risk track. At this time, we believe the most significant consideration in determining the weight applied in the calculation of the regional adjustment is the level of the ACO’s historical spending compared to its regional service area. Consistent with our decision to finalize the proposal to remove the adjustment for savings generated under the ACO’s prior agreement period in calculating the ACO’s rebased historical benchmark, as we discuss in section II.A.2.c.2 of this final rule, we also decline to otherwise account for an ACO’s prior savings in determining the regional FFS adjustment that is applied to the ACO’s rebased historical benchmark. We are concerned that offering the broader flexibility suggested by commenters, including allowing ACOs to choose from a menu of options for when the revised rebasing methodology would apply and the weight that would be used to calculate the regional adjustment, may invite selective participation by those ACOs that would be most advantaged by the new benchmarking methodology, thereby increasing the opportunity for arbitrage. VerDate Sep<11>2014 21:42 Jun 09, 2016 Jkt 238001 As previously noted in this final rule, we do not believe it would be operationally feasible to apply customized benchmarking methodologies to ACOs across the program. In contrast, we believe commenters make a convincing argument for a phased approach to incorporating regional factors into ACO benchmarks beginning with the ACO’s initial agreement period in the Shared Savings Program. We find particularly persuasive the suggestion that this approach may offer the optimal glidepath for ACOs, and also result in greater consistency across program benchmark calculations. However, given the diversity of comments suggesting faster and slower phase-in of the regional adjustment, we believe it will be important to gain experience with the use of the regional adjustment as part of the rebasing methodology before seeking to adopt the adjustment as part of the methodology used to establish the ACO’s first agreement period benchmark. Therefore, we plan to explore, the possibility of extending the phase-in by applying the regional adjustment to an ACO’s first agreement period benchmark with a weight equal to or lower than 35 percent, in combination with using alternative factors to trend the ACO’s historical benchmark (BY1 and BY2 to BY3) and to update the benchmark during the agreement period (discussed in section II.A.2.d. of this final rule). Any changes to the methodology used to establish an ACO’s benchmark for its first agreement period would be addressed in future rulemaking. FINAL ACTION: We are finalizing with modifications a phased approach to transitioning to greater weights in calculating the regional adjustment amount, which is expressed as a percentage of the difference between regional average expenditures for the ACO’s regional service area and the ACO’s rebased historical expenditures. This approach maintains the current methodology for establishing the benchmark for an ACO’s first agreement period in the Shared Savings Program based on the historical expenditures for beneficiaries assigned to the ACO with no adjustment for expenditures in the ACO’s regional service area, and the current methodology for resetting the historical benchmark for the second agreement period for ACOs that entered the program in 2012 and 2013 and started a new agreement period on January 1, 2016. We will apply the regional adjustment to the ACO’s rebased historical benchmark for ACOs entering a second PO 00000 Frm 00025 Fmt 4701 Sfmt 4700 37973 or subsequent agreement period in 2017 and subsequent years. We will use the following phased-approach to determine the weight used in calculating the adjustment, which includes applying a lower weight the first and second time the ACO’s benchmark is rebased using the regional adjustment if the ACO is determined to have spending higher than its region: • The first time that an ACO’s benchmark is rebased using the regional adjustment: ++ CMS uses a weight of 35 percent of the difference between the average per capita expenditure amount for the ACO’s regional service area and the ACO’s rebased historical benchmark amount, if the ACO is determined to have lower spending than its regional service area; ++ The percentage used in this calculation will be set at 25 percent if the ACO is determined to have higher spending than its regional service area. • The second time that an ACO’s benchmark is rebased using the regional adjustment: ++ CMS uses a weight of 70 percent of the difference between the average per capita expenditure amount for the ACO’s regional service area and the ACO’s rebased historical benchmark amount if the ACO is determined to have lower spending than the ACO’s regional service area, unless the Secretary determines a lower weight should be applied, as specified through future rulemaking; ++ The percentage used in this calculation will be set at 50 percent if the ACO is determined to have higher spending than the ACO’s regional service area. • The third or subsequent time that the ACO’s benchmark is rebased using the regional adjustment, the percentage used in this calculation will be set at 70 percent unless the Secretary determines a lower weight should be applied, as specified through future rulemaking. • If CMS adjusts the ACO’s benchmark during the term of the agreement period to reflect the addition or removal of ACO participants or ACO providers/suppliers, CMS will redetermine whether the ACO is considered to have lower spending or higher spending compared to the ACO’s regional service area for purposes of determining the percentage to be used in calculating the regional adjustment. We are incorporating this phased approach to transitioning to greater weights in calculating the regional adjustment in new § 425.603. As discussed in section II.A.2.f of this final rule, this phased approach will apply to ACOs that entered the program E:\FR\FM\10JNR4.SGM 10JNR4 37974 Federal Register / Vol. 81, No. 112 / Friday, June 10, 2016 / Rules and Regulations in 2012 and 2013 and started their second agreement period on January 1, 2016, for the first time in calculating their rebased historical benchmark for their third agreement period (beginning in 2019). d. Parity Between Establishing and Updating the Rebased Historical Benchmark asabaliauskas on DSK3SPTVN1PROD with RULES (1) Background In the 2016 proposed rule we provided background on policies regarding the historical benchmark trend factors and annual benchmark updates during the agreement period, including our previous consideration of whether to base these trend and update factors on State, local or regional expenditures instead of national FFS expenditures (see 81 FR 5836 through 5838). In the initial rulemaking to establish the Shared Savings Program, we identified the need to trend forward the expenditures in each of the 3 years making up the historical benchmark. As explained in earlier rulemaking, because the statute requires the use of the most recent 3 years of per-beneficiary expenditures for Parts A and B services for FFS beneficiaries assigned to the ACO to estimate the benchmark for each ACO, the per capita expenditures for each year must be trended forward to current year dollars before they are averaged using the applicable weights to obtain the benchmark (see 76 FR 19609). In the November 2011 final rule, we finalized an approach under § 425.602(a)(5) for trending forward benchmark expenditures based on national FFS Medicare growth rates for each of the following populations of beneficiaries: ESRD, disabled, aged/dual eligible, aged/non-dual eligible (76 FR 67924 and 67925). We also explained that making separate calculations for specific groups of beneficiaries— specifically the aged/dual eligible, aged/ non-dual eligible, disabled, and ESRD populations—accounts for variation in costs of these groups of beneficiaries, resulting in more accurate calculations (76 FR 67924). We considered using national, State or local growth factors to trend forward historical benchmark expenditures (76 FR 19609 through 19610 and 76 FR 67924 through 67925). Among other considerations, we explained that the anticipated net effect of using the same trending factor based on the national growth rate for all ACOs would be to provide a relatively higher benchmark for low growth/low spending ACOs and a relatively lower benchmark for high growth/high spending ACOs. ACOs in high cost, high VerDate Sep<11>2014 21:42 Jun 09, 2016 Jkt 238001 growth areas would therefore have an incentive to reduce their rate of growth more to bring their costs more in line with the national average; while ACOs in low cost, low growth areas would have an incentive to continue to maintain or improve their overall lower spending levels (see 76 FR 67925). We also explained that use of the national growth rate could also disproportionately encourage the development of ACOs in areas with historical growth rates below the national average (see 76 FR 19610). These ACOs would benefit from having a relatively higher benchmark, which would increase the chances for shared savings. On the other hand, ACOs in areas with historically higher growth rates above the national average would have a relatively lower benchmark, and might be discouraged from participating in the program (see 76 FR 19610). In contrast, as we explained in the initial rulemaking to establish the Shared Savings Program, trending expenditures based on State or local area growth rates in Medicare Parts A and B expenditures may more accurately reflect the experience in an ACO’s area and mitigate differential incentives for participation based on location (see 76 FR 19610). We considered, but did not finalize, an option to trend the benchmark by the lower of the national projected growth rate or the State or the local growth rate (see 76 FR 19610 and 76 FR 67925). This option balanced providing a more accurate reflection of local experience with not rewarding historical growth higher than the national average. We believed this method would instill stronger saving incentives for ACOs in both high growth and low growth areas (see 76 FR 19610). Section 1899(d)(1)(B)(ii) of the Act states that the benchmark shall be updated by the projected absolute amount of growth in national per capita expenditures for Parts A and B services under the original Medicare FFS program, as estimated by the Secretary. Further, the Secretary’s authority under section 1899(i)(3) of the Act, for implementing other payment models, allows for alternatives to using national expenditures for updating the benchmark, as long as the Secretary determines the approach improves the quality and efficiency of items and services furnished under Medicare and does not to result in additional program expenditures. In the initial rulemaking, we finalized our policy under § 425.602(b) to update the historical benchmark annually for each year of the agreement period based on the flat dollar equivalent of the PO 00000 Frm 00026 Fmt 4701 Sfmt 4700 projected absolute amount of growth in national per capita expenditures for Parts A and B services under the original Medicare FFS program as specified under section 1899(d)(1)(B)(ii) of the Act. Further, consistent with the final policies for calculating the historical benchmark (among other aspects of the Shared Savings Program’s financial models) the calculations for updating the benchmark are made for each of the following populations of beneficiaries: ESRD, disabled, aged/dual eligible, aged/non-dual eligible (76 FR 67926 and 67927). In developing this policy, we also considered using our authority under section 1899(i)(3) of the Act to update the benchmark by the lower of the projected absolute amount of growth in national per capita expenditures and the projected absolute amount of growth in local/state per capita expenditures (see 76 FR 19610 and 19611). Among other considerations, we explained that using a flat dollar increase, which would be the same for all ACOs, provides a relatively higher expenditure benchmark for low growth, low spending ACOs and a relatively lower benchmark for high growth, high spending ACOs. Therefore, ACOs in high spending, high growth areas must reduce their rate of growth more (compared to ACOs in low spending, low growth areas) to bring their costs more in line with the national average (see 76 FR 19610). We also indicated that these circumstances could contribute to selective program participation by ACOs favored by the national flat-dollar update, and ultimately result in Medicare costs from shared savings payments that result from higher benchmarks rather than an ACO’s care coordination activities (see 76 FR 19610 through 19611 and 19635). Incorporating more localized growth factors reflects the expenditure and growth patterns within the geographic area served by ACO participants, potentially providing a more accurate estimate of the updated benchmark based on the area from which the ACO derives its patient population (76 FR 19610). In the June 2015 final rule, we discussed comments received on benchmark rebasing alternatives discussed in the December 2014 proposed rule that would include using regional FFS expenditures, instead of national FFS expenditures, to develop the historical benchmark trend factors and to update the benchmark during the agreement period (79 FR 72839; 79 FR 72841 through 72843; 80 FR 32792, 32794). We indicated our plan to consider further what additional E:\FR\FM\10JNR4.SGM 10JNR4 Federal Register / Vol. 81, No. 112 / Friday, June 10, 2016 / Rules and Regulations adjustments should be made to the benchmarking methodology when moving to a rebasing approach that accounts for regional FFS trends, including whether to incorporate regional FFS expenditures in updating an ACO’s historical benchmark each performance year or to maintain the 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 FFS program (80 FR 32796). asabaliauskas on DSK3SPTVN1PROD with RULES (2) Regional Growth Rate as a Benchmark Trending Factor We proposed to replace the national trend factors currently used for trending an ACO’s BY1 and BY2 expenditures to BY3 in calculating an ACO’s rebased historical benchmark with regional trend factors derived from a weighted average of risk adjusted FFS expenditures in the counties where the ACO’s assigned beneficiaries reside. Further, we proposed to calculate and apply these trend factors for each of the following populations of beneficiaries: ESRD, disabled, aged/dual eligible, aged/non-dual eligible. We proposed to incorporate these changes in a new regulation at § 425.603. To align with the proposed methodology for calculating regional FFS expenditures for an ACO’s regional service area, we considered the following approach for calculating regional FFS trend factors: • For each benchmark year, calculate risk adjusted county FFS expenditures for the ACO’s regional service area. County FFS expenditures would be determined consistent with other proposals discussed in the 2016 proposed rule, by using total countylevel FFS Parts A and B expenditures for assignable beneficiaries, excluding IME, DSH, and uncompensated care payments, but including beneficiary identifiable payments made under a demonstration, pilot or time limited program; regional expenditures would be calculated for each Medicare enrollment type (ESRD, disabled, aged/ dual eligible, aged/non-dual eligible); • For each benchmark year, compute a weighted average of risk adjusted county-level FFS expenditures using weights that reflect the proportion of an ACO’s assigned beneficiaries residing in each county within the ACO’s regional service area. Calculations would be done by Medicare enrollment type (ESRD, disabled, aged/dual eligible, aged/non-dual eligible) based on the ACO’s benchmark year assigned population. VerDate Sep<11>2014 21:42 Jun 09, 2016 Jkt 238001 • Compute the average growth rates from BY1 to BY3, and from BY2 to BY3, using the weighted average of riskadjusted county level FFS expenditures for the respective benchmark years, for each Medicare enrollment type. We explained that we would apply these regional trend factors to the ACO’s historical benchmark expenditures, which are also adjusted based on the CMS–HCC model, to account for the severity and case mix of the ACO’s assigned beneficiaries in each benchmark year. We discussed that using regional trend factors, instead of national trend factors to trend forward expenditures in the benchmark period, would further incorporate regional FFS spending and population dynamics specific to the ACO’s regional service area in the ACO’s rebased benchmark. We explained our belief that there are number of relevant considerations for moving to use of regional trend factors, including the following: • Regional trend factors would more accurately reflect the cost growth experience in an ACO’s regional service area compared to use of national trend factors. • Regional trend factors would reflect the change in the health status of the FFS population that makes up the ACO’s regional service area, the region’s geographic composition (such as rural versus urban areas), and socio-economic differences that may be regionally related. • Regional trend factors could better capture location-specific changes in Medicare payments (for example, the area wage index) compared to use of national trend factors. We also considered how use of regional trend factors in resetting ACO benchmarks could affect participation by relatively high- and low-growth ACOs operating in regions with high and low growth in Medicare FFS expenditures. We anticipated the following: • Using regional trend factors would result in relatively higher benchmarks for ACOs that are low growth in relation to their region compared to benchmarks for ACOs that are high growth relative to their region. Therefore, use of regional FFS trends could disproportionately encourage the development of and continued participation by ACOs with rates of growth below that of their region. These ACOs would benefit from having a relatively higher benchmark, which would increase their chances for shared savings. On the other hand, ACOs with historically higher rates of growth above the regional average would have a PO 00000 Frm 00027 Fmt 4701 Sfmt 4700 37975 relatively lower benchmark and may be discouraged from participating if they are not confident of their ability to bring their costs in line with costs in their region. • In using regional growth rates specific to an ACO’s regional service area and composition (by Medicare enrollment type), there would likely be significant variation in the growth rates between health care markets in different regions of the country and even between ACOs operating in the same markets. This approach would be a departure from the current methodology, which applies a single set of national growth factors calculated for each benchmark year by Medicare enrollment type (ESRD, disabled, aged/dual eligible, aged/non-dual eligible). However, ACOs familiar with the composition of their assigned population and cost trends in their regional service area may find they can more readily anticipate what these trend factors may be. We indicated that stakeholders may find it helpful to observe differences in county FFS expenditures using the data files made publicly available in conjunction with the 2016 proposed rule. We sought comment on the proposed change to the rebased historical benchmark trend factor. We also considered and sought comment on several alternative approaches, including: • Using regional trend factors for trending forward an ACO’s BY1 and BY2 expenditures to BY3 in establishing and resetting historical benchmarks under the approach to resetting ACO benchmarks established with the June 2015 final rule (under which we equally weight the benchmark years, and account for savings generated under the ACO’s prior agreement period), as an alternative to adopting the approach to adjusting rebased benchmarks to reflect FFS expenditures in the ACO’s regional service area, as discussed in the 2016 proposed rule. • Applying regional trend factors for trending forward BY1 and BY2 expenditures to BY3 in establishing the benchmark for an ACO’s first agreement period under § 425.602(a), allowing this policy to be applied consistently program-wide beginning with an ACO’s first agreement period. Comment: Some commenters discussed issues relevant both to the proposal to replace national growth rates with regional growth rates for trending the rebased benchmark (BY1 and BY2 expenditures to BY3) and the proposed use of regional growth rates instead of a national flat dollar amount to update the benchmark each performance year. The following E:\FR\FM\10JNR4.SGM 10JNR4 asabaliauskas on DSK3SPTVN1PROD with RULES 37976 Federal Register / Vol. 81, No. 112 / Friday, June 10, 2016 / Rules and Regulations summary reflects these more general considerations, while later in this section of this final rule we discuss comments specific to each of these proposals. Comments were somewhat divided between support for and concerns about the proposals on using regional FFS expenditures instead of national FFS expenditures in calculating trend and update factors. Broader considerations reflected in the comments, relevant to both proposals include the following: • Among commenters supporting the proposed use of regional growth rates instead of factors based on national FFS expenditures in benchmark calculations, some believed this approach generally would result in benchmarks that better reflect the regional patterns in spending and costs. Additionally, several commenters explained that the use of national FFS expenditures as a component of the benchmark does not accurately reflect what is possible for ACOs to achieve, in terms of controlling growth in Medicare spending, within their geographic area or with respect to their assigned patient population. • Some commenters disagreed with the proposed use of regional growth rates in benchmark calculations, perceiving that these modifications could negatively impact benchmarks by, for example: (1) Allowing individual provider anomalies to have a material impact on an ACO’s benchmark; (2) lowering benchmarks (compared to the current methodology) for ACOs in low growth regions, with a commenter noting that ACOs in higher-growth areas would be rewarded with higher benchmarks; (3) lowering benchmarks in regions where ACOs have been successful in reducing growth in expenditures (particularly for successful ACOs that are dominant in a region, or ACO-heavy regions). • Some commenters were concerned about the discussion in the proposed rule indicating that the proposed changes could have mixed effects, increasing and decreasing benchmarks for ACOs depending on their circumstances. • Several commenters expressed support for adopting the use of regional trend and update factors across all ACOs, including ACOs within their first agreement period. A commenter explained that applying different methodologies in the first and subsequent agreement periods adds complexity and reduces predictability of the benchmark values. A few commenters noted CMS’ larger goal of reducing regional variation in health care utilization and costs. A VerDate Sep<11>2014 21:42 Jun 09, 2016 Jkt 238001 commenter expressed concern that using regional factors to formulate benchmarks for Shared Savings Program ACOs may exacerbate geographic variation and is antithetical to CMS’ broader goal of reducing this variation. However, another commenter stated that use of regional expenditure growth rates rather than national expenditure growth rates in benchmark calculations will better facilitate CMS’ goal of encouraging Shared Savings Program ACOs to transition to risk bearing arrangements. Response: We appreciate commenters’ support of the proposed use of growth rates based on regional FFS expenditures to trend forward BY1 and BY2 expenditures to BY3 when establishing the ACO’s rebased historical benchmark and to annually update the ACO’s rebased historical benchmark, as well as comments describing concerns with use of regional growth rates in these calculations. We agree with comments indicating the use of regional growth rates for the trend and update factors will have mixed effects on ACOs’ rebased benchmarks, increasing or decreasing the benchmark values depending on the growth rates determined for the ACO’s regional service area as we described in the 2016 proposed rule and reiterate in this final rule. As discussed in greater detail in section II.A.2.d.3 of this final rule, we plan to explore through future rulemaking alternative approaches to calculating the trend and update factors that may help mitigate concerns raised by some commenters about the potential disadvantages for some ACOs of transitioning from national to regional trend and update factors. We also plan to explore through future rulemaking suggestions by some commenters to begin to incorporate regional factors in the ACO’s first agreement period. On the whole, for the reasons described in the 2016 proposed rule and echoed in some comments, we believe these policy changes are an important step towards making an ACO’s rebased historical benchmark more reflective of the ACO’s regional service area including better reflecting the region’s cost experience, location-specific Medicare payment changes, as well as the health status of the region’s FFS population. We believe these changes to the methodology are responsive to stakeholders’ requests that we incorporate regional FFS expenditures into the ACO’s rebased historical benchmark, and therefore are critical to ensuring the sustainability of the program. Comment: Commenters also offered suggestions specific to the proposed use PO 00000 Frm 00028 Fmt 4701 Sfmt 4700 of regional growth rates for trending the rebased benchmark. Although some commenters were supportive of the proposed methodology for calculating the growth rates to be used as trend factors in establishing an ACO’s rebased historical benchmark, a commenter conditioned support for use of regional trend factors on the ACO’s spending being compared to spending for the regional Medicare FFS population excluding beneficiaries assigned to the ACO or any other ACO in the region. Some commenters disagreed with the proposed change from using national FFS expenditures to using regional FFS expenditures to calculate the trend factors used to establish an ACO’s rebased historical benchmark, for reasons previously described in this section of this final rule. Response: We are finalizing as proposed the use of regional growth rates to calculate the trend factor for establishing an ACO’s rebased historical benchmark. We appreciate commenters’ support for this approach, which we believe will more quickly transition the program to benchmark calculations reflecting spending, and spending growth, in the ACO’s regional service area and is consistent with the approach we are finalizing for calculating the annual update to the ACO’s rebased historical benchmark. For these reasons, we decline the suggestion by some commenters to continue using trend factors based on national FFS expenditures in establishing an ACO’s rebased historical benchmark. In section II.A.2.b of this final rule, we discuss comments suggesting exclusion of ACO assigned beneficiaries from the population used to determine expenditures for the ACO’s regional service area, and the reasons why we believe it is appropriate to include ACO assigned beneficiaries when calculating regional FFS expenditures. For the same reasons, we believe it is appropriate to include expenditures for these ACO assigned beneficiaries when determining regional trend and update factors. Comment: A few commenters recommended alternative approaches to using regional growth rates for trending benchmark expenditures to establish an ACO’s rebased historical benchmark not discussed in the proposed rule. For example, a commenter suggested a methodology that would account for both national and regional FFS expenditure trends, expressing concern that replacing the national trend factor with only a regional trend factor would pose additional challenges for ACOs in low-cost regions to meet the benchmark. Another commenter suggested allowing E:\FR\FM\10JNR4.SGM 10JNR4 asabaliauskas on DSK3SPTVN1PROD with RULES Federal Register / Vol. 81, No. 112 / Friday, June 10, 2016 / Rules and Regulations ACOs a choice of regional or national trend factors, explaining that this choice would allow each ACO to take into consideration the many competitive factors driving change within its local market. Response: We decline to adopt any of the alternative approaches recommended by commenters for calculating the trend factors. Elsewhere in this section of this final rule we discuss concerns that use of regional growth rates in benchmark calculations for the trend factors and the annual update will result in relatively lower benchmarks for ACOs in regions where spending growth is limited compared to areas with higher spending growth. In section II.A.2.d.3 of this final rule, we discuss our plan to explore an alternative approach to calculating the annual update, and also the benchmark trend factors, using standardized national FFS expenditures. We believe this approach has the potential to address the concerns raised by the commenter that suggested using an approach to determining trend factors that accounts for both national and regional FFS expenditure trends. We also decline at this time to adopt the commenter’s suggestion for an approach that (by design) would allow ACOs the choice between trend factors (national or regional). Such an approach could lead to opportunities for arbitrage and may dull incentives for ACOs to improve their performance under the Shared Savings Program, as well as create additional operational complexities for implementing the policy. Comment: Some commenters supported using a similar approach to calculate both the trend factors used in establishing the ACO’s rebased historical benchmark and the annual update to the rebased benchmark, as described in the 2016 proposed rule. A commenter expressed concern that the descriptions of the calculations for the proposed regional trend factors and annual update were based on different parameters but arrived at the same outcome. Response: In the 2016 proposed rule (81 FR 5838 and 5839), we outlined the steps for calculating the regional growth rates for the regional trend factors used in establishing the ACO’s rebased benchmark and for the annual update to the ACO’s rebased benchmark. We appreciate the commenter’s attention to the details in the descriptions of our proposed methodologies for trending and updating the benchmark. The methodologies used to calculate the growth rates for the trend factor and annual update are the same: for both the VerDate Sep<11>2014 21:42 Jun 09, 2016 Jkt 238001 trend factor and the annual update, we will determine risk-adjusted county FFS expenditures for the ACO’s regional service area, calculated by Medicare enrollment type (ESRD, disabled, aged/ dual eligible, aged/non-dual eligible) for the relevant reference years, and determine the percentage change in regional FFS expenditures for the ACO’s regional service area. However, there are certain necessary differences in the reference years used for purposes of trending and updating the benchmark. Specifically, the trend factors represent the growth rates between the ACO’s historical benchmark years (trend factor of BY1 and BY2 to BY3), whereas the annual update represents the growth rate between benchmark year 3 and the performance year. Therefore, both growth rates will reflect changes in expenditures for the ACO’s regional service area (according to the counties of residence of the ACO’s assigned beneficiaries) for each of the 2 reference years used in determining the applicable growth rate. We believe that the approaches are generally consistent and together they will result in a benchmark that consistently reflects the rate of growth in expenditures for the ACO’s region. FINAL ACTION: We are finalizing as proposed the use of regional growth rates, derived from a weighted average of risk adjusted FFS expenditures for the ACO’s regional service area, determined by the counties where the ACO’s assigned beneficiaries reside, to trend forward an ACO’s BY1 and BY2 expenditures to BY3 in calculating an ACO’s rebased historical benchmark. We will calculate and apply these trend factors for each of the following populations of beneficiaries: ESRD, disabled, aged/dual eligible, aged/nondual eligible. We are incorporating this methodology at § 425.603(c)(5). (3) Updating the Reset Benchmark During the Agreement Period Using the authority of section 1899(i)(3) of the Act, we proposed to include a provision in a new regulation at § 425.603 to specify that for ACOs in their second or subsequent agreement period whose rebased historical benchmark incorporates an adjustment to reflect regional expenditures, the annual update to the benchmark will be calculated as a growth rate that reflects growth in risk adjusted regional per beneficiary FFS spending for the ACO’s regional service area. Further, we proposed to calculate and apply separate update factors based on risk adjusted regional FFS expenditures for each of the following populations of beneficiaries: ESRD, disabled, aged/dual PO 00000 Frm 00029 Fmt 4701 Sfmt 4700 37977 eligible, aged/non-dual eligible. We proposed that this approach would replace the annual update to the historical benchmark for each year of the agreement period based on the flat dollar equivalent of the projected absolute amount of growth in national per capita expenditures for Parts A and B services under the original Medicare FFS program under section 1899(d)(1)(B)(ii) of the Act. We explained our considerations in developing this proposal and sought comment on the proposed methodology. We considered the following issues in developing our proposed modification to the methodology for updating the ACO’s rebased historical benchmark: • Using an update factor based on the regional FFS expenditures for the ACO’s regional service area to update an ACO’s rebased historical benchmark during the ACO’s second or subsequent agreement period would align with our proposal to use regional FFS expenditures in developing the trend factors for the rebased historical benchmark (to trend BY1 and BY2 expenditures to BY3) and our proposal to adjust the ACO’s rebased historical benchmark to reflect regional FFS expenditures. • Updating the benchmark based on regional FFS expenditures annually, during the course of the agreement period, would result in a benchmark used to determine shared savings and shared losses for a performance year that reflects trends in regional FFS growth for the ACO’s regional service area for the corresponding year. We explained that calculating the update factor using regional FFS expenditures would better capture the cost experience in the ACO’s region, the health status and socio-economic dynamics of the regional population, and locationspecific Medicare payments, when compared to using national FFS expenditures. • Adopting this approach would require our use of authority under section 1899(i)(3) of the Act as it is a departure from the methodology for annually updating the benchmark specified under section 1899(d)(1)(B)(ii) of the Act. We considered using the following approach to calculate the regional update amount for each Medicare enrollment type (ESRD, disabled, aged/ dual eligible, aged/non-dual eligible): • For each calendar year corresponding to a performance year, calculate risk adjusted county FFS expenditures for the ACO’s regional service area. As described in the 2016 proposed rule, county FFS expenditures would be determined using total county-level FFS Parts A and B E:\FR\FM\10JNR4.SGM 10JNR4 asabaliauskas on DSK3SPTVN1PROD with RULES 37978 Federal Register / Vol. 81, No. 112 / Friday, June 10, 2016 / Rules and Regulations expenditures for assignable beneficiaries, excluding IME, DSH, and uncompensated care payments, but including beneficiary identifiable payments made under a demonstration, pilot or time limited program, truncated and risk adjusted for each Medicare enrollment type (ESRD, disabled, aged/ dual eligible, aged/non-dual eligible). The ACO’s regional service area would be defined based on the ACO’s assigned beneficiary population used to perform financial reconciliation for the relevant performance year. • Compute a weighted average of risk adjusted county-level FFS expenditures with weights based on the proportion of an ACO’s assigned beneficiaries residing in each county of the ACO’s regional service area. Calculations would be done by Medicare enrollment type (ESRD, disabled, aged/dual eligible, aged/non-dual eligible) based on the ACO’s assigned population used to perform financial reconciliation for the relevant performance year. • Although not specified in the 2016 proposed rule, a necessary step in this calculation is computing the growth rates as the ratio of weighted average risk-adjusted county level FFS expenditures for the applicable 2 years. To clarify, we would determine the regional growth rates by comparing expenditures determined in the previous step for the relevant performance year with expenditures for BY3. We considered whether to calculate a flat dollar equivalent of the projected absolute amount of growth in regional per capita expenditures for Parts A and B FFS services, or whether to calculate the percentage change in growth in regional FFS expenditures for the ACO’s regional service area. We discussed issues related to use of a growth rate or a flat dollar amount in the initial rulemaking to establish the Shared Savings Program, including our view that a growth rate would more accurately reflect each ACO’s historical experience, but could also perpetuate current regional differences in medical expenditures (see 76 FR 19609 through 19610 and 76 FR 67924). Based on the reasons discussed in the earlier rulemaking, we noted our belief that using growth rates to determine the annual update would more effectively capture changes in the ACO’s regional service area expenditures and changes in the health status of the ACO’s population in comparison to the health status of the population of the ACO’s regional service area over time. We explained that using a growth rate to update ACOs’ benchmarks would also result in proportionately larger updates VerDate Sep<11>2014 21:42 Jun 09, 2016 Jkt 238001 for higher spending ACOs in the region and lower updates for lower spending ACOs in the region and would strike a balance with the flat-dollar average regional expenditures used to adjust the ACOs historical benchmark. We further described the anticipated effects of the proposed change to the methodology for calculating the update to an ACO’s rebased historical benchmark, including: • The use of an update factor based on regional FFS spending offers different incentives compared to an update factor reflecting only growth in national FFS spending. For instance, accounting for national FFS spending in an ACO’s benchmark update would provide a relatively higher expenditure benchmark for low spending ACOs in low growth areas and a relatively lower benchmark for high spending ACOs in high growth areas. In contrast, accounting for changes in regional FFS spending between the benchmark and the performance year by updating the benchmark according to changes in regional FFS expenditures would ensure that the benchmark continues to reflect recent trends in FFS spending growth in the ACO’s region throughout the duration of the ACO’s agreement period. • The use of an update factor based on regional FFS spending will likely result in significant variation in annual benchmark updates for individual ACOs, reflecting the cost experience in each ACO’s individualized regional service area along with changes in the health status of the population of patients served by the ACO as well as changes in the types of Medicare entitlement status in the ACO’s assigned beneficiary population. The degree of year-to-year change in expenditures will likely vary in both existing low- and high-growth regions and could also vary significantly from expectations. We explained, based on our past experience with calculating the 2012 national FFS growth factors (as used for interim reconciliation for the 2012 starters), the potential for negative updates and corresponding decreases in benchmark values. We also considered how to apply the update to the ACO’s rebased historical benchmark adjusted for expenditures in the ACO’s regional service area. We specified that the update would be applied after all adjustments are made to the ACO’s rebased benchmark. We detailed a sequence for these adjustments and the application of the update that would maintain the overall structure of the program’s current methodology, and align with the other revisions to the methodology used to calculate an ACO’s rebased historical PO 00000 Frm 00030 Fmt 4701 Sfmt 4700 benchmark described in the 2016 proposed rule. We explained it would be necessary to use the discretionary authority in section 1899(i)(3) of the Act to adopt a policy under which we would calculate the benchmark update using regional FFS expenditures. Section 1899(i)(3) of the Act authorizes the Secretary to use other payment models in place of the payment 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. We explained our belief that updating an ACO’s rebased historical benchmark based on regional FFS spending, rather than national FFS spending, would have positive effects for the Shared Savings Program and Medicare beneficiaries. As described in the regulatory impact analysis of the 2016 proposed rule, we noted the proposed changes to the payment model used in the Shared Savings Program, including updating the ACO’s rebased historical benchmark based on regional FFS spending, were anticipated to increase overall participation in the program, improve incentives for ACOs to invest in effective care management efforts, and increase the accuracy of benchmarks in capturing the experience in an ACO’s regional service area compared to the use of national FFS expenditures. Therefore, we believed these changes would result in improved quality of care furnished to Medicare beneficiaries, and greater efficiency of items and services furnished to these beneficiaries, as more ACOs enter and remain in the Shared Savings Program and continue to work to meet the program’s three-part aim of better care for individuals, better health for populations and lower growth in expenditures. We noted that section 1899(i)(3)(B) of the Act provides that the requirement that the other payment model not result in additional program expenditures ‘‘shall apply . . . in a similar manner as [subparagraph (b) of paragraph (2) of section 1899(i)] applies to the payment model under [section 1899(i)(2)].’’ Section 1899(i)(2) of the Act provides discretion for the Secretary to use a partial capitation model rather than the payment model described in section 1899(d) of the Act. Section 1899(i)(2)(B) of the Act provides that payments to an ACO for items and services for beneficiaries for a year under the partial capitation model shall be established in a manner that does not result in spending more for such ACO for such E:\FR\FM\10JNR4.SGM 10JNR4 asabaliauskas on DSK3SPTVN1PROD with RULES Federal Register / Vol. 81, No. 112 / Friday, June 10, 2016 / Rules and Regulations beneficiaries than would otherwise be expended for such ACO for such beneficiaries for such year if the model were not implemented, as estimated by the Secretary. We explained that we had not previously addressed this provision in rulemaking. We stated our belief that we could use a number of approaches to address this statutory requirement, for example: Through an initial estimation that the model does not result in additional expenditures that spans multiple years of implementation; by a periodic assessment that the model does not result in additional program expenditures; or by structuring the model in a way such that CMS could not spend more for an ACO for such beneficiaries than would otherwise be expended for such ACO for such beneficiaries for such year if the model were not implemented. However, because section 1899(i)(3)(B) of the Act states only that the requirement that the payment model not result in additional program expenditures must be applied in ‘‘a similar manner’’ to the requirement under section 1899(i)(2)(B) of the Act, we explained our belief that we have some discretion to tailor this requirement to the payment framework that is being adopted under the other payment model. The regulatory impact analysis of the 2016 proposed rule discussed our analysis of the requirement under section 1899(i)(3)(B) of the Act that the other payment model must not result in additional program expenditures, and our initial assessment of the costs associated with a payment model that includes changes to the manner in which we update the benchmark during an ACO’s agreement period. We compared all current policies and proposed policies to policies that could be implemented under section 1899(d)(1)(B)(ii) of the Act, and assessed that for the period spanning 2017 through 2019 there would be net federal savings. Therefore, we believed that the proposed alternative payment model under section 1899(i)(3) of the Act, which includes the use of regional FFS expenditures to update an ACO’s rebased historical benchmark and the use of FFS expenditures of assignable beneficiaries to calculate the national benchmark update for ACOs in their first agreement period and those ACOs that started a second agreement period on January 1, 2016, as well as policies established using the authority of section 1899(i)(3) of the Act in earlier rulemaking, meets the requirement under section 1899(i)(3)(B) of the Act. We anticipated that the costs of this alternative payment model would be VerDate Sep<11>2014 21:42 Jun 09, 2016 Jkt 238001 periodically reassessed as part of the impact analysis for subsequent rulemaking regarding the payment models used under the Shared Savings Program. However, we explained that in the event we do not undertake additional rulemaking, we intend to periodically reassess whether a payment model established under authority of section 1899(i)(3) of the Act continues to improve the quality and efficiency of items and services furnished to Medicare beneficiaries, without resulting in additional program expenditures. If we determine the payment model no longer satisfies the requirements of section 1899(i)(3) of the Act, for example if the alternative payment model results in net program costs, we would undertake additional notice and comment rulemaking to make adjustments to our payment methodology to assure continued compliance with the statutory requirements. We clarified that the current methodology for calculating the annual update would continue to apply in updating an ACO’s historical benchmark during its first agreement period, as well as in updating the rebased historical benchmark for the second agreement period for ACOs that started in the program in 2012 or 2013, and entered their second agreement period on January 1, 2016. That is, for these ACOs, we would continue to update the historical benchmark annually for each year of the agreement period based on the flat dollar equivalent of the projected absolute amount of growth in national per capita expenditures for Parts A and B services under the original Medicare FFS program. Consistent with the discussion in section II.A.2.e.3 of this final rule, these calculations will be performed based on assignable beneficiaries. We also discussed and sought comment on alternatives to the proposed approach, including: (1) Calculating the update factor as the flat dollar equivalent of the projected absolute amount of growth in regional per capita expenditures for Parts A and B services for the ACO’s regional service area; and (2) using regional FFS expenditures, instead of national FFS expenditures, to update an ACO’s historical benchmark beginning with its first agreement period. Comment: In section II.A.2.d.2 of this final rule, we describe and respond to comments regarding the use of regional growth rates in trending the ACO’s rebased historical benchmark and updating the ACO’s rebased historical benchmark annually during the agreement period. Commenters also PO 00000 Frm 00031 Fmt 4701 Sfmt 4700 37979 offered suggestions specific to the proposed use of regional growth rates for updating the rebased benchmark. Some commenters expressed support for the proposed use of growth rates based on regional FFS expenditures to annually update the ACO’s rebased historical benchmark. A commenter seemed to support this approach because it would yield larger update amounts for ACOs in higher growth regions, compared to the current use of an update factor based on national FFS expenditures. Of the few comments discussing whether the annual update should be calculated using regional growth rates or regional flat dollar amounts, commenters expressed a preference for the use of regional growth rates. Some commenters explained their preference for CMS to use the same formula to determine the regional trend and update factors. Because CMS proposed that regional trend factors would be calculated as growth rates, these commenters opposed use of regional flat dollar amounts in calculating the annual update in order to assure a consistent methodology would be used to trend and update the ACO’s rebased historical benchmark using factors based on regional FFS expenditures. Some commenters opposed the proposed use of regional FFS expenditures, instead of national FFS expenditures, to determine the annual update to the ACO’s rebased historical benchmark. Some commenters expressed concern that the proposed approach would have a variable impact on ACOs across the country, increasing and decreasing benchmarks for ACOs depending on the circumstances. A principal concern expressed by these commenters was that the proposed methodology would result in relatively lower update amounts for ACOs in low growth areas (including as a result of ACOs’ success in lowering growth in expenditures) compared to the update amounts for ACOs in higher growth areas. A commenter further explained that the wrong incentives will result because for regions where there is a substantial amount of managed care, or a dominant, successful ACO, the rate of FFS spending growth per capita in the region would be limited and the update to ACO benchmarks would be lowered by the success of risk-based coordinated care. Another commenter indicated a similar concern specific to ACO-heavy regions, pointing to a discussion of the issue in the 2016 proposed rule regulatory impact analysis (81 FR 5859). Some commenters suggested CMS forgo the proposed modification, and some recommended alternative E:\FR\FM\10JNR4.SGM 10JNR4 asabaliauskas on DSK3SPTVN1PROD with RULES 37980 Federal Register / Vol. 81, No. 112 / Friday, June 10, 2016 / Rules and Regulations approaches to use of regional growth rates for updating the ACO’s rebased benchmark, including the following: • Several commenters (including MedPAC) expressed support for modifying the benchmark update methodology to better account for changes in factors outside the ACO’s control that affect regional spending, but expressed concern about the proposal to move to use of regional FFS expenditures in calculating the annual update. MedPAC explained that ACOs’ incentives to control spending growth would be limited if the update to the benchmark would be reduced by their success in reducing spending growth, particularly in circumstances where an ACO is dominant in its region. MedPAC suggested CMS investigate continuing to use a national update amount, and excluding IME, DSH and uncompensated care payments as provided under our current regulations, but also adjusting for changes in factors outside the ACO’s control that affect regional spending such as area wage index changes (for example the region’s hospital wage index). Along similar lines, another commenter suggested CMS adopt the Next Generation ACO model methodology. The Next Generation ACO Model is currently testing a benchmarking method that includes use of a prospectively calculated trend-adjustment factor, applied to baseline claims, which includes a national projected trend adjusted for regional changes in geographic adjustment factors (such as area wage index (AWI) and geographic practice cost index (GPCI)). See Next Generation ACO Model Benchmarking Methods (December 15, 2015), available online at https://innovation.cms.gov/ Files/x/nextgenaco-methodology.pdf). • Allow ACOs a choice between the higher of the national or regional update amount, particularly in the agreement period when the rebasing methodology including factors based on regional FFS expenditures is applied to the ACO for the first time. • Reduce the frequency of, or eliminate altogether, the benchmark update. Response: We are finalizing as proposed the use of regional growth rates to calculate the annual update to the ACO’s rebased historical benchmark. We believe this approach will more quickly transition the program to benchmark calculations reflecting spending and spending growth in the ACO’s regional service area. However, we do share commenters’ concerns about creating significant variation in the update amount across VerDate Sep<11>2014 21:42 Jun 09, 2016 Jkt 238001 ACOs participating in the Shared Savings Program. We are also concerned about the longer term effects on participation resulting from relatively lower benchmark updates for regions with lower growth rates, reflecting ACOs’ success in lowering growth in expenditures in those regions or a more general pattern of lower growth in the regions. We considered the approach suggested by MedPAC, under which the benchmark update would be calculated using standardized national FFS expenditures, adjusted for factors including the area wage index, to be an elegant alternative to use of regional growth rates in calculating the benchmark update. We are not adopting this approach in this final rule because this option was not discussed in the proposed rule, and therefore ACOs and other stakeholders have not had an opportunity to comment on this approach. Further, we would need to undertake additional analysis and modeling of this approach before deciding whether to propose it. We anticipate exploring an alternative approach to calculating the update similar to MedPAC’s recommendation, and may address the details of this approach in future rulemaking. Under this approach we would consider standardizing national FFS expenditures, for example: By calculating the benchmark update using a national growth rate adjusted for factors including IME, DSH, uncompensated care, as well as the AWI and GPCI; or by removing all geographic based payments and other add on payments similar to the approach for standardizing claims under the Physician Value Based Payment Modifier and Hospital Value-Based Purchasing programs. See for example, Basics of Payment Standardization (June 2015) and Detailed Payment Standardization Methods (updated May 2015), available at https:// www.qualitynet.org/dcs/ ContentServer?c=Page&pagename= QnetPublic%2FPage%2FQnet Tier4&cid=1228772057350. We also believe the Innovation Center’s experience with the Next Generation ACO Model methodology will be informative when evaluating use of geographic adjustments within the Shared Savings Program benchmarking methodology. We would also explore, through future rulemaking, how broadly to apply an alternative approach, including whether to apply the same methodology consistently in calculating both the trend factors and the annual update. We would also consider whether to apply the same methodology consistently PO 00000 Frm 00032 Fmt 4701 Sfmt 4700 across the program for benchmark calculations, regardless of whether the ACO is participating in its first, or a subsequent agreement period. For example, we may consider calculating the trend and update factors using regional growth rates, as provided in this final rule, in benchmark calculations for an ACO’s first agreement period. Alternatively, we may consider applying consistently across the program an alternative approach to calculating the regional trend and update factors, such as using standardized national FFS expenditures. Another consideration would be whether to apply an alternative approach to calculating the trend and update factors, such as using standardized national FFS expenditures, only in calculating an ACO’s first agreement period benchmark, as a means of facilitating ACOs’ transition to a benchmarking methodology in subsequent agreement periods that includes use of regional growth rates to trend and update the benchmark. FINAL ACTION: Under the authority of section 1899(i)(3) of the Act, we are finalizing our proposal that for ACOs in their second or subsequent agreement period whose rebased historical benchmark incorporates an adjustment to reflect regional expenditures, the annual update to the benchmark will be calculated as a growth rate that reflects growth in risk adjusted regional per beneficiary FFS spending for the ACO’s regional service area, for each of the following populations of beneficiaries: ESRD, disabled, aged/dual eligible, aged/non-dual eligible. We are incorporating this methodology at § 425.603(d). We note that this final provision includes some minor revisions to the proposed regulatory language in order to ensure that the final methodology for updating the rebased benchmark is described accurately and consistently. We note that section IV.E of this final rule contains an updated assessment of all policies that are being implemented under the authority of section 1899(i)(3). Specifically, we compared all current policies along with the policies that are being adopted in this final rule to policies that could be implemented under section 1899(d)(1)(B)(ii) of the Act, and concluded that for the period from 2017 to 2019 there would be net federal savings. As discussed in the proposed rule, we anticipate that the costs of this alternative payment model will be periodically reassessed as part of the impact analysis for subsequent rulemaking regarding the payment models used in the Shared Savings Program. However, in the event we do E:\FR\FM\10JNR4.SGM 10JNR4 Federal Register / Vol. 81, No. 112 / Friday, June 10, 2016 / Rules and Regulations not undertake additional rulemaking, we intend to periodically reassess whether the payment model established under the authority of section 1899(i)(3) of the Act continues to improve the quality and efficiency of items and services furnished to Medicare beneficiaries, without resulting in additional program expenditures. If we determine the payment model no longer satisfies the requirements of section 1899(i)(3) of the Act, for example if the alternative payment model results in net program costs, we will undertake additional notice and comment rulemaking to make adjustments to our payment methodology to assure continued compliance with the statutory requirements. In adopting this approach, we believe that the alternative payment model under section 1899(i)(3) of the Act that is set forth in this final rule, which includes using regional FFS expenditures to update an ACO’s rebased historical benchmark, using FFS expenditures of assignable beneficiaries to calculate the national benchmark update for ACOs in their first agreement period and those that started a second agreement period on January 1, 2016, as well as existing policies established using the authority of section 1899(i)(3) of the Act, meets the requirement of section 1899(i)(3)(B) of the Act. asabaliauskas on DSK3SPTVN1PROD with RULES e. Parity Between Calculation of ACO, Regional and National FFS Expenditures (1) Background In the November 2011 final rule, we established a methodology for determining ACO benchmark and performance year expenditures for Medicare FFS beneficiaries assigned to the ACO. Under that methodology, we take into account payments made from the Medicare Trust Funds for Parts A and B services for assigned Medicare FFS beneficiaries, including individually beneficiary identifiable payments made under a demonstration, pilot or time limited program, when computing average per capita Medicare expenditures under the ACO. We exclude IME payments and DSH and uncompensated care payments from both benchmark and performance year expenditures. This adjustment to benchmark expenditures falls under the Secretary’s discretion established by section 1899(d)(1)(B)(ii) of the Act to adjust the benchmark for beneficiary characteristics and such other factors as the Secretary determines appropriate. However, section 1899(d)(1)(B)(i) of the Act only provides authority to adjust expenditures in the performance period for beneficiary characteristics and does VerDate Sep<11>2014 21:42 Jun 09, 2016 Jkt 238001 not provide authority to adjust for ‘‘other factors.’’ Therefore, to remove IME and DSH payments from performance year expenditures, we used our authority under section 1899(i)(3) of the Act, which authorizes use of other payment models, in order to make this adjustment (see 76 FR 67920 through 67922). We allow for a 3-month run out of claims data and apply a claims completion factor (percentage), to more accurately determine an ACO’s benchmark and performance year expenditures (76 FR 67837 and 67838). To minimize variation from catastrophically large claims we truncate an assigned beneficiary’s total annual Parts A and B FFS per capita expenditures at the 99th percentile of national Medicare FFS expenditures as determined for each benchmark year and performance year (76 FR 67914 through 67916). We perform many of these calculations separately for each of the following populations of beneficiaries: ESRD, disabled, aged/dual eligible, aged/non-dual eligible. For example, we calculate benchmark and performance year expenditures, determine truncation thresholds, and risk adjust ACO expenditures separately for each of these four Medicare enrollment types. As part of this methodology, we account for circumstances where a beneficiary is enrolled in a Medicare enrollment type for only a fraction of a year, through a process that results in a calculation of ‘‘person years’’ for a given year. We calculate the number of months that each beneficiary is enrolled in Medicare in each Medicare enrollment type, and divide by 12. When we sum the fraction of the year enrolled in Medicare for all the beneficiaries in each Medicare enrollment type, the result is total person years for the beneficiaries assigned to the ACO. We currently apply these policies consistently across the program, as specified in the provisions for establishing, updating and resetting the benchmark under § 425.602, and for determining performance year expenditures under § 425.604 for Track 1 ACOs and under § 425.606 for Track 2 ACOs. Further, in developing Track 3, we determined that it would be appropriate to calculate expenditures consistently program-wide (see 80 FR 32776 through 32777). Accordingly, the provisions in § 425.602 governing establishing, updating, and resetting the benchmark also apply to ACOs under Track 3, and we adopted the same approach for determining performance year expenditures as is used in Track 1 and Track 2 in § 425.610 for Track 3 ACOs. PO 00000 Frm 00033 Fmt 4701 Sfmt 4700 37981 (2) Calculation of County FFS Expenditures As part of our proposal to adjust the historical benchmark to reflect regional FFS expenditures, we expressed our belief that it is important to calculate FFS expenditures for an ACO’s region in a manner consistent with the methodology used to calculate the ACO’s benchmark and performance year expenditures. Several sections of the 2016 proposed rule discussed proposals related to calculating county FFS expenditures: one section described proposals for determining county FFS expenditures (see 81 FR 5831 and 5832); a separate section described related proposals for adjusting county FFS expenditure data to assure parity between regional FFS expenditure calculations and other program expenditure calculations (81 FR 5841 through 5843). Further, the discussion of the definition of the ACO’s regional service area included a proposal to use statewide (instead of county level) values for the ESRD population (81 FR 5829 and 5830). We are consolidating our discussion of these proposals within this section of this final rule. Consistent with our proposed definition of regional service area, we proposed to define regional costs as county FFS expenditures for the counties in which the ACO’s assigned beneficiaries reside. We proposed that the calculations of county FFS expenditures would be undertaken separately according to the following populations of beneficiaries (identified by Medicare enrollment type): ESRD, disabled, aged/dual eligible, aged/nondual eligible (see 81 FR 5830). We explained that consistent with the use of beneficiary person years in calculating ACO benchmark and performance year expenditures for each Medicare enrollment type, we would also calculate beneficiary person years when determining county FFS expenditures for each Medicare enrollment type (see 81 FR 5841 through 5843). We proposed to compute per capita expenditures and average risk scores for the ESRD population at the state level, and to apply those state-level values to all counties in the state. We explained that this approach would address issues associated with small numbers of ESRD beneficiaries in certain counties that can lead to statistical instability in expenditures for this complex population, and is consistent with the approach used in MA. We explained that our concern about small numbers of ESRD beneficiaries was particularly acute for ACOs operating in rural areas E:\FR\FM\10JNR4.SGM 10JNR4 asabaliauskas on DSK3SPTVN1PROD with RULES 37982 Federal Register / Vol. 81, No. 112 / Friday, June 10, 2016 / Rules and Regulations that tend to be more sparsely populated (see 81 FR 5830). To increase predictability and stability, and avoid bias, we proposed to apply the same approach to calculating county FFS expenditures for factors based on regional expenditures as is currently used in calculating benchmark and performance year expenditures. We explained consistent application of program methodology in calculating FFS expenditures would result in more predictable and stable calculations across the program over time, for example as ACOs transition from a benchmarking methodology that incorporates factors based on national FFS expenditures to one that incorporates factors based on regional FFS expenditures. In addition, use of an alternative approach to calculating regional FFS expenditures could introduce bias because different types of payments could be included in or excluded from these expenditures, as compared to historical benchmark expenditures and performance year expenditures. Therefore, we proposed to take the following steps in calculating county FFS expenditures used to determine expenditures for an ACO’s regional service area: • Determine county FFS expenditures based on the expenditures of the assignable population of beneficiaries in each county, where assignable beneficiaries are identified for the 12month period corresponding to the applicable calendar year (see section II.A.2.e.3 of this final rule). We will make separate expenditure calculations according to the following populations of beneficiaries (identified by Medicare enrollment type): ESRD, disabled, aged/ dual eligible, aged/non-dual eligible. • Calculate assignable beneficiary expenditures using the payment amounts included in Parts A and B FFS claims with dates of service in the 12month calendar year for the relevant benchmark or performance year, allowing for a 3-month claims run out and applying a completion factor. The completion factor will be calculated based on national FFS assignable beneficiary expenditures (see section II.A.2.e.3 of this final rule). ++ These calculations will exclude IME, DSH, and uncompensated care payments. ++ These calculations will take into consideration individually beneficiary identifiable payments made under a demonstration, pilot or time limited program. • Truncate a beneficiary’s total annual Parts A and B FFS per capita expenditures at the 99th percentile of VerDate Sep<11>2014 21:42 Jun 09, 2016 Jkt 238001 national Medicare FFS assignable beneficiary expenditures as determined for the relevant year, in order to minimize variation from catastrophically large claims (see section II.A.2.e.3 of this final rule). We would determine truncation thresholds separately for each of the four Medicare enrollment types (ESRD, disabled, aged/ dual eligible, aged/non-dual eligible). • Adjust county FFS expenditures for severity and case mix of assignable beneficiaries in the county using prospective CMS- Hierarchical Condition Category (HCC) risk scores. We would determine average risk scores separately for each of the four Medicare enrollment types (ESRD, disabled, aged/ dual eligible, aged/non-dual eligible). We explained our plan to make county level data used in Shared Savings Program calculations publicly available annually. For example, a publicly available data file would indicate for each county: Average per capita FFS assignable beneficiary expenditures and average risk scores for all assignable beneficiaries by Medicare enrollment type (ESRD, disabled, aged/ dual eligible, aged/non-dual eligible). In response to requests from ACOs and other stakeholders for data to allow for modeling of the proposed changes to the benchmark rebasing methodology, CMS made new data files available through the Shared Savings Program Web site, to coincide with the issuance of the 2016 proposed rule (https://www.cms.gov/ Medicare/Medicare-Fee-for-ServicePayment/sharedsavingsprogram/ Statutes-Regulations-Guidance.html). These files included: average per capita county-level FFS spending and risk scores for three historical years; and ACO-specific data on the total number of assigned beneficiaries residing in each county where at least 1 percent of the ACO’s assigned beneficiaries reside, for three historical years. We described these data files and considerations for their use, including comparability of ACO-specific data across programmatic datasets in the proposed rule (81 FR 5867 through 5868). We proposed to incorporate this methodology for calculating county FFS expenditures in a new regulation at § 425.603. We sought comment on this proposed methodology as well as any additional factors we would need to consider in calculating risk adjusted county FFS expenditures for an ACO’s regional service area. Comment: The few commenters addressing the sections of the rule containing proposals for determining county FFS expenditures, as well as the related section describing parity between regional FFS expenditure PO 00000 Frm 00034 Fmt 4701 Sfmt 4700 calculations and other program expenditure calculations, were generally supportive of the proposed approach. However, a commenter expressed concerns that the proposed approach to calculating regional expenditures will incorporate historical geographic payment disparities that have never been adequately addressed in fee schedule and wage index rulemaking. Commenters offered specific suggestions regarding the proposals, as described in the remaining comment and response summaries within this section of this final rule. Several commenters expressed support for the proposal to calculate expenditures by Medicare enrollment type (ESRD, disabled, aged/dual eligible, aged/non-dual eligible). Commenters generally shared CMS’ concern about small numbers of ESRD beneficiaries at the county-level. While a few commenters believed that the proposed use of state level data would adequately address this concern as well as align with the methodology used in MA, many commenters expressed uncertainty about whether using statelevel data for the ESRD population would be the best solution. These commenters urged CMS to release additional data and further explain how use of state-level data is the optimal solution, with some suggesting CMS revisit this issue in future rulemaking. Commenters offered a variety of alternatives, including: approaches similar to alternatives for ensuring a sufficiently large regional population, and several approaches that would rely on an ACO’s historical costs for its assigned ESRD population. Some commenters preferred use of countylevel data for the ESRD population. A commenter suggested use of statewide values only if county level values did not meet a threshold of sufficient statistical stability. A commenter explained that applying state-level data for all counties within a state may skew results for certain ACOs, in particular those ACOs operating only in certain areas of a state. Response: We are finalizing as proposed the use of county level data to determine regional FFS expenditures for the assignable beneficiary population in the ACO’s regional service area. We will perform these calculations separately according to the following populations of beneficiaries (identified by Medicare enrollment type): ESRD, disabled, aged/ dual eligible, aged/non-dual eligible. However, we are making a modification to the methodology for calculating county FFS expenditures. Based on commenters’ recommendations, we carefully E:\FR\FM\10JNR4.SGM 10JNR4 asabaliauskas on DSK3SPTVN1PROD with RULES Federal Register / Vol. 81, No. 112 / Friday, June 10, 2016 / Rules and Regulations considered alternatives to the proposed approach of aggregating the expenditures for the ESRD population at the state level and applying this value consistently to each county within the State. Specifically, we reconsidered the option of using county-level data for the ESRD population, and determined that it would be appropriate to finalize a policy of calculating expenditures for the ESRD population at the county level. We believe there are a number of advantages of calculating expenditures for the ESRD population at the county level, consistent with the approach we proposed and are finalizing for determining county level expenditures for the other populations of beneficiaries (disabled, aged/dual eligible, aged/non-dual eligible). We believe a consistent approach to calculating expenditures for each Medicare enrollment type will be less operationally burdensome compared to an approach that calculates expenditures for the ESRD population differently than the expenditures for the disabled, aged/dual eligible, and aged/ non-dual eligible populations. We also anticipate this consistency will allow for greater comparability between the values for each Medicare enrollment type to facilitate analysis by CMS and ACOs of expenditure trends for these populations over time. Further, this approach will reflect the variation in expenditures within states and the regional service areas that ACOs serve, a concept supported by comments underscoring the importance of reflecting regional spending variation in the methodology for resetting the ACO’s historical benchmark. We believe our concern about the small numbers of ESRD beneficiaries at the county level will be mitigated by certain factors. For one, while ESRD beneficiaries exhibit higher mean expenditures, they also exhibit significantly lower variation due in part to the stability of regular dialysis services for which payments are bundled in a highly standardized fashion. Second, we are finalizing an approach of weighting regional FFS expenditures by the proportion of assigned beneficiaries by Medicare enrollment in each county as discussed in section II.A.2.b.2 of this final rule. Specifically, for ACOs with a small proportion of ESRD beneficiaries within their assigned beneficiary population, the county-level ESRD expenditures will have a relatively low weight within the ACO’s regional FFS expenditures. On the other hand, in the case of ACOs serving a large proportion of ESRD beneficiaries within a county, this VerDate Sep<11>2014 21:42 Jun 09, 2016 Jkt 238001 approach could accommodate commenters’ requests that the regional FFS expenditures more directly reflect the historical costs for the ACO’s assigned ESRD beneficiaries. Additionally, we believe that the methodology for truncating the assignable beneficiary expenditures used to determine county FFS expenditures at the 99th percentile of national Medicare FFS assignable beneficiary expenditures will help reduce the potential for variation in county expenditure values with respect to the ESRD population in the same way as for the disabled, aged/dual eligible and aged/non-dual eligible populations. We appreciate commenters’ support for a methodology for determining regional FFS expenditures for use in the Shared Savings Program benchmark rebasing methodology that aligns with the MA rate-setting methodology. Although the approach we are finalizing does not follow the MA methodology for aggregating expenditures for the ESRD population statewide, and applying these values to each county in the state, we believe our overall approach for calculating county level expenditures risk adjusted using CMS–HCC prospective risk scores is a substantial step towards aligning with the MA ratesetting approach. We decline at this time to adopt an alternative approach that (by design) only bases regional FFS expenditures for the ESRD population on the ACO’s assigned ESRD beneficiaries, because it would systematically tie an ACO’s rebased historical benchmark to its past performance, rather than allowing an ACO’s benchmark to be more reflective of FFS spending in its region. With respect to the commenter’s concern that the proposed methodology for calculating regional expenditures would incorporate geographic payment disparities, we recognize there are geographic variations in Medicare payments. However, it is beyond the scope of this final rule, as well as the Shared Savings Program in general, to address broader Medicare payment policies regarding geographic adjustments. Comment: Some commenters suggested increasing the number of years of data included in the calculations of county FFS expenditures, for example, using a 5year rolling average for county-level spending estimates, along the lines of the approach used by MA. Response: We are finalizing without modification our proposal to calculate county FFS expenditures for assignable beneficiaries residing in a county using the payment amounts included in Parts PO 00000 Frm 00035 Fmt 4701 Sfmt 4700 37983 A and B FFS claims with dates of service in the 12-month calendar year for the relevant benchmark or performance year, allowing for a 3month claims run out and applying a completion factor, and adjusted for other factors as described elsewhere in this section of this final rule. We believe that use of a single year of data in calculating county FFS expenditures will be approximately equivalent to using multiple years of data that have been trended using regional growth factors developed using historical FFS expenditures for the county. We believe using growth factors to trend forward historical county data would be approximately equivalent to the use of county level expenditures for the applicable year because each growth factor would be derived from the same historical county data it would be tasked with inflating. Comment: Some commenters expressed support for the proposed adjustment to exclude IME, DSH and uncompensated care payments from the calculation of county FFS expenditures. Although a commenter suggested further normalizing payment methodologies to account for differences in payment policies for certain rural providers, for example rural health clinics (RHCs) and hospitals receiving the status of sole community hospital. A commenter also expressed support for including individually beneficiary identifiable payments made under a demonstration, pilot or time limited program in the determination of county FFS expenditures. This commenter underscored the importance of including these payments to give an accurate representation of actual FFS payments during the measurement period, and urged that we allow adequate time for other CMS payment demonstrations to complete final reconciliation to ensure that our calculation of county FFS expenditures accounts for actual FFS expenditures. Response: We appreciate commenters’ support for adjusting county FFS expenditures for IME, DSH and uncompensated care payments and for including individually beneficiary identifiable payments made under a demonstration, pilot, or time limited program, to remain consistent with the methodology used in calculating ACO and national FFS expenditures. We are finalizing these policies, as proposed. Currently, the Shared Savings Program coordinates across initiatives within CMS to obtain the most recent available, final non-claims based beneficiary-identifiable payments for use in program financial calculations and informational reports. E:\FR\FM\10JNR4.SGM 10JNR4 asabaliauskas on DSK3SPTVN1PROD with RULES 37984 Federal Register / Vol. 81, No. 112 / Friday, June 10, 2016 / Rules and Regulations We decline to adopt the commenter’s recommendations to account for differences in cost and payment among providers and suppliers, such as RHCs and sole community hospitals, in calculating county FFS expenditures. As explained in response to related considerations in the November 2011 final rule, we continue to believe this approach 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 67919 and 67920). Comment: A commenter expressed support, in general, for an approach that minimizes the impact of catastrophically large claims in the calculation of the benchmark. Several commenters offered alternatives to the proposal to truncate a beneficiary’s total annual Parts A and B FFS per capita expenditures at the 99th percentile of national Medicare FFS assignable beneficiary expenditures as determined for the relevant year. A commenter disagreed with limiting the population used to calculate the truncation threshold to assignable beneficiaries (instead of all FFS beneficiaries). Another commenter, concerned about the potential for year-to-year variability in threshold amounts, suggested CMS explore approaches that would provide greater predictability for these values, such as fixed absolute dollar thresholds. Response: We are finalizing without modification our proposal to truncate a beneficiary’s total annual Parts A and B FFS per capita expenditures when determining county FFS expenditures, and to define the truncation threshold as the 99th percentile of national Medicare FFS assignable beneficiary expenditures as determined for the relevant year for the applicable Medicare enrollment type (ESRD, disabled, aged/dual eligible, aged/nondual eligible). We do not believe the concern raised by the commenter about the increase in the truncation thresholds as a result of using expenditures for assignable beneficiaries instead of all FFS beneficiaries is sufficient to warrant modification to the proposal. We estimate that the approach of using expenditures for assignable beneficiaries would result in approximately a 0.1 percent increase in the amount of the truncation thresholds. We believe this differential is small and therefore does not warrant either a change in approach or a delay in adopting a policy change that we believe will result in less biased calculations. We also decline at this time to revise the methodology for calculating the thresholds to specify a fixed amount that would not vary based VerDate Sep<11>2014 21:42 Jun 09, 2016 Jkt 238001 on year-to-year changes in population and payment amounts, as suggested by a commenter. In the 2016 proposed rule we did not propose or seek comment on an alternative basis for truncating claims such as using a flat dollar amount (that does not vary year to year) instead of an annually determined percentile, and at this time we do not believe this alternative would be a preferred approach. As we explained in the November 2011 final rule, we believe that truncating claims at the 99th percentile (as opposed to alternative suggestions for differing threshold amounts) achieves an appropriate balance between limiting catastrophic costs and continuing to hold ACOs accountable for those costs that are likely to be within their control (see 76 FR 67914 and 67915). Comment: A number of commenters expressed general support for CMS’ proposed approach for calculating riskadjusted county expenditures using CMS–HCC risk scores. While no commenters explicitly opposed this proposal, several commenters raised concerns about CMS–HCC risk adjustment more broadly and some offered suggestions for improving or refining the program’s general risk adjustment methodology. For a more detailed description of these comments, see section II.A.2.c.2. of this final rule. Response: We are finalizing our proposal to risk adjust county FFS expenditures by Medicare enrollment type, using the CMS–HCC risk scores. We appreciate the general support received from commenters on our proposed approach for calculating riskadjusted county expenditures. We acknowledge the concerns raised by commenters about the program’s general risk adjustment methodology, which relies on CMS–HCC risk scores, and appreciate the suggestions for improvement. As we gain more experience in the Shared Savings Program we will continue to evaluate the appropriateness and effectiveness of our risk adjustment methodology and, as necessary, will propose refinements through future notice and comment rulemaking. Comment: While commenters applauded the release of data to support modeling of the proposed benchmarking changes, some voiced dissatisfaction with the data and pointed to concerns indicating a ‘‘persisting lack of transparency.’’ For instance, some commenters believed that too little time was allowed for ACOs and other stakeholders to model the proposed changes, and that insufficient data were released (for example, requesting county level instead of statewide ESRD data, PO 00000 Frm 00036 Fmt 4701 Sfmt 4700 and citing a lack of data to support modeling of the proposed revisions to the methodology for adjusting an ACO’s benchmark for changes in ACO participant composition). Some comments included analyses based on publicly available data and other data sources, as described in more detail in section IV.G. of this final rule. Several commenters pointed to the complexity of the proposed changes and difficulty in accessing complete data to support modeling as reasons for CMS to provide resources and tools to help ACOs and other stakeholders understand the impact of the changes adopted in this final rule. Some commenters applauded CMS’ stated intention to release annual data files. Some commenters underscored the need for these annual files to be comprehensive (for example, ACO assigned beneficiary data should include counties with less than 1 percent of the assigned population to align with the definition of the ACO’s regional service area, if finalized as proposed) and timely (for example, data should be made available in time to be used to support organizations’ participation decisions). A commenter encouraged CMS to provide comparable data, to the extent feasible, for beneficiaries enrolled in MA plans, as a step towards aligning Medicare payments across ACOs and MA. A commenter further urged CMS to supply data related to benchmark calculations directly to ACOs, including data on the performance of other providers in the ACO’s region, change over time, and risk adjustment. Response: We appreciate commenters’ feedback on the release of the data to support modeling of the proposed changes to the Shared Savings Program benchmark rebasing methodology. It is our goal to encourage transparency and understanding of program calculations. To this end we provided detailed descriptive information in the 2016 proposed rule on our proposed approach for implementing the proposed revisions to the rebasing methodology, and made publicly available informational data files as well as descriptive details on the parameters for and limitations in using these data. We anticipate releasing annual data files to support our goal of transparency in program calculations, as well as to allow ACOs and other stakeholders to model impacts. We believe it is important for these data to be as complete and accurate as possible and, consistent with our methodology for performing financial reconciliation, will include claims data with a 3-month claims run out. As a result, we E:\FR\FM\10JNR4.SGM 10JNR4 asabaliauskas on DSK3SPTVN1PROD with RULES Federal Register / Vol. 81, No. 112 / Friday, June 10, 2016 / Rules and Regulations anticipate releasing county-level expenditure and risk score data following the conclusion of the calendar year to which the data relate. We believe this dataset will provide ACOs and other program stakeholders the inputs needed to calculate the regional adjustment to their historical benchmark as well as to understand the level of county level expenditures in their regional service area, including any changes to that level once multiple years of data are available. In addition, we plan to make public ACO-specific, aggregate data on counties of residence for the ACO’s assigned population for each performance year so the public at large has a better understanding of the ACOs in various counties and regions across the country. We anticipate including these details on county of residence for ACO assigned beneficiaries as part of the annual Shared Savings Program public use files on ACO financial and quality performance. In response to the commenter’s request for release of comparable MA data, we note that MA rates and statistics are publicly available through the CMS Web site (available at https:// www.cms.gov/medicare/health-plans/ medicareadvtgspecratestats/). We encourage stakeholders to review these data in combination with the informational data files that CMS plans to release related to the revised Shared Savings Program benchmark rebasing methodology we are finalizing in this final rule. We also anticipate updating the operational guidance documents available to the public and ACOs, to facilitate understanding by ACOs, other stakeholders, and the public (more generally) of the changes to the Shared Savings Program’s benchmarking methodology resulting from this final rule. We recognize 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 and other program stakeholders. FINAL ACTION: We are finalizing our proposed methodology for calculating county FFS expenditures in new § 425.603, with one modification. We are finalizing as proposed the use of county level data to determine regional FFS expenditures for the assignable beneficiary population in the ACO’s regional service area, and to perform these calculations separately according to the following populations of beneficiaries (identified by Medicare enrollment type): ESRD, disabled, aged/ VerDate Sep<11>2014 21:42 Jun 09, 2016 Jkt 238001 dual eligible, aged/non-dual eligible. However, we are not finalizing our proposal to aggregate the expenditures for the ESRD population at the state level and to apply this value consistently to each county within the State. Instead, we are finalizing a policy of calculating expenditures for the ESRD population at the county level. We are also finalizing our proposal to calculate county FFS expenditures in the same way that is currently used to calculate ACO expenditures in order to assure parity with the calculation of ACO benchmark and performance year expenditures as specified under the Shared Savings Program regulations. (3) Modifying the Calculation of National FFS Expenditures, Completion Factors, and Truncation Thresholds Based on Assignable Beneficiaries In the 2016 proposed rule we explained our belief that it is timely to reconsider the beneficiary population that should be used in program calculations for the national FFS population at the same time as we are establishing our policies for determining regional FFS expenditures, including the beneficiary population that will be used in those calculations. Several elements of the existing Shared Savings Program financial calculations are based on expenditures for all Medicare FFS beneficiaries regardless of whether they are eligible to be assigned to an ACO, including: The national growth rates used to trend forward expenditures during the benchmark period; the projected absolute amount of growth in national per capita expenditures for Parts A and B services used to update the benchmark; the completion factors applied to benchmark and performance year expenditures; and the truncation thresholds set at the 99th percentile of national Medicare FFS expenditures. In calculating these factors based on national FFS expenditures, we take into account Parts A and B expenditures for all Medicare FFS beneficiaries, and exclude IME payments and DSH and uncompensated care payments to align with our methodology for calculating benchmark and performance year expenditures. We explained our concern that using expenditures for all Medicare FFS beneficiaries, including beneficiaries ineligible for assignment, in calculating factors that are based on the expenditures of the broader FFS population as opposed to using only expenditures for the narrower population of FFS beneficiaries eligible for assignment to an ACO, can bias those calculations. There may be differences in the health status and PO 00000 Frm 00037 Fmt 4701 Sfmt 4700 37985 health care cost experience of Medicare beneficiaries excluded from the assignment ‘‘pre-step’’ compared to those who are eligible for assignment, based on their health conditions and the providers from whom they receive care. Thus, including the expenditures for non-assignable beneficiaries, such as non-utilizers of health care services, can result in lower overall per capita expenditures. These biases may have a more pronounced effect in calculations of regional FFS expenditures, which are based on relatively smaller populations of beneficiaries, as compared to calculations based on the national FFS population. We described how we identify the pool of ‘‘assignable’’ Medicare beneficiaries (a subset of the larger population of Medicare FFS beneficiaries) as a pre-step to the twostep assignment process under § 425.402 for determining the beneficiaries who will be assigned to an ACO. We explained our preferred approach would be to apply a similar logic to identify the beneficiary population that would be used in program calculations for both national and regional FFS populations. As part of this pre-step, we determine if a beneficiary received at least one primary care service from a physician within the ACO whose services are used in assignment: • For performance year 2016 and subsequent performance years, the beneficiary must have received a primary care service, as defined under § 425.20, with a date of service during the 12-month assignment window, as defined under § 425.20. • The service must have been furnished by a primary care physician as defined under § 425.20 or by a physician with one of the primary specialty designations included in § 425.402(c). Therefore, beneficiaries who have not received any primary care service, or who have only received primary care services from physicians with a primary specialty code not specified in § 425.402(c) (see 80 FR 32753 through 32754, Table 5 Physician Specialty Codes Excluded From Assignment Step 2), or from nonphysician practitioners are excluded from assignment to an ACO. This 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 (80 FR 32756; § 425.402(b)(1)). We discussed that one factor related to calculating expenditures for assignable beneficiaries is the assignment window used to identify E:\FR\FM\10JNR4.SGM 10JNR4 asabaliauskas on DSK3SPTVN1PROD with RULES 37986 Federal Register / Vol. 81, No. 112 / Friday, June 10, 2016 / Rules and Regulations this population, with options including: The 12-month period used to assign beneficiaries to Track 1 and 2 ACOs based on a calendar year, and an off-set 12-month period used to assign beneficiaries prospectively to an ACO in Track 3. (See definition of assignment window under § 425.20 and related discussion in the June 2015 final rule at 80 FR 32699.) We expressed our belief that it is important to calculate regional and national FFS expenditures consistently across the three tracks of the program, so as not to advantage or disadvantage an organization simply on this basis. This consistency would help to ensure a level playing field in markets where multiple ACOs are present, and would also simplify program operations. Accordingly, we proposed to calculate county FFS expenditures and average risk scores, as well as factors based on national FFS expenditures, using the assignable beneficiary population identified using the assignment window for the 12month calendar year corresponding to the benchmark or performance year. This is the same assignment window that is currently used to assign beneficiaries under Track 1 and Track 2. We specified our plan to monitor for observable differences in the health status (for example, as identified by CMS–HCC risk scores) and expenditures of the assignable beneficiaries identified using the 12-month calendar year assignment window, as compared to assignable beneficiaries identified using an assignment window that is the off-set 12-month period prior to the benchmark or performance year (for example, October through September preceding the calendar year). In the event that we conclude that additional adjustments (for instance, as part of risk adjusting county FFS expenditures) are necessary to account for the use of assignable beneficiaries identified using an assignment window that is different from the assignment window used to assign beneficiaries to the ACO, we would address this issue through future rulemaking. We clarified that we will continue to apply an update based on national FFS expenditures to ACOs in their first agreement period and for ACOs that entered their second agreement period on January 1, 2016. However, to the extent that we were proposing to change our methodology in order to use only assignable beneficiaries instead of all Medicare FFS beneficiaries in calculating the benchmark update based on national FFS expenditures, we believed we would need to use the authority under section 1899(i)(3) of the VerDate Sep<11>2014 21:42 Jun 09, 2016 Jkt 238001 Act to adopt other payment models to implement this change. Section 1899(d)(1)(B)(ii) of the Act states that the benchmark shall be updated by the projected absolute amount of growth in national per capita expenditures for Parts A and B services under the original Medicare FFS program, as estimated by the Secretary. The plain language of section 1899(d)(1)(B)(ii) of the Act demonstrates Congress’ intent that the benchmark update be calculated based on growth in expenditures for the national FFS population, as opposed to a subset of this population. Therefore, in order to allow us to use only assignable beneficiaries in determining the amount of growth in per capita expenditures for Parts A and B services for purposes of determining the benchmark update for ACOs in their first agreement period and those ACOs that started a second agreement period on January 1, 2016, we believed it was necessary to rely upon our authority under section 1899(i)(3) of the Act. Section 1899(i)(3) of the Act authorizes the Secretary to use other payment models in place of the payment 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. We explained our belief that using our authority under section 1899(i)(3) of the Act to adopt a payment model that includes calculating the benchmark update for ACOs in their first agreement period and for ACOs that started a second agreement period on January 1, 2016, using national FFS expenditures for assignable beneficiaries, rather than for all FFS beneficiaries, would improve the quality and efficiency of items and services furnished to Medicare beneficiaries. We believed this approach would increase the accuracy of benchmarks, by determining the national update using a population that more closely resembles the population that could be assigned to ACOs. Further, we believed using assignable beneficiaries across all program calculations based on national and regional FFS expenditures would result in factors that are generally more comparable. As a result, these calculations will be more predictable and stable across the program over time, for example as ACOs transition from a benchmarking methodology that incorporates national FFS expenditures to one that incorporates factors based on regional FFS expenditures. Ultimately, we believed this policy could increase PO 00000 Frm 00038 Fmt 4701 Sfmt 4700 overall participation in the program, thereby resulting in more organizations working to meet the program’s threepart aim of better care for individuals, better health for populations and lower growth in expenditures. As explained in section II.A.2.d.3 of this final rule, section 1899(i)(3)(B) of the Act also specifies that the other payment model must not result in additional program expenditures. We discussed our analysis of this requirement, and our initial assessment that for the period spanning 2017 through 2019 there would be net federal savings associated with a payment model under section 1899(i)(3) of the Act that includes the proposed changes to the manner in which we update the benchmark during an ACO’s agreement period as part of the regulatory impact analysis for the proposed rule. Taking these considerations into account, we believed applying a payment methodology that includes calculating the benchmark update consistently based on assignable FFS beneficiaries, instead of all FFS beneficiaries, would meet the requirements under section 1899(i)(3) of the Act that the payment model improve the quality and efficiency of items and services furnished to Medicare beneficiaries, without additional program expenditures. However, we also discussed our intention to revisit this determination periodically. If we determine the payment model no longer satisfies the requirements of section 1899(i)(3) of the Act, for example if the model results in net program costs, we would undertake additional notice and comment rulemaking to make adjustments to the model to assure continued compliance with the statutory requirements. Accordingly, we proposed to use the authority under section 1899(i)(3) of the Act to revise the regulation at § 425.602(b)(1) to specify that the annual update to the benchmark will be based on the projected absolute amount of growth in national per capita expenditures for Parts A and B services under the original Medicare FFS program for assignable beneficiaries. We further proposed to specify in this provision of the regulations that we would identify assignable beneficiaries for the purpose of calculating the update based on national FFS expenditures using the 12-month calendar year corresponding to the year for which the update is being calculated. We sought comment on these proposed provisions. We also proposed to make conforming changes to the regulations to specify that assignable Medicare FFS beneficiaries, identified based on the 12- E:\FR\FM\10JNR4.SGM 10JNR4 asabaliauskas on DSK3SPTVN1PROD with RULES Federal Register / Vol. 81, No. 112 / Friday, June 10, 2016 / Rules and Regulations month period corresponding to the calendar year for which the calculations are being made, will be used to perform the following calculations: (1) Truncation thresholds for limiting the impact of catastrophically large claims on ACO expenditures under § 425.602(a)(4), § 425.604(a)(4), § 425.606(a)(4), § 425.610(a)(4); and (2) national growth rates used to trend forward expenditures during the benchmark period under § 425.602(a)(5). We specified that we would provide additional information through subregulatory guidance regarding the process for using assignable beneficiaries to perform these calculations, as well as the calculation of the claims completion factor applied under § 425.602(a)(1), § 425.604(a)(5), § 425.606(a)(5), § 425.610(a)(5). Similarly, as discussed in sections II.A.2.b. and II.A.2.e.2 of this final rule, we proposed to specify in a new provision of the Shared Savings Program regulations at § 425.603 that would govern the methodology for resetting, adjusting, and updating an ACO’s benchmark for a second or subsequent agreement period starting on or after January 1, 2017, that county FFS expenditures would be based on assignable Medicare FFS beneficiaries determined using the 12-month period corresponding to the calendar year for which the calculations are being made. We proposed that regulatory changes regarding use of assignable beneficiaries in calculations based on national FFS expenditures would apply for the 2017 performance year and all subsequent performance years. Under this proposed provision, these changes would apply to ACOs that are in the middle of an agreement period, specifically ACOs that started their first agreement period in 2015 or 2016 and ACOs that started their second agreement period on January 1, 2016. We would adjust the benchmarks for these ACOs at the start of the first performance year in which these changes apply so that the benchmark for the ACO reflects the use of the same methodology that would apply in expenditure calculations for the corresponding performance year. We sought comment on these proposals. We also sought comment on whether expenditures for all Medicare FFS beneficiaries should be used to calculate these elements for ACOs in their first agreement period or a second agreement period that started on January 1, 2016, while expenditures for assignable Medicare FFS beneficiaries are used to calculate these elements for an ACO’s second and subsequent agreement period starting on or after January 1, 2017, in combination with VerDate Sep<11>2014 21:42 Jun 09, 2016 Jkt 238001 the use of the assignable beneficiary population to determine expenditures for the ACO’s regional service area. Comment: Among the comments addressing this aspect of our proposed methodology, almost all commenters were supportive of the proposal to use assignable beneficiaries, rather than all FFS beneficiaries, when calculating both national and regional expenditures. A commenter generally agreed with all proposed modifications described in the relevant section of the proposed rule (81 FR 5843 through 5845). As discussed in section II.A.2.b.2 of this final rule, some commenters disfavored including ACO assigned beneficiaries within the population of assignable beneficiaries that would be the basis for calculating these factors. As discussed in section II.A.2.e.2 of this final rule, a commenter disagreed with limiting the population to assignable beneficiaries (instead of all FFS beneficiaries) when calculating the truncation thresholds. Response: We appreciate the commenters’ support for our proposed approach. We are finalizing, with one modification, our proposal to calculate factors based on national and regional FFS expenditures using the population of assignable Medicare FFS beneficiaries, identified based on the 12month period corresponding to the calendar year for which the calculations are being made. See previous discussion in this final rule of related comments and responses, specifically: Section II.A.2.b.2 for comments concerning the inclusion of ACO assigned beneficiaries within the assignable population; and section II.A.2.e.2 for discussion of the comment concerning calculation of truncation thresholds based on expenditures for assignable beneficiaries instead of the broader FFS population. As specified in the 2016 proposed rule, we plan to monitor for observable differences in the health status (for example, as identified by CMS–HCC risk scores) and expenditures of the assignable beneficiaries identified using the 12-month calendar year assignment window, as compared to assignable beneficiaries identified using an assignment window that is the off-set 12-month period prior to the benchmark or performance year (for example, October through September preceding the calendar year). In the event that we conclude that additional adjustments (for instance, as part of risk adjusting county FFS expenditures) are necessary to account for the use of assignable beneficiaries identified using an assignment window that is different from the assignment window used to assign beneficiaries to the ACO, we PO 00000 Frm 00039 Fmt 4701 Sfmt 4700 37987 would address this issue through future rulemaking. Although commenters did not discuss in detail their consideration of our proposal to determine completion factors based on assignable Medicare FFS beneficiaries instead of all Medicare FFS beneficiaries, we have reconsidered the need for this proposed change. The completion factors are determined based on multiple years of Medicare FFS claims submission data, and reflect claim submission patterns across the Medicare program. The concern about potential bias resulting from calculations based on beneficiaries that are not eligible for assignment, such as non-utilizers, is not prominent in the calculation of a claims completion factor. For instance, in the case of nonutilizers, there would be no relevant data to consider on the timing of receipt of claims data, because there would be no claims with dates of service for these beneficiaries in the relevant period examined for the purpose of calculating the completion factor. Further, in calculating the completion factors, the use of more comprehensive data based on the timing of submission of claims across the entire Medicare FFS population, as is reflected in our current approach, would result in the most accurate factors as compared to use of a subset of Medicare FFS beneficiaries (such as assignable beneficiaries under the Shared Savings Program) for these calculations. For these reasons, we are not finalizing our proposal to replace the current approach for calculating the claims completion factors using all Medicare FFS beneficiaries with an approach to calculating these factors based on assignable Medicare FFS beneficiaries at this time. Comment: A commenter noted that beneficiaries receiving only services provided by allied providers (nonphysician practitioners) are excluded from the proposed definition of assignable beneficiary. This commenter suggested that these providers be included in determining assignable beneficiaries because of the increasing role of non-physician practitioners in efforts to lower the cost of care for patients with low acuity healthcare needs. Response: We continue to believe it is important to align the definition of assignable beneficiary with the statutory requirement that beneficiaries be assigned to an ACO based on their use of primary care services furnished by physicians and with the methodology for identifying assignable beneficiaries described in the 2016 proposed rule and also discussed earlier in this section of the final rule. Applying the same E:\FR\FM\10JNR4.SGM 10JNR4 asabaliauskas on DSK3SPTVN1PROD with RULES 37988 Federal Register / Vol. 81, No. 112 / Friday, June 10, 2016 / Rules and Regulations definition of assignable beneficiary as is used in the assignment process will help to ensure that program calculations based on national and regional FFS expenditures reflect the expenditures and acuity of patients that could be assigned to ACOs. Therefore we decline at this time to adopt the commenter’s suggestion to also use services furnished by non-physician providers as a basis for identifying assignable beneficiaries. Comment: Several commenters addressed the timing of applicability of the revised methodology for determining factors based on national FFS expenditures using the assignable beneficiary population instead of all FFS beneficiaries. A commenter noted support for the proposal that this methodology would apply for the 2017 performance year and all subsequent performance years and would apply to ACOs that are in the middle of an agreement period. One comment, which seemed to reflect the commenter’s misunderstanding of the proposed policy, interpreted the proposal as failing to address the applicability of the proposed changes to ACOs with 2014 agreement start dates. Response: We are finalizing with modifications our proposal that regulatory changes regarding the use of assignable beneficiaries in calculations based on national FFS expenditures would apply for the 2017 performance year and all subsequent performance years. The proposed rule specified revisions to the provisions at § 425.602(b), § 425.604(a)(1) through (3), § 425.606(a)(1) through (3), and § 425.610(a)(1) through (3) in order to differentiate between the methodology that applied for performance years before 2017 and the methodology that would apply for the 2017 performance year and all subsequent performance years. We believe it is important to clarify the timing of applicability of these changes, which will be reflected in the regulations finalized with this final rule: • In establishing or resetting an ACO’s historical benchmark for agreement periods beginning in 2017 and subsequent years, we will apply the methodology for use of assignable beneficiaries in determining factors based on national FFS expenditures and regional FFS expenditures. • In calculations made during a performance year, including updating an ACO’s historical benchmark and determining an ACO’s performance year expenditures, for performance year 2017 and subsequent years, we will apply the methodology for use of assignable beneficiaries in determining factors VerDate Sep<11>2014 21:42 Jun 09, 2016 Jkt 238001 based on national FFS expenditures and regional FFS expenditures. • To ensure consistency in the way in which expenditure calculations are performed across the program, we will apply the revised methodology to ACOs that are in the middle of an agreement period, including: ACOs that started their first agreement period in 2015 or 2016; ACOs that entered the program in 2014 and elect the participation option established with this final rule to defer by 1 year entrance into a second agreement period under a two-sided model; and ACOs that started their second agreement period on January 1, 2016. We will adjust the benchmarks for these ACOs at the start of the 2017 performance year, the first performance year in which these changes apply, and in any subsequent years in the agreement period, so that the benchmarks established for these ACOs will reflect the use of the same methodology that will apply in expenditure calculations for the corresponding performance year, including determining the benchmark update and the ACO’s expenditures for the performance year. We wish to clarify that for any performance year prior to the applicability date for the regulatory change, we will continue to apply the current methodology under which factors based on national FFS expenditures are calculated using all FFS beneficiaries. FINAL ACTION: We are finalizing our proposal to use assignable beneficiaries in all national and regional FFS calculations with one modification. We are not finalizing our proposal to determine completion factors based on assignable Medicare FFS beneficiaries, and will continue to determine these completion factors based on the timing of submission of claims across the entire Medicare FFS population. However, as proposed, we will limit the Medicare FFS population used in all other program calculations to ‘‘assignable’’ Medicare beneficiaries who meet the following requirements: (1) Received at least one primary care service, as defined under § 425.20, with a date of service during the 12-month assignment window; and (2) this primary care service was provided by a primary care physician, as defined under § 425.20, or by a physician with one of the primary specialty designations included in § 425.402(c). The assignable beneficiary population will be identified consistently across program tracks using the assignment window for the 12month calendar year corresponding to the benchmark or performance year. This revised methodology will apply to PO 00000 Frm 00040 Fmt 4701 Sfmt 4700 all ACOs, including those ACOs with 2015 and 2016 agreement start dates that are in the middle of an agreement period, as well as ACOs that entered the program in 2014 and elect the participation option established with this final rule to defer by 1 year entrance into a second agreement period under a two-sided model. We will adjust the benchmarks for these ACOs at the start of the 2017 performance year and in any subsequent years in the agreement period so that the benchmarks established for these ACOs will reflect the methodology used in expenditure calculations for the performance year. We will provide additional information through subregulatory guidance regarding the process for using assignable beneficiaries to perform these calculations. We will revise the regulations to reflect these changes as follows: • Revise the regulation at § 425.602(b)(1) using the authority under section 1899(i)(3) of the Act to provide that the historical benchmark will be updated annually for each year of the agreement period based on the flat dollar equivalent of the projected absolute amount of growth in national per capita expenditures for Parts A and B services under the original Medicare FFS program for assignable beneficiaries identified for the 12-month calendar year corresponding to the year for which the update is calculated. As discussed in section II.A.2.d.3 of this final rule, section IV.E of this final rule contains an updated assessment of all policies that are being implemented under the authority of section 1899(i)(3) of the Act. We anticipate that the costs of this alternative payment model will be periodically reassessed as part of the impact analysis for subsequent rulemaking regarding the payment models used in the Shared Savings Program. However, in the event we do not undertake additional rulemaking, we intend to periodically reassess whether the payment model established under the authority of section 1899(i)(3) of the Act continues to improve the quality and efficiency of items and services furnished to Medicare beneficiaries, without resulting in additional program expenditures. If we determine the payment model no longer satisfies the requirements of section 1899(i)(3) of the Act, for example if the alternative payment model results in net program costs, we will undertake additional notice and comment rulemaking to make adjustments to our payment methodology to assure continued compliance with the statutory requirements. E:\FR\FM\10JNR4.SGM 10JNR4 Federal Register / Vol. 81, No. 112 / Friday, June 10, 2016 / Rules and Regulations asabaliauskas on DSK3SPTVN1PROD with RULES • Make conforming changes to the regulations on: (1) Truncation thresholds for limiting the impact of catastrophically large claims on ACO expenditures under § 425.602(a)(4), § 425.604(a)(4), § 425.606(a)(4), § 425.610(a)(4); and (2) growth rates used to trend forward expenditures during the benchmark period under § 425.602(a)(5) to specify that assignable Medicare FFS beneficiaries identified based on the 12-month period corresponding the calendar year for which the calculation is being made will be used to perform these calculations. • Specify in a new provision of the Shared Savings Program regulations at § 425.603 that county FFS expenditures that are used in the methodology for resetting, adjusting, and updating an ACO’s benchmark will be based on assignable Medicare FFS beneficiaries determined using the 12-month period corresponding to the calendar year for which the calculations are being made. f. Timing of Applicability of Revised Rebasing and Updating Methodology In the 2016 proposed rule, we discussed an approach under which the revised rebasing methodology could be applied to new agreement periods beginning on or after January 1, 2017, in a manner that allows for a phase-in to a greater percentage in calculating the regional adjustment for all ACOs: • All ACOs would have the benchmark for their first agreement period set and updated under the methodology under § 425.602(a) and (b). • The 2014, 2015, and 2016 starters and subsequent cohorts entering their second agreement periods on or after January 1, 2017, would be rebased under the new methodology for adjusting an ACO’s rebased historical benchmark to reflect expenditures in the ACO’s regional service area, and the ACO’s rebased benchmark would be updated during the agreement period by growth in regional FFS expenditures. In calculating the regional adjustment to the rebased historical benchmark for an ACO’s second agreement period, the percentage applied to the difference between the ACO’s regional service area expenditures and the ACO’s rebased historical benchmark expenditures would be set at 35 percent. In an ACO’s third or subsequent agreement period this percentage would be set at 70 percent unless the Secretary determines a lower weight should be applied, as specified through future rulemaking. • With respect to the ACOs that started in the program in 2012 and 2013 and entered a second agreement period beginning in 2016, we applied the VerDate Sep<11>2014 21:42 Jun 09, 2016 Jkt 238001 current rebasing methodology, under which we equally weight the benchmark years and account for savings generated during the ACO’s prior agreement period, in rebasing their historical benchmark for their second agreement period. We would apply the methodology specified under § 425.602(b) for updating the benchmark annually for each year of their second agreement period. We would apply the new rebasing policies, including the phase in of the percentage used in calculating the regional adjustment, to these ACOs for the first time in calculating their rebased historical benchmark for their third agreement period (beginning in 2019), as if the ACOs were entering their second agreement period. Accordingly, the 2012 and 2013 starters would have the same transition to the use of a higher percentage in calculating the regional adjustment as all other ACOs. We explained that this approach to phasing in the application of the new methodology for adjusting an ACO’s rebased historical benchmark to reflect regional FFS expenditures would give ACOs and other stakeholders greater opportunity to prepare for, understand the effects of, and adjust to the application of benchmarks that incorporate regional expenditures. Therefore, we proposed to make these changes applicable to ACOs starting a second or subsequent agreement period on or after January 1, 2017. These changes would initially apply in resetting benchmarks for the second agreement period for all ACOs other than those ACOs that started in the program in 2012 and 2013 (who entered their second agreement period on January 1, 2016). Furthermore, we proposed that 2012 and 2013 starters would have the same transition to regional adjustments to their rebased historical benchmarks as all other ACOs: In calculating the regional adjustment to the ACO’s rebased historical benchmark for its third agreement period (in 2019), the percentage applied to the difference between the ACO’s regional service area expenditures and ACO’s rebased historical benchmark expenditures would be set at 35 percent; in its fourth or subsequent agreement period this percentage would be set at 70 percent unless the Secretary determines a lower weight should be applied, as specified through future rulemaking. We requested comment on this proposed approach to phasing in the application of the revised rebasing and updating methodology. Comment: A commenter expressed support for the proposed phase-in of the PO 00000 Frm 00041 Fmt 4701 Sfmt 4700 37989 new benchmark rebasing methodology based on an ACO’s individual agreement renewal schedule rather than moving all ACOs to the new standard at one time. Many commenters opposed the proposal to phase-in the revised methodology to 2012 and 2013 starters beginning in their third agreement periods (starting January 1, 2019). Instead, commenters suggested options that would allow 2012 and 2013 starters the choice of the proposed approach or having the revised methodology apply during their second agreement period (for example, applying the methodology for performance year 2017 and onward, or allowing eligible ACOs to enter a new agreement period under the revised methodology that would begin in 2017). A commenter, in favor of applying the revised rebasing methodology to all ACOs in their second agreement period, suggested retroactively applying the changes to the first performance year (2016) of the 2012 and 2013 starters’ second agreement period. Another commenter suggested allowing 2012 and 2013 starters that meet certain eligibility criteria (such as a quality performance threshold) to enter a new agreement period under the revised methodology beginning 2017, and permitting those ACOs participating under a performance-based risk model to have a weight greater than 35 percent applied in the calculation of the regional FFS adjustment. Alternatively, a commenter suggested applying the 70 percent weight (instead of 35 percent, as proposed) in calculating the regional adjustment for 2012 and 2013 starters beginning with their third agreement period. Many commenters seemed to view the delay in applying the revised rebasing methodology to 2012 and 2013 starters until their third agreement period as a misfortune of timing. Commenters who perceived the proposed adjustment as beneficial explained that delaying application of the revised methodology would penalize 2012 and 2013 starters (or stated another way, unfairly advantage later entrants into the program) and perpetuate differences in benchmarks between ACOs in the same region. These commenters believed that this delay may cause attrition of these ACOs from the program. A commenter pointed out that applying the revised methodology to 2014 starters who begin a new agreement period in 2017, but delaying its application to 2012 and 2013 starters until 2019, could inadvertently lead to provider movement between ACOs depending on which benchmarking approach applies and is more financially favorable to the E:\FR\FM\10JNR4.SGM 10JNR4 asabaliauskas on DSK3SPTVN1PROD with RULES 37990 Federal Register / Vol. 81, No. 112 / Friday, June 10, 2016 / Rules and Regulations ACO. A commenter suggested giving 2014 starters the option of delaying application of the revised methodology until their third agreement period, citing uncertainty about the policies to be finalized as these organizations decide whether to continue in the program.2 Response: In section II.A.2.c.3 of this final rule, we discuss our response to comments requesting broader flexibility to allow ACOs to choose from a menu of options on when the revised rebasing methodology would apply, and the weight with which the regional adjustment would be calculated. ACOs that entered the Shared Savings Program in 2012 and 2013 renewed their agreements beginning January 1, 2016, with the understanding that the benchmark rebasing methodology finalized in the June 2015 final rule would be applied to their second agreement period. Under this rebasing methodology, described elsewhere in this final rule, we equally weight the ACO’s historical benchmark years, and apply an adjustment for savings generated under the ACO’s prior agreement period. While this methodology is substantially different from the rebasing approach we are establishing in this final rule, we are in fact applying to these ACOs a rebasing methodology that is intended to help mitigate the effects of an ACO’s past successful performance on its current benchmark. The adjustment for savings generated in the ACO’s prior agreement period increases the ACO’s rebased historical benchmark by an amount that reflects the ACO’s past financial and quality performance, and takes into account the size of the ACO’s assigned beneficiary population. Equally weighting the benchmark years (corresponding to the three performance years of the prior agreement period) in resetting the ACO’s historical benchmark mitigates reductions to the benchmark that would result from placing a higher weight on more recent prior benchmark years (corresponding to later years in the ACO’s prior agreement period), in which ACOs are anticipated to show greater expenditure reductions. This methodology was designed to encourage continued participation in the Shared Savings Program and performance improvement by ACOs entering a second or subsequent agreement period, and therefore improve the overall sustainability of the program. These 2 The application/renewal cycle for the January 1, 2017 Shared Savings Program start date began in spring 2016. See the Shared Savings Program Web site, How to Apply Web page, available at https:// www.cms.gov/Medicare/Medicare-Fee-for-ServicePayment/sharedsavingsprogram/Application.html. VerDate Sep<11>2014 21:42 Jun 09, 2016 Jkt 238001 goals are consistent with the goals for the policies adopted in this final rule that incorporate regional FFS expenditures into the rebasing methodology. Additionally, the 2016 proposed rule did not address the possibility of applying the revised rebasing methodology to these ACOs’ second agreement periods spanning January 1, 2016 through December 31, 2018. As a result, we do not believe it would be appropriate to adopt a policy in this final rule under which we would apply the revised methodology to these ACOs prior to the start of their third agreement period in 2019. Applying this revised methodology in the middle of an ACO’s second agreement period could prove disruptive to ACOs that have structured their operations and legal arrangements (including the ACO’s Participant Agreements with ACO participant TINs) to reflect the application of the current benchmarking methodology. We also believe that more immediate application of the revised policies to 2012 and 2013 starters during their second agreement periods could undermine the ability of these ACOs to adapt to this change, possibly causing organizations to terminate their participation prior to the end of their second agreement period. Furthermore, we do not believe it would be possible to allow these ACOs to terminate their current agreement period in order to start a new agreement period under the revised rebasing methodology, as suggested by some commenters. Section 425.222 addresses the circumstances under which an ACO may re-apply to participate in the Shared Savings Program after the ACO’s agreement has been terminated. Section 425.222(a) specifies that an ACO that has been terminated from the Shared Savings Program under §§ 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. We believe that this provision, without further modification, would prohibit CMS from allowing ACOs with 2012 and 2013 agreement start dates to terminate their current second agreement and re-enter the program under the revised benchmark rebasing methodology for a new second agreement period beginning January 1, 2017. Taking these factors into consideration, we decline at this time to modify the Shared Savings Program regulations to offer the flexibility for 2012 and 2013 starters to terminate their agreements beginning January 1, 2016, and to reapply for a new second PO 00000 Frm 00042 Fmt 4701 Sfmt 4700 agreement period beginning January 1, 2017, under the revised rebasing methodology that is being adopted in this final rule. Comment: Some commenters suggested alternatives not discussed in the proposed rule. Some commenters urged incorporating greater regulatory flexibility to apply the revised methodology when establishing the benchmarks for ACOs transitioning to the Shared Savings Program after completing a contract period under another CMS alternative payment methodology, including the Pioneer and Next Generation ACO Models. For example, with respect to the proposed phase-in approach, some commenters specified that former Pioneer ACOs and Next Generation ACOs entering their first agreement period under the Shared Savings Program should be allowed the option to be considered as entering a second or subsequent agreement period in order to allow their benchmark to be established using the regional benchmarking approach. A commenter explained that moving back to a benchmark calculated using national FFS factors would be taking a step backwards in terms of the evolution of the ACO model and unnecessarily expose these ACOs to additional risk. Response: We greatly appreciate commenters’ thoughtful suggestions for the transition of ACOs from other CMS ACO initiatives into the Shared Savings Program. We did not propose or discuss related changes to the Shared Savings Program regulations in the 2016 proposed rule. We agree with commenters that many organizations participating under other CMS ACO initiatives (such as the Pioneer ACO model and the Next Generation ACO model), which use factors based on regional FFS expenditures in setting ACO benchmarks, may find it disadvantageous to enter the Shared Savings Program under the methodology used to establish an ACO’s benchmark for its first agreement period, and would prefer to be treated as if they were entering the program in a second or subsequent agreement period in order to receive a benchmark established using the rebasing methodology adopted in this final rule. We believe there are complexities to this issue that would need to be explored further, including the determination of which organizations would be eligible to be treated as entering the Shared Savings Program under a later agreement period and the applicability of other program requirements that relate to the agreement period in which an ACO is participating, including the selection of risk track and the quality performance E:\FR\FM\10JNR4.SGM 10JNR4 Federal Register / Vol. 81, No. 112 / Friday, June 10, 2016 / Rules and Regulations standard. We anticipate considering these issues further in future rulemaking. FINAL ACTION: We are finalizing our proposal to make the new benchmark rebasing policies described in this final rule, including the phase in of the percentage used in calculating the regional adjustment, applicable to ACOs entering into a second or subsequent agreement period in 2017 or subsequent years. With respect to ACOs that started in the program in 2012 and 2013 that have renewed their agreements for a second agreement period beginning in 2016: • We applied the rebasing methodology established with the June 2015 final rule, under which we equally weight the benchmark years and account for savings generated during the ACO’s prior agreement period, in rebasing their historical benchmark for their second agreement period (beginning in 2016). With the conforming changes made to the regulations text in this final rule, this methodology is incorporated in new § 425.603(b). We will apply the methodology specified under § 425.602(b) to update the benchmark 37991 annually for each year of the second agreement period for these ACOs. • We will apply the new rebasing policies, including the revised phase in of the percentage used in calculating the regional adjustment that we are adopting in this final rule, to these ACOs for the first time in calculating their rebased historical benchmark for their third agreement period (beginning in 2019), as if the ACOs were entering their second agreement period. Accordingly, the 2012 and 2013 starters will have the same transition to the use of a higher percentage in calculating the regional adjustment as all other ACOs. TABLE 3—CHARACTERISTICS OF BENCHMARKING APPROACHES BY AGREEMENT PERIOD Agreement period Historical benchmark trend factors (trend BY1, BY2 to BY3) Adjustment to the historical benchmark for regional FFS expenditures (percentage applied in calculating adjustment) Adjustment to the historical benchmark for savings in prior agreement period? November 2011 final rule. First .......... National ........... No .............................. No .................... Calculated using benchmark year assignment based on the ACO’s certified ACO Participant List for the performance year. As modified by June 2015 final rule. Second (beginning 2016). Second (third for 2012/ 2013 starters). National ........... No .............................. Yes .................. Same as methodology for first agreement period. Regional .......... Yes (35 percent, or 25 percent if ACO is determined to have higher spending compared to its region). No .................... Third (fourth for 2012/ 2013 starters). Regional .......... No .................... Fourth and subsequent (fifth and subsequent for 2012/ 2013 starters). Regional .......... Yes (70 percent unless the Secretary determines a lower weight should be applied, as specified through future rulemaking, or 50 percent if ACO is determined to have higher spending compared to its region). Yes (70 percent unless the Secretary determines a lower weight should be applied, as specified through future rulemaking). Same as methodology for first agreement period; regional adjustment redetermined based on ACO’s certified ACO Participant List for the performance year. Same as methodology for second agreement period beginning 2017 and subsequent years. Source of methodology asabaliauskas on DSK3SPTVN1PROD with RULES As modified by this final rule: Rebasing Methodology for second or subsequent agreement periods beginning 2017 and subsequent years. B. Adjusting Benchmarks for Changes in ACO Participant (TIN) Composition In the initial rulemaking establishing the Shared Savings Program, we acknowledged that the addition or VerDate Sep<11>2014 21:42 Jun 09, 2016 Jkt 238001 No .................... Adjustment to the historical benchmark for ACO participant list changes Same as methodology for second agreement period beginning 2017 and subsequent years. removal of ACO participants or ACO providers/suppliers (identified by TINs and NPIs, respectively) during the term of an ACO’s participation agreement could affect a number of different PO 00000 Frm 00043 Fmt 4701 Sfmt 4700 Adjustment to the historical benchmark for health status and demographic factors of performance year assigned beneficiaries Update to the historical benchmark for growth in FFS spending Newly assigned beneficiaries adjusted using CMS–HCC model; continuously assigned beneficiaries adjusted using demographic factors alone unless CMS–HCC risk scores result in a lower risk score. Same as methodology for first agreement period. National No change ................. Regional No change ................. Regional No change ................. Regional National aspects of the ACO’s participation in the Shared Savings Program. The 2016 proposed rule provided detailed background on the regulatory and subregulatory history of how CMS sets E:\FR\FM\10JNR4.SGM 10JNR4 asabaliauskas on DSK3SPTVN1PROD with RULES 37992 Federal Register / Vol. 81, No. 112 / Friday, June 10, 2016 / Rules and Regulations and adjusts benchmarks to reflect ACO participant composition (see 81 FR 5848–5850). We explained that under the current methodology, we set an ACO’s historical benchmark at the start of an agreement period based on the assigned population in each of the three benchmark years by using the ACO Participant List certified by the ACO. The ACO must submit a new certified ACO Participant List at the start of each new performance year. CMS adjusts an ACO’s historical benchmark at the start of a performance year if the ACO Participant List that the ACO certified at the start of the new 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. As a result of changes to the ACO’s certified ACO Participant List, we may adjust the historical benchmark upward or downward. Under this methodology, the historical benchmarks for ACOs with ACO Participant List changes from one performance year to the next continue to reflect the ACOs’ historical costs in relation to the current composition of the ACO. During the program’s initial performance years, we experienced a high volume of change requests from ACOs, both adding and removing ACO participants. We adjusted the historical benchmarks for 162 of 220 ACOs (74 percent) with 2012 and 2013 start dates for the 2014 performance year to reflect changes in ACO participants. For the 2015 performance year, we adjusted benchmarks for 245 of 313 ACOs (78 percent) with 2012, 2013 or 2014 start dates to reflect changes in ACO participants. While the current methodology ensures that a benchmark that has been adjusted based on changes in the ACO’s participant composition accurately reflects benchmark year assignment using the most recent certified ACO Participant List, a primary drawback is that this methodology is operationally burdensome. To adjust benchmarks to account for ACO Participant List changes made by ACOs for each new performance year, we must repeat the assignment process for all 3 benchmark years for each starter cohort. Furthermore, with the addition of Track 3, we will need to perform two assignment runs for each benchmark year for a starter cohort, given that assignment for Track 3 ACOs is based on an offset beneficiary assignment VerDate Sep<11>2014 21:42 Jun 09, 2016 Jkt 238001 window of the most recent 12-month period preceding the relevant calendar year for which data are available (for example, the period spanning OctoberSeptember prior to the start of the benchmark year) that differs from the calendar year beneficiary assignment window used for Track 1 and Track 2 ACOs. In light of the operational burden of adjusting benchmarks to reflect changes in ACO participants under the current policy, and the considerations associated with our proposals to adopt a benchmark rebasing methodology that requires additional calculations, we proposed to replace the current approach for calculating adjusted historical benchmarks for ACOs that make ACO Participant List changes with a more streamlined approach on a program-wide basis. The proposed approach would start with an ACO’s historical benchmark based on the ACO’s certified ACO Participant List for the most recent prior performance year and make adjustments using a ratio that is based on expenditures during a reference year for: (1) The ACO’s beneficiaries assigned using both the ACO Participant List for the new performance year and the ACO Participant List for the most recent prior performance year (stayers); and (2) expenditures for the ACO’s beneficiaries assigned using only the ACO Participant List for the ACO’s most recent prior performance year (stayers and leavers) for the same reference year, defined as benchmark year 3 of the ACO’s current agreement period. This figure would then be combined with reference year expenditures for beneficiaries assigned using only the ACO Participant List for the new performance year (joiners) to obtain the overall adjusted benchmark. Calculations of the adjustment would be made, and applied to the historical benchmark, for each of the following populations of beneficiaries, according to Medicare enrollment type: ESRD, disabled, aged/dual eligible, aged/nondual eligible. In the event an ACO’s new ACO Participant List resulted in zero stayers, we proposed to continue to apply the current methodology for adjusting the ACO’s historical benchmark for ACO Participant List changes. We proposed to incorporate this adjustment to the historical benchmark for ACOs in their first agreement period and those ACOs that started a second agreement period on January 1, 2016, by adding a paragraph to § 425.602. In addition, we proposed to specify that the adjustment would apply to an ACO’s rebased historical benchmark under the revised rebasing methodology PO 00000 Frm 00044 Fmt 4701 Sfmt 4700 in a new provision of the Shared Savings Program regulations at § 425.603. We also proposed to add definitions for ‘‘stayers,’’ ‘‘joiners,’’ and ‘‘leavers’’ to § 425.20. We stated in the proposed rule that we believe that this approach would offer the right balance between approximating the accuracy of the current methodology for adjusting historical benchmarks (which requires performing beneficiary assignment for all 3 of an ACO’s historical benchmark years with the new ACO Participant List) and operational ease. Initial modeling suggested that benchmarks calculated using this alternative methodology are highly correlated with those calculated using the current methodology. We also examined and sought comment on a second alternative under which we would calculate the average per capita expenditures for leavers in the reference year and use this value, along with the relative person years for leavers and stayers, to impute average per capita reference year expenditures for stayers from the historical benchmark. The imputed expenditures for stayers would then be combined with average per capita reference year expenditures for joiners to obtain the overall adjusted benchmark. Comment: While a few commenters expressed support for the proposed methodology to streamline adjustments for ACO Participant List changes, many commenters felt that CMS did not provide adequate information for stakeholders to properly evaluate the proposal, noting that the agency did not provide detailed results of its own modeling or sufficient data to allow others to perform their own analyses. A number of commenters urged the agency to make additional information available and to postpone finalization of the proposal at this time. Response: In light of commenters’ suggestions that we allow additional time to analyze the proposal, we are not finalizing the proposed new streamlined methodology at this time. We continue to believe the proposed approach has the potential to reduce operational burden without sacrificing accuracy. Therefore, we anticipate revisiting this issue in future notice and comment rulemaking. We believe that delaying adoption of a new approach to adjust historical benchmarks for ACO Participant List changes will allow CMS to gain more experience in the program and will allow more opportunity for the agency and stakeholders to evaluate the merits and tradeoffs associated with the proposed methodology or other alternatives. To that end, we anticipate E:\FR\FM\10JNR4.SGM 10JNR4 asabaliauskas on DSK3SPTVN1PROD with RULES Federal Register / Vol. 81, No. 112 / Friday, June 10, 2016 / Rules and Regulations making more information available to aid stakeholder evaluation of this approach through future notice and comment rulemaking. Comment: Some commenters expressed concerns about the accuracy of a ‘‘proxy’’ measure for adjusting benchmarks, or the potential for some ACOs to see large differences between the proposed and current methodologies for adjusting an ACO’s benchmark for ACO Participant List changes, even if the two approaches produce similar results on average. Several commenters noted that differences of even one or two percentage points between the proposed and existing methodology could be quite substantial for an individual ACO. Some commenters also warned that using an expenditure ratio based on a single year of data could be less accurate or equitable than the current methodology that redetermines beneficiary assignment for each of an ACO’s three benchmark years. A commenter stated CMS should not use a proxy method for adjusting the benchmark and that the agency should not let expediency threaten the accuracy of the program. Response: We appreciate the concerns raised by commenters regarding the accuracy of the proposed streamlined approach for adjusting historical benchmarks for ACO Participant List changes and the potential for the proposed approach to have varied effects across ACOs. We believe that delaying finalization of this proposal will allow stakeholders further opportunity to study the implications of this or other alternatives, which may assuage some of the concerns initially raised about this proposal. We want to take this occasion to clarify a statement in the proposed rule that referred to a magnitude of change for most ACOs of between ¥2 percent and +2 percent. Some commenters seemed to interpret this statement as referring to differences between the current methodology for computing adjusted benchmarks and the proposed streamlined methodology. In fact, the statement referred to differences between benchmarks calculated using the current methodology but based on different ACO Participant Lists (previous performance year and updated). In our modeling, comparing adjusted benchmarks computed under the proposed and current methodologies for 88 ACOs that began the program in 2014 and made ACO Participant List Changes for performance year 2015, we found that for close to two-thirds of these ACOs, the difference between the two methods was within half of a percentage point in either direction. For VerDate Sep<11>2014 21:42 Jun 09, 2016 Jkt 238001 over 80 percent of these ACOs, the difference was within 1 percentage point. Only one ACO among the 88 saw a difference greater than two percentage points, with the proposed approach producing a benchmark that was 2.3 percent lower than the benchmark calculated under the current methodology. The mean difference between the two methods (proposed minus current) was ¥0.2 percent and the median was ¥0.1 percent. Comment: Some commenters suggested other alternatives for CMS’ consideration in conjunction with the proposed approach. A few commenters indicated that if CMS did decide to finalize the proposal to streamline the calculation of adjusted benchmarks, the agency should broaden the set of circumstances under which the current methodology would apply. Some commenters suggested that, rather than reverting to the current methodology only in the unlikely instance of zero ‘‘stayers,’’ the agency should adopt a low-volume threshold for stayers, below which the current methodology would be used to adjust for ACO Participant List changes. Another commenter called for adjusting benchmarks for ACO Participant List changes more frequently, such as within 30 days of an ACO notifying CMS of an ACO participant’s resignation or removal from the list. Another commenter wanted to see the proposed methodology coupled with efforts by CMS to promote better data collection and information sharing. Several commenters acknowledged that they understood CMS’ desire to reduce operational complexity, but they expressed concern that CMS proposed a proxy method for adjusting benchmarks for ACO Participant List changes without first addressing other aspects of the existing methodology that commenters perceived to be flawed. Some commenters detailed alternative approaches. For example, some commenters suggested that adjustments to the ACO’s benchmark for composition changes should be made for changes in ACO providers/suppliers, identified by National Provider Identifiers (NPIs), rather than for changes in ACO participants identified by TINs, or should account for changes in both NPIs and TINs. Their rationale was that only ACOs themselves can determine which physicians and nonphysician practitioners are functioning as primary care providers and should be used in determining beneficiary assignment. Another commenter suggested that using NPIs instead of TINs could better account for changes in ACO composition over time. Some PO 00000 Frm 00045 Fmt 4701 Sfmt 4700 37993 commenters also felt that CMS should address instability and inaccuracies introduced into benchmarks by ACO Participant List changes when such changes result in a difference in the acuity of patients assigned to the ACO in the benchmark period versus those assigned to the ACO for the performance year. A few commenters noted that some ACOs have had artificially low benchmarks due to innocuous changes in TINs, such as restructurings, where CMS did not make a correction or accommodation. These commenters further explained, for example, that when an ACO introduces a new service line for complex patients within an existing TIN during an agreement period, there would be no history of treating such patients in the baseline period and the benchmark would be understated. Another commenter opined that CMS should perform additional analysis and policy development on the fundamentals of benchmarking before developing a proxy process for making adjustments to benchmarks. Response: We appreciate the suggestions raised by commenters and will take them into consideration when revisiting this issue in future rulemaking. However, we note that some of the suggestions offered, for example adjusting benchmarks for ACO Participant List changes more frequently, would likely offset, if not negate, the expected reduction in operational burden associated with the streamlined approach, which was the primary rationale behind its development. Thus it will be important to weigh the tradeoffs posed by any suggested modifications. Further, in the 2016 proposed rule, CMS did not contemplate changes to the underlying methodology used to assign beneficiaries to ACOs, including how ACO participants are defined for purposes of assignment, or to policies surrounding when or under what circumstances CMS will make adjustments or corrections to an ACO’s benchmark. We appreciate the concerns raised by commenters and will continue to review existing policies as we gain additional experience in the program. That being said, we do not believe that we should necessarily forgo opportunities to reduce administrative complexity in the near term if alternative methodologies have the potential to lower operational burden without sacrificing accuracy when calculating the adjustment for changes in the ACO’s certified ACO Participant List. FINAL ACTION: After consideration of the public comments received and E:\FR\FM\10JNR4.SGM 10JNR4 37994 Federal Register / Vol. 81, No. 112 / Friday, June 10, 2016 / Rules and Regulations the concerns raised by many commenters, at this time, we are not finalizing our proposal to replace the current approach for calculating adjusted historical benchmarks for ACOs that make ACO Participant List changes with a new program-wide approach that would adjust an ACO’s historical benchmark using an expenditure ratio based on single reference year. Relatedly, we are not finalizing the proposed definitions of ‘‘stayers,’’ ‘‘leavers,’’ and ‘‘joiners’’ in § 425.20 at this time. Although we are not finalizing the proposal to adopt a more streamlined approach for adjusting historical benchmarks for ACO Participant List changes in this rule, we continue to believe this alternative approach has merit as a means for reducing operational burden without sacrificing accuracy in ACO benchmarks. As such, we anticipate revisiting this proposal in future notice and comment rulemaking, and making more information available at that time to aid stakeholder evaluation. However, we are finalizing as proposed clarifying revisions to the description of the current approach to calculating adjusted historical benchmarks for ACOs that make ACO Participant List changes at § 425.602(a)(8), to specify that the benchmark is adjusted to take into account the expenditures for beneficiaries who would have been assigned to the ACO in any of the 3 most recent years prior to the agreement period using the most recent certified ACO Participant List for the relevant performance year. In addition, we will include a similar provision in new § 425.603 to provide that the same adjustment for ACO Participant List changes will be made to an ACO’s rebased historical benchmark. asabaliauskas on DSK3SPTVN1PROD with RULES C. Facilitating Transition to Performance-Based Risk 1. Overview As discussed in detail in the proposed rule (81 FR 5851 through 5853), we continue to believe that in order for the Shared Savings Program to be effective and sustainable over the long term, we need to further strengthen our efforts to transition the Shared Savings Program to a two-sided performance-based risk program in which ACOs share in both savings and losses. Currently, for its initial agreement period, an ACO applies to participate in a particular financial model or track of the program as specified under § 425.600(a). If the ACO’s application is accepted, the ACO must remain under that financial model for the duration of its 3-year agreement. ACOs entering the program under the VerDate Sep<11>2014 21:42 Jun 09, 2016 Jkt 238001 one-sided shared savings model (Track 1) that meet eligibility criteria may continue their participation under this model for a second 3-year agreement period as specified under § 425.600(b). In response to suggestions from ACOs and other stakeholders, and based on our experience with the first group of ACOs eligible for renewal for a second agreement period starting in 2016 in which nearly all such ACOs applied to remain in Track 1 for an additional agreement period, we further considered whether it would be appropriate to offer an additional participation option to encourage ACOs to move more quickly from the one-sided shared savings model to a performance-based risk model when renewing their agreements. 2. Additional Option for ACOs Participating Under Track 1 to Apply to Renew for a Second Agreement Period Under a Two-Sided Track To respond to stakeholder concerns and to provide additional flexibility for ACOs that are willing to accept performance-based risk arrangements, we proposed to add a participation option that would allow eligible Track 1 ACOs to defer by 1 year their entrance into a performance-based risk model (Track 2 or 3) by extending their first agreement period under Track 1 for a fourth performance year. ACOs that would be eligible to elect this proposed new participation option would be those ACOs eligible to renew for a second agreement period under Track 1 but instead are willing to move to a performance-based risk track 2 years earlier, after continuing under Track 1 for 1 additional year. This option would assist ACOs in transitioning to a twosided risk track when they need only one additional year in Track 1 rather than a full 3-year agreement period in order to prepare to accept performancebased risk. The additional year could allow such ACOs to further develop necessary infrastructure to meet the program’s goals, such as further developing their care management services, adopting additional mechanisms for measuring and improving quality performance, finalizing implementation and testing of electronic medical records, and performing data analytics. We proposed to make this option available to Track 1 ACOs whose first agreement period is scheduled to end on or after December 31, 2016. Under this proposal, ACOs that elect this new participation option would continue under their first agreement period for a fourth year, deferring benchmark rebasing as well as deferring entrance to a two-sided risk track if they are approved for renewal. PO 00000 Frm 00046 Fmt 4701 Sfmt 4700 More specifically, we proposed to provide an additional option for ACOs participating under Track 1 to apply to renew for a second agreement period under a two-sided track (Track 2 or Track 3) under the renewal process specified at § 425.224. If the ACO’s renewal request is approved, the ACO would be able to defer entering the new agreement period under a performancebased risk track for 1 year. Further, as a result of this deferral, we would also defer rebasing the ACO’s benchmark for 1 year. At the end of this fourth performance year under Track 1, the ACO would transition to the selected performance-based risk track for a 3year agreement period. Accordingly, we proposed to amend the participation agreement requirements at § 425.200 to provide that an ACO that defers entering its new agreement period will be able to continue participating under its first agreement for an additional year (for an agreement period that would total 4 years). An ACO electing this option would still be required to undergo the renewal process specified at § 425.224 prior to the end of its initial agreement (PY 3) and meet all other renewal requirements including the requirement that the ACO demonstrate that it is capable of repaying shared losses as required to enter a performance-based risk track. Because the ACO would be committing under the renewal application to transition to a performance-based risk track following completion of PY 4 under Track 1, the ACO would be required to demonstrate as part of its renewal application that it has established an adequate repayment mechanism as specified at § 425.204(f) to assure CMS of its ability to repay losses for which it may be liable during the new agreement period. We proposed to make this option available to Track 1 ACOs whose first agreement period is scheduled to end on or after December 31, 2016. Therefore, this proposed option would be available to ACOs with 2014 start dates seeking to renew their participation agreements in order to enter their second agreement period beginning in 2017. Under this proposal, we would update the ACO’s benchmark as specified at § 425.602(b) for performance year 4 of the initial participation agreement. However, we would defer resetting the benchmark as specified at proposed § 425.603 until the beginning of the ACO’s second agreement period (that is, the ACO’s first agreement period under the selected performance-based risk track). The benchmark would be reset under the policies in place for that time E:\FR\FM\10JNR4.SGM 10JNR4 asabaliauskas on DSK3SPTVN1PROD with RULES Federal Register / Vol. 81, No. 112 / Friday, June 10, 2016 / Rules and Regulations period, including the regional adjustment we are finalizing in this rule. Also, we proposed that the quality performance standard that would apply for performance year 4 of the initial participation agreement would be the same as for the ACO’s performance year 3, consistent with § 425.502(a)(2). Specifically, we proposed that during the fourth performance year of the ACO’s first agreement period, the ACO must continue to report all measures and the ACO will be assessed on performance based on the quality performance standard in place for the third performance year of the ACO’s first agreement period. In addition, we proposed that if a Track 1 ACO finishing its initial agreement period chooses to elect this option during the renewal of its participation in the Shared Savings Program, the ACO would be required to transition to the selected performancebased risk track at the end of the fourth performance year under Track 1. The term of the second agreement period would be 3 performance years. If such an ACO subsequently decides during the fourth performance year that it no longer wants to transition to the performance-based risk track it selected in its application for a second agreement period, then the currently established close-out procedures and payment consequences of early termination under § 425.221 would apply. For example, if the ACO voluntarily terminates its agreement under § 425.221(a), effective December 31 of its fourth performance year, and completes all required close-out procedures, then as specified by § 425.221(b), the ACO would be eligible to share in any shared savings for its fourth performance year. In addition, to provide some incentive for ACOs to honor their commitment to participate early in a performance-based risk track, we proposed that if an ACO that has been approved for an extension of its initial agreement period terminates its participation agreement prior to the start of the first performance year of the second agreement period, then the ACO would be considered to have terminated its participation agreement for the second agreement period under § 425.220. Such an ACO would not be eligible to participate in the Shared Savings Program again until after the date on which the term of that second agreement period would have expired if the ACO had not terminated its participation, consistent with § 425.222. In the proposed rule, we also noted that if an ACO that goes on to participate under a two-sided track VerDate Sep<11>2014 21:42 Jun 09, 2016 Jkt 238001 under this proposed option voluntarily terminates its agreement during its second agreement period, then the currently established close-out procedures and payment consequences of early termination under § 425.221 would apply. If an ACO terminates its agreement under its selected performance-based risk track and subsequently decides to reapply to participate in the Shared Savings Program, then the requirements under § 425.222 for re-application after termination would apply. For example, consistent with our current policy, such an organization would be required to apply to participate under a two-sided model and would have to wait the remaining duration of the agreement period before reapplying. In developing this proposal to support our policy goal of providing additional flexibility to ACOs that are considering transitioning to two-sided risk, we also considered an alternative option that would permit the ACO to transition to a two-sided risk track during a subsequent 3-year agreement period under Track 1, instead of extending the first agreement period for an additional year. Under this alternative approach, we indicated that we would allow the ACO to remain in Track 1 for the first performance year of the second 3-year agreement period. The ACO would then be required to transition to Track 2 or 3 for the final 2 performance years of the agreement period. An ACO choosing this option would be required to satisfy all the requirements for a performancebased risk track at the time of renewal, including the requirement that the ACO demonstrate that it is capable of repaying shared losses as required to enter a performance-based risk track. Under this approach, we would rebase the ACO’s benchmark as provided under proposed § 425.603, effective for the first year of the second 3-year agreement period. Further, we would calculate shared savings for the first year of the second 3-year agreement period under the one-sided model as specified at § 425.604. During the second and third performance years of the second agreement period, we would calculate shared savings and shared losses, as applicable, under either Track 2 (as determined at § 425.606) or Track 3 (as determined at § 425.610). We did not elect to propose this alternative option because we believed there could be a stronger incentive for some ACOs to transition to two-sided performancebased risk if we were to defer resetting the ACO’s benchmark until the beginning of the ACO’s second agreement period. Additionally, we PO 00000 Frm 00047 Fmt 4701 Sfmt 4700 37995 noted that the alternative approach could raise concerns about risk selection since an ACO could participate for the first performance year of the second agreement period under this alternative, learn midway through the second performance year that its expenditures for the first performance year were below the negative MSR, and withdraw from the program before being subjected to reconciliation under performancebased risk. We welcomed comments on our proposal and the alternative approach, as well as on other possible alternatives to provide flexibility and encourage ACOs to enter into and honor their participation agreements under performance-based risk tracks, and any related issues. Comment: Commenters generally supported the proposed new participation option, believing that this additional participation option could assist some ACOs with transitioning to a two-sided risk track more quickly by giving eligible ACOs an additional year to further develop the infrastructure needed to achieve success under a performance-based risk track. Some commenters thought the alternative approach, in which we would allow the ACO to remain in Track 1 for the first performance year of its second 3 year agreement period before transitioning to a performance-based risk track in year 2, should also be offered, and might even be advantageous for ACOs in some situations. For example, some commenters suggested that this alternative participation option could be advantageous if it were integrated with the APM requirements under MACRA; that is, if the first year of a new twosided risk contract under the alternative option could qualify as being ‘‘more than nominal financial risk’’ and therefore enable the ACO’s physicians and other eligible clinicians to receive bonus payments equal to 5 percent of their covered Medicare professional services. A number of commenters also indicated that it was difficult for them to fully evaluate the proposed option and the alternative approach without first having policies in place for implementing MACRA, so that it would be clearer whether these new participation options might qualify as an APM under MACRA. To provide yet even more flexibility for ACOs prepared to accept performance-based risk, some commenters recommended that CMS allow ACOs to ‘‘move up’’ the risk tracks (that is, to move from Track 1 to Track 2 or 3, or move from Track 2 to Track 3) between performance years without being required to wait for the E:\FR\FM\10JNR4.SGM 10JNR4 asabaliauskas on DSK3SPTVN1PROD with RULES 37996 Federal Register / Vol. 81, No. 112 / Friday, June 10, 2016 / Rules and Regulations start of a new agreement period. These commenters suggested that allowing an ACO to accept varying degrees of risk within an agreement period would position the ACO to best balance its exposure to and tolerance for financial risk and would create a true glide path for providers. However, many commenters indicated that while they supported adding one or more additional participation options, they also cautioned that adding such participation options might not have much impact on ACOs’ willingness to participate under a performance-based risk track. These commenters suggested that if a Track 1 ACO is uncertain about its ability to successfully manage financial risk, the ACO would more likely simply choose to continue under Track 1 for a second agreement period. Another commenter stated that the anticipated impact of the proposed regional benchmark rebasing methodology is not as significant as hoped for and therefore the proposal to facilitate transition to performancebased risk by extending an ACO’s agreement period into a fourth year without rebasing is not a meaningful incentive. This commenter recommended that CMS consider lowering the minimum savings rate of two percent under § 425.604(b) as a way to support ACOs by improving the probability that they will be eligible to share in any savings they achieve as they transition to performance-based risk, particularly for ACOs that demonstrate a commitment to the Shared Savings Program through their years of participation and meet sufficient size requirements for statistical reliability. A commenter expressed concern that adding the proposed additional participation option could slow the move away from FFS payment arrangements. This commenter believes that the ultimate goal is for providers to take on full financial responsibility for caring for a population of patients for a fixed payment. On balance, however, the commenter preferred the proposed alternative for transition to participation under Track 2 or Track 3, over the option to renew for an additional 3-year agreement period under Track 1, as previously finalized in the June 2015 rule. Response: We appreciate the general support received from commenters on our proposal to provide an additional option for ACOs participating under Track 1 to apply to renew for a second agreement period under a two sided track (Track 2 or Track 3), under which the ACO, if approved by CMS, may VerDate Sep<11>2014 21:42 Jun 09, 2016 Jkt 238001 defer entering the new agreement period under a performance-based risk track, and extend participation under the initial participation agreement, for 1 year (that is, the initial agreement period would total 4 years). We acknowledge the concerns raised by commenters that this new participation option might not significantly affect ACOs’ willingness to assume performance-based risk, but agree with commenters that such an option may influence some ACOs to transition to a performance-based risk track sooner than they otherwise might have. As we gain experience with this new participation option in the Shared Savings Program, we will continue to evaluate the appropriateness and effectiveness of our incentives to encourage ACOs to transition to a performance-based risk track and, as necessary, may propose refinements through future notice and comment rulemaking. Although we are not adopting the alternative approach that we discussed in the proposed rule (that would permit the ACO to transition to a two-sided risk track during a subsequent 3-year agreement period under Track 1, instead of deferring entry into a new agreement period under a two-sided risk track and extending the first agreement period for an additional year), we may revisit it along with possible other approaches, including those suggested by commenters, in the future. As we gain additional experience under the Shared Savings Program, we may propose, if warranted, one or more additional participation options through future rulemaking to increase ACOs’ willingness to assume performancebased risk. We would also note that the Department of Health and Human Services recently issued a Notice of Proposed Rulemaking that includes its proposals for implementation of the bonus payment for participants in eligible APMs under MACRA, 81 FR 28162 (May 9, 2016). Comment: A commenter disagreed with our proposal that if an ACO that has been approved for an extension of its initial agreement period terminates its participation agreement prior to the start of the first performance year of the second agreement period, the ACO would be considered to have terminated its participation agreement for the second agreement period under § 425.220. We included this proposal because we believe it will provide an incentive for ACOs to honor their commitment to participate early in a performance-based risk track. The commenter believes that the proposed approach overlooks the fact that unanticipated changes can have a PO 00000 Frm 00048 Fmt 4701 Sfmt 4700 material impact on an ACO’s readiness to assume risk. To illustrate, this commenter suggested that a significant change in the ACO’s Participant List could have a material impact on the ACO’s readiness and ability to follow through on its prior commitment to transition to a performance-based risk track. To address such situations, this commenter recommended that CMS create a ‘‘hold harmless’’ provision for ACOs that choose to renew their participation under the new participation option but then subsequently decide they are unable to assume performance-based risk due to a material change in their structure. Under this suggested hold harmless provision, an ACO that is unable to honor its commitment to participate in a performance-based risk track should have its benchmark rebased, so that it can be treated as being in PY1 of its second agreement period under Track 1. This commenter encouraged CMS to work with stakeholders to define a comprehensive list of material events that would enable an ACO to qualify for the hold harmless provision. Response: We are not persuaded that it is necessary to revise the proposal to include a ‘‘hold harmless’’ provision. We continue to believe it would be appropriate under this new participation option to provide an incentive for ACOs to honor their commitment to participate early in a performance-based risk track. We would expect that ACOs considering this new participation option would share their process and systems knowledge with potential new ACO participants to increase the likelihood that new ACO participants could be successfully integrated in to the ACO, but ultimately ACOs should make their own determination as to whether a TIN is ready to join it in assuming performance-based risk. Alternatively, if the change in the ACO’s composition is due the loss of one or more key ACO participant TINs, we believe it would be appropriate for the ACO to make its own determination as to whether to honor its commitment to assume performancebased risk or terminate its participation agreement. Also, we already have an adjustment to the historical benchmark in place that accounts for changes in an ACO’s certified ACO Participant List, as discussed in section II.B of this final rule. This policy allows for more accurate benchmarks that reflect the historical spending patterns of the ACO and its assigned beneficiaries. Therefore, we are finalizing as proposed the policy that, if an ACO that has been approved for an extension of its initial E:\FR\FM\10JNR4.SGM 10JNR4 asabaliauskas on DSK3SPTVN1PROD with RULES Federal Register / Vol. 81, No. 112 / Friday, June 10, 2016 / Rules and Regulations agreement period terminates its participation agreement prior to the start of the first performance year of the second agreement period, the ACO will be considered to have terminated its participation agreement for the second agreement period under § 425.220. Such an ACO will not be eligible to participate in the Shared Savings Program again until after the date on which the term of that second agreement period would have expired if the ACO had not terminated its participation, consistent with § 425.222. Comment: Commenters provided a variety of other suggestions that they believe might also encourage ACOs to transition to a performance-based risk track earlier. For example, a commenter preferring retrospective beneficiary assignment under Track 2 rather than prospective assignment under Track 3, suggested that Track 2 could be made more attractive to participants if CMS were to make enhancements that are currently available only under Track 3, such as the waiver of the SNF 3-Day Rule, available under Track 2. Similar to comments we received in prior rulemaking, a number of commenters requested that CMS allow ACOs to include partial or ‘‘split TINs’’ among their ACO participants to allow large organizations, such as academic medical centers and their faculty practice plans, to participate in the program under a performance-based risk track with a subset of their providers. Another commenter urged CMS to create stronger incentives for ACOs to assume downside risk in Track 2 and Track 3, such as by reducing the final sharing rate for eligible ACOs under Track 1 to perhaps 20 percent for the second agreement period, to minimize the number of ACOs renewing under Track 1. Otherwise, the commenter suggests many Track 1 ACOs may decide that Track 1 benefits, including having no risk of shared losses, exceed the marginal reduction of their shared savings payments during the second renewal term. This commenter also believes that CMS should provide a clearer and more certain path for ACOs willing to share in risk by, for example, also offering prospective beneficiary assignment for ACOs moving to Track 2 and providing more timely Part D expenditure data for assigned beneficiaries. The commenter believes that these changes would help ACOs predict the expected baseline Medicare spending and savings and reduce uncertainty. Response: Although we are not addressing these additional suggestions as part of this rulemaking, we will further consider these and other VerDate Sep<11>2014 21:42 Jun 09, 2016 Jkt 238001 suggestions from ACOs and other stakeholders that might encourage ACOs to enter performance-based risk arrangements earlier. As we discussed in the June 2015 final rule (80 FR 32810 and 32811), we appreciate the flexibilities 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 risk tracks. Under such a model, ACOs could progressively move providers participating in their organizations into risk in a step-wise fashion. Therefore, we continue to be 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 are finalizing our proposal to provide an additional option for ACOs participating under Track 1 to apply to renew for a second agreement period under a two-sided track (Track 2 or Track 3) under the renewal process specified at § 425.224. If the ACO’s renewal request is approved, the ACO may defer entering the new agreement period under the performance-based risk track for 1 year and extend its first agreement period under Track 1 for a fourth performance year. Further, as a result of this deferral and extension, we will also defer rebasing the ACO’s benchmark for 1 year. At the end of the fourth performance year under Track 1, the ACO will transition to the selected performance-based risk track for a 3year agreement period. Accordingly, we are amending the participation agreement requirements at § 425.200 to provide that an ACO in its first agreement period under Track 1 that has applied and been approved for a second agreement period under a performancebased risk track that defers entering its new agreement period under the performance-based risk track will be able to continue participating under its first agreement for an additional year (for an agreement period that would total 4 years). In addition, we are finalizing our proposal that if an ACO that has been approved for an extension of its initial agreement period terminates its participation agreement prior to the start of the first performance year of the second agreement period, then the ACO will be considered to have terminated its participation agreement for the second agreement period under § 425.220. Such an ACO will not be eligible to participate in the Shared Savings Program again until after the PO 00000 Frm 00049 Fmt 4701 Sfmt 4700 37997 date on which the term of that second agreement period would have expired if the ACO had not terminated its participation, consistent with § 425.222. D. Administrative Finality: Reopening Determinations of ACO Savings or Losses to Correct Financial Reconciliation Calculations, and a Conforming Change 1. Overview ACOs enter into agreements with CMS to participate in the Shared Savings Program, under which ACOs that meet quality performance requirements and reduce the Medicare Parts A and B expenditures for their assigned beneficiaries below their benchmark by a specified margin are eligible to share a percentage of savings with the Medicare program. Further, ACOs participating under a two-sided risk track, whose Medicare Parts A and B expenditures for their assigned beneficiaries exceed their benchmarks by a specified margin, are liable for sharing losses with CMS. After each performance year, CMS calculates whether an ACO has generated shared savings by comparing its actual expenditures for its assigned beneficiaries in the PY with its updated benchmark. Savings are generated if actual Medicare Parts A and B expenditures for assigned beneficiaries are less than the updated benchmark expenditures and shared with the ACO if they exceed the ACO’s minimum savings rate, and the ACO meets the minimum quality performance standards and otherwise maintains its eligibility to participate in the Shared Savings Program. For an ACO under a two-sided risk track, losses are generated if actual Medicare Parts A and B expenditures for assigned beneficiaries are greater than the updated benchmark expenditures and the ACO is liable for shared losses if the losses exceed the ACO’s minimum loss rate. To date, we have announced 2 years of financial performance results for ACOs participating in the Shared Savings Program, in Fall 2014 for 220 ACOs with 2012 and 2013 start dates for PY 1 (concluding December 31, 2013), and in August 2015 for 333 ACOs with 2012, 2013 and 2014 start dates for PY 2014. As discussed in detail in the proposed rule (81 FR 5853 through 5854), several months after the release of PY 1 financial reconciliation results and shared savings payments to eligible ACOs, we discovered that there was an issue with one of the source input data fields used in the final financial reconciliation calculations. As a result, E:\FR\FM\10JNR4.SGM 10JNR4 asabaliauskas on DSK3SPTVN1PROD with RULES 37998 Federal Register / Vol. 81, No. 112 / Friday, June 10, 2016 / Rules and Regulations the PY 1 shared savings payments were overstated for some ACOs and shared losses were understated for some other ACOs. We ultimately determined this issue resulted in an estimated 5 percent overstatement of PY 1 shared savings payments to ACOs and an understatement of shared losses (81 FR 5853 and 5854). The impact on individual ACOs varied depending on the extent to which services provided to the ACO’s assigned beneficiaries were furnished by providers that receive DSH payments. The issue did not result in understated PY 1 shared savings payments or overstated PY 1 shared loss recoupments for any ACO. The financial reconciliation calculation/methodology and the amount of shared savings an ACO might earn, including all underlying financial calculations, are not appealable. That is, the determination of whether an ACO is eligible for shared savings under section 1899(d) of the Act, and the amount of such shared savings, as well as the underlying financial calculations are precluded from administrative and judicial review under section 1899(g)(4) of the Act and § 425.800(a)(4). However, under § 425.314(a)(4), if as a result of any inspection, evaluation, or audit, it is determined that the amount of shared savings due to the ACO or the amount of shared losses owed by the ACO has been calculated in error, CMS reserves the right to reopen the initial determination and issue a revised initial determination. (See also the CMS Web site at https://www.cms.gov/Medicare/ Medicare-Fee-for-Service-Payment/ sharedsavingsprogram/Downloads/ Reconsideration-Review-ProcessGuidance.pdf). As noted in the proposed rule, we have not previously specified the actions that we would take under circumstances when we identify an error in a prior payment determination, such as the error that occurred in the calculation of PY 1 shared savings and shared losses. We are concerned that the current uncertainty regarding the timeframes and other circumstances in which we would reopen a payment determination to correct financial calculations under the Shared Savings Program could introduce financial uncertainty which could seriously limit an ACO’s ability to invest in additional improvements (such as IT solutions and process development, staffing, population management, care coordination, and patient education) to increase quality and efficiency of care. This uncertainty could also limit an ACO’s ability to get a clean opinion from its financial auditors, which could, for example, harm the ACO’s ability to VerDate Sep<11>2014 21:42 Jun 09, 2016 Jkt 238001 obtain necessary capital for additional program improvements. This could be especially challenging for ACOs seeking to enter or continue under a two-sided performance-based risk track since under the requirements at § 425.204(f)(2), such an ACO must, as part of its application for a two-sided performance-based risk track, demonstrate its ability to repay shared losses to the Medicare program, which it may do 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. These arrangements can often require that an ACO or its financial supporters or both make an assessment of the ACO’s level of financial risk for possible repayments. We are particularly concerned that uncertainty regarding past financial results could discourage ACOs from moving more quickly from the one-sided shared savings track to a performance-based risk track when renewing their agreements. We considered an approach under which we would always reopen a determination of ACO shared savings or shared losses to correct any issue that might arise with respect to a financial calculation, identified within 4 years after the release of final financial reconciliation results. We did not propose this option because we were concerned that this approach of correcting even very minor errors might result in significant operational burdens for ACOs and CMS, including multiple financial reconciliation re-runs and offcycle payment/recoupment activities that could have the potential for significant and unintended operational consequences, and could jeopardize the certainty of performance results for both ACOs and CMS. We also considered whether to adopt a policy under which we would never correct for errors after performing the financial calculations and making initial determinations of ACO shared savings and shared losses. However, we did not propose this option because we believed it would be appropriate to reopen financial calculations in certain circumstances, such as in the case of fraud or similar fault as defined at § 405.902, or for errors with a significant impact on the computation of ACOs’ shared savings/ shared losses. Therefore, we proposed a finality policy for financial calculations and shared savings payments or shared loss recoupments in which we would allow for corrections, under certain PO 00000 Frm 00050 Fmt 4701 Sfmt 4700 circumstances and within a defined timeframe, after financial calculations have been performed and the determination of ACO shared savings and shared losses has been made. 2. Circumstances for Reopening Initial Determinations and Final Agency Determinations of ACO Shared Savings or Shared Losses to Correct Financial Reconciliation Calculations In developing the proposals in this section, we considered the following issues: (1) The type of issue/error that we would correct; (2) the timeframes for reopening a payment determination; and (3) whether we should establish a materiality threshold as an indicator of a material effect on shared savings and shared losses that would warrant a correction, and if so, at what level. First, we proposed that CMS would have discretion to reopen a payment determination at any time in the case of fraud or ‘‘similar fault,’’ as defined in § 405.902. It is longstanding policy in the Medicare program that a determination may be reopened at any time if it was procured by fraud or ‘‘similar fault,’’ (see, for example, § 405.980(b)(3); 74 FR 65296, 65313 (December 9, 2009)). Second, we proposed that in certain circumstances we would reopen a payment determination for good cause. For consistency and to decrease program complexity, we proposed to follow the same approach to reopening for good cause as applies to the reopening of Parts A and B claims determinations under § 405.986. Specifically, we proposed that CMS would have the discretion to reopen a payment determination, within 4 years after the date of notification to the ACO of the initial determination of shared savings or shared losses for the relevant performance year, if there is good cause. We proposed that good cause may be established if there is new and material evidence that was not available or known at the time of the payment determination, and which may result in a different conclusion, or if the evidence that was considered in making the payment determination clearly shows on its face that an obvious error was made at the time of the payment determination. We indicated that new and material evidence or an obvious error could come to CMS’ attention through a variety of means, such as identification by CMS through CMS program integrity reviews or audits, or identification through audits conducted by independent federal oversight entities such as the Office of Inspector General (OIG) or the Government Accountability E:\FR\FM\10JNR4.SGM 10JNR4 asabaliauskas on DSK3SPTVN1PROD with RULES Federal Register / Vol. 81, No. 112 / Friday, June 10, 2016 / Rules and Regulations Office (GAO). CMS program integrity reviews and audits include reviews and audits conducted by CMS’ contractors. We proposed to establish a 4-year time period (that is, 4 years from initial notification of the payment determination) for reopening Shared Savings Program payment determinations for good cause to provide sufficient time to initiate and complete CMS program integrity reviews or audits by oversight entities like OIG or GAO and to evaluate errors identified through those processes. We proposed that good cause would not be established by changes in substantive law or interpretative policy. A change of legal interpretation or policy by CMS in a regulation, CMS ruling, or CMS general instruction, whether made in response to judicial precedent or otherwise, would not be a basis for reopening a payment determination under the proposal. Further, we proposed CMS would have sole discretion to determine whether good cause exists for reopening a payment determination under this section. Under the proposal, the determination of whether an error was made, whether a correction would be appropriate based on these proposed criteria, and the timing and manner of any correction would be within the sole discretion of CMS. We also indicated in the proposal that we did not intend to propose an exhaustive list of potential issues that would or would not constitute good cause, but instead intended to provide additional subregulatory guidance on this issue. We also noted that good cause would not be established by a reconsideration, appeal, or other administrative or judicial review of any determinations precluded under § 425.800. In addition, we indicated we would not reopen a payment determination to consider, or otherwise consider as part of a reopening, additional claims information submitted following the end of the 3-month claims run out and the use of the completion factor. We would continue to use claims submitted prior to the end of the 3-month claims run out with a completion factor to calculate an ACO’s per capita expenditures for each performance year, consistent with §§ 425.604(a)(5), 425.606(a)(5) and 425.610(a)(5). Also, consistent with established policy, under this proposed policy, we would not reopen a determination if an ACO’s ACO participants submitted additional claims or submitted corrected claims after the 3-month claims run out period following the end of the performance year. VerDate Sep<11>2014 21:42 Jun 09, 2016 Jkt 238001 In order to provide an opportunity for CMS to consider updated information and make other adjustments to payment determinations across all ACOs, and to minimize program disruptions for ACOs resulting from multiple reopenings, we indicated that we would, to the extent feasible, make corrections for a given performance year in a unified reopening (as opposed to multiple reopenings). In addition, we indicated we would consider other ways to reduce operational burdens for both ACOs and CMS that could result from making payment adjustments. In addition, in discussing the proposal regarding reopenings for good cause, we proposed that we would also consider whether the error is material and thus warrants a correction by reviewing the nature and particular circumstances of the error. We did not propose specific criteria for determining materiality but we indicated our intent to provide additional information for ACOs through subregulatory guidance, as appropriate. For example, in the case of technical errors by CMS such as CMS data source file errors and CMS computational errors, we stated we would consider limiting reopenings of payment determinations under the Shared Savings Program to issues/errors that have a material effect on the net amount of ACO shared savings and shared losses computed for the applicable performance year for all ACOs, and thus warrant a correction due to the magnitude of the error. We also initially considered applying a materiality threshold for each ACO, rather than evaluating materiality based on the effect on total net shared savings and shared losses for all ACOs, in determining whether to exercise our reopening discretion to correct a CMS technical error. However, we indicated in the proposed rule that we believed it would be appropriate to limit reopenings to correct CMS technical errors that more widely affect the program rather than reopening determinations for specific issues for each of the hundreds of ACOs participating in the Shared Savings Program absent evidence of fraud or similar fault, or good cause established by evidence of other errors. Otherwise, a relatively broad scope and extended timeframe for reopening could seriously limit an ACO’s ability to invest in additional improvements to increase quality and efficiency of care. This uncertainty could also limit an ACO’s ability to get a clean opinion from its financial auditors, which could, for example, harm the ACO’s ability to obtain necessary capital for additional program improvements. This could be PO 00000 Frm 00051 Fmt 4701 Sfmt 4700 37999 especially challenging for ACOs seeking to enter or continue under a two-sided performance-based risk track since under the requirements at § 425.204(f), such an ACO must, as part of its application for a two-sided performance-based risk track, demonstrate its ability to repay shared losses to the Medicare program, which it may do 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. These arrangements can often require that an ACO and/or its financial supporters make an assessment of the ACO’s level of financial risk for possible repayments. Uncertainty over past financial results could significantly affect an ACO’s ability to obtain and maintain these arrangements with financial institutions, and thus discourage ACOs from moving more quickly from the one-sided shared savings track to a performance-based risk track when renewing their agreements. (81FR 5854). Therefore, after considering these issues, we proposed to revise § 425.314 to remove paragraph (a)(4) and add a new paragraph (e) to specify the circumstances under which we would reopen a payment determination under §§ 425.604(f), 425.606(h), 425.610(h), 425.804, or 425.806. Specifically, we proposed that, if CMS determines that the amount of shared savings due to the ACO or the amount of shared losses owed by the ACO has been calculated in error, CMS may reopen the earlier payment determination and issue a revised initial determination. We proposed that a payment determination may be reopened: (1) At any time in the case of fraud or similar fault, as defined in § 405.902; or (2) not later than 4 years after the date of notification to the ACO of the initial determination of shared savings or shared losses for the relevant performance year under § 425.604(f), § 425.606(h) or § 425.610(h), for good cause. We proposed that good cause may be established when there is new and material evidence of an error or errors, that was not available or known at the time of the payment determination and may result in a different conclusion, or the evidence that was considered in making the payment determination clearly shows on its face that an obvious error was made at the time of the payment determination. Good cause would not be established by a change of legal E:\FR\FM\10JNR4.SGM 10JNR4 asabaliauskas on DSK3SPTVN1PROD with RULES 38000 Federal Register / Vol. 81, No. 112 / Friday, June 10, 2016 / Rules and Regulations interpretation or policy by CMS in a regulation, CMS ruling or CMS general instruction, whether made in response to judicial precedent or otherwise. We would have sole discretion to determine whether good cause exists for reopening a payment determination under this section. Also, good cause would not be established by a reconsideration, appeal, or other administrative or judicial review of any determinations precluded under § 425.800. Under the proposal, the determination of whether an error was made, whether a correction would be appropriate based on the proposed criteria, and the timing and manner of any correction would be within the sole discretion of CMS. We proposed that if CMS determines that the specified criteria were met and exercises its discretion to reopen, CMS would recompute the financial results for all ACOs affected by the error or errors. In light of this policy proposal, we indicated we would not reopen and revise the PY 1 payment determinations solely affected by the data source error described previously because we had not previously specified, either through regulations or program guidance, the criteria CMS would apply in determining whether to reopen a payment determination. However, we indicated we would reopen and revise these PY 1 payment determinations for other errors satisfying the proposed criteria for reopening for good cause or for fraud or similar fault (81 FR 5857). Finally, we proposed to amend § 425.800(a)(4), expressly to include a revised initial determination in the list of determinations that are precluded from administrative and judicial review. We invited comments on this proposal, including the proposed criteria for reopening, on alternative approaches for defining the time period for reopenings of payment determinations, on the criteria for establishing good cause, whether the time period for reopenings for good cause should be longer or shorter than 4 years, and on any other criteria that we should consider for the final rule to address issues related to financial reconciliation calculations and the determination of ACO shared savings and shared losses. Comment: Commenters generally appreciated efforts to further define parameters around reopening payment determinations within the Shared Savings Program. A few commenters concurred with the provisions as proposed; however, most commenters expressed concerns about one or more aspects of the proposal. In particular, many commenters suggested limiting the timeframe for good cause VerDate Sep<11>2014 21:42 Jun 09, 2016 Jkt 238001 redeterminations to a shorter period such as 2 years, instead of 4, to provide ACOs with more financial certainty. These commenters stated that requiring ACOs to repay CMS for errors made potentially several years earlier would pose an excessive administrative burden on both ACOs and the Medicare program, create financial uncertainty and could discourage ACOs from participating in the program. Response: We believe a 4 year time frame for reopenings for good cause, which is based on the timeframe for reopening of Parts A and B claims determinations under § 405.986, would also be appropriate under the Shared Savings Program. We acknowledge that a shorter timeframe for good cause determinations might provide more financial certainty for ACOs. However, based on a review of comments, we continue to believe the proposed approach carefully balances a desire to provide more financial certainty for ACOs while also addressing program integrity and other concerns. We are especially concerned that a shorter time period could make it difficult for CMS to make corrections based on program integrity reviews or audits by OIG or GAO. Similarly, a longer time period might make it feasible for CMS to make additional corrections based on program integrity reviews or audits by OIG or GAO, but could provide less financial certainty for ACOs. Comment: Many commenters are concerned that CMS reserves for itself sole discretion to determine whether good cause exists for reopening. These commenters requested that CMS include a specific ‘‘appeal process’’ or other process in which individual ACOs could submit information and data to CMS regarding errors and other anomalies. Response: As discussed earlier in this section, the financial reconciliation calculation/methodology and the amount of shared savings an ACO might earn, including all underlying financial calculations, are not appealable. That is, the determination of whether an ACO is eligible for shared savings under section 1899(d) of the Act, and the amount of such shared savings, as well as the underlying financial calculations are precluded from administrative and judicial review under section 1899(g)(4) of the Act and § 425.800(a)(4). Accordingly, we are not establishing an appeal process for ACOs to submit information to us regarding errors they believe were made in the financial reconciliation calculation or in determining the amount of shared savings earned by the ACO. We believe it is appropriate that the determination PO 00000 Frm 00052 Fmt 4701 Sfmt 4700 of whether an error was made, whether a correction would be appropriate based on these proposed criteria, and the timing and manner of any correction that would be made would be within the sole discretion of CMS. However, we also did not intend to imply that there would be no opportunity for ACOs to bring concerns about data errors or other anomalies to our attention. As noted in the June 2015 final rule (80 FR 32699), there are numerous existing processes through which ACOs can submit information and data to CMS regarding alleged data errors and other anomalies. For example, each ACO is assigned a CMS point of contact, we provide ACOs with a dedicated email box for ACOs to submit questions for subject matter experts to address, and we hold numerous webinars that include opportunities for ACOs to raise questions and concerns. CMS will consider information about potential errors or anomalies provided by ACOs in conducting its own reviews of prior payment determinations. Comment: Some commenters requested that CMS propose the specific good cause criteria including a materiality threshold through rulemaking instead of through subregulatory guidance so that the criteria are transparent and available for public comment. Many commenters requested that CMS establish a policy for a materiality threshold at an individual ACO level instead of across all ACOs to recognize that although determinations may have an insignificant effect on the program as a whole, a negative impact could be financially devastating to an individual ACO. Many of these commenters suggested a lower materiality threshold for individual ACOs, such as one percent or two percent, although there were a few commenters that indicated five percent might be acceptable if the materiality threshold was applied at the individual ACO level. Some commenters requested that CMS consider adopting a tiered materiality threshold for ACOs of varying size, practice-mix, patient population, and overall level of sophistication. For example, according to this commenter, an error affecting a smaller or newer ACO or an ACO serving a high-need population should be subject to a lower materiality threshold. Some commenters believe it is important to maintain flexibility and that CMS should consider individual materiality thresholds for differing ACOs to help ACOs that are facing financial strain and duress. Response: We appreciate the suggestions that commenters provided regarding issues related to the E:\FR\FM\10JNR4.SGM 10JNR4 asabaliauskas on DSK3SPTVN1PROD with RULES Federal Register / Vol. 81, No. 112 / Friday, June 10, 2016 / Rules and Regulations materiality of a payment error and when CMS should reopen a payment determination for good cause. Based on a review of the comments, we believe that it would be appropriate to address issues related to the materiality of an error through subregulatory guidance rather than through regulations. We believe that both CMS and ACOs would benefit from gaining additional experience with issues related to reopenings of payment determinations in the Shared Savings Program before further considering whether additional regulations would be appropriate. However, we are concerned that it could be very complex and burdensome for CMS to tailor materiality considerations to the particular characteristics or circumstances of a given ACO, as suggested by some commenters. In considering when to reopen an error for good cause, we intend to strike a careful balance between important Medicare program integrity concerns that payments be made timely and accurately under the Shared Savings Program with our desire to minimize unnecessary operational burdens for ACOs and CMS, and to support the ACOs’ ability to invest in additional improvements to increase quality and efficiency of care. To achieve this careful balance in objectives for reopenings to address CMS technical errors, we may consider whether the error satisfies a materiality threshold, such as 3 percent of the total amount of net shared savings and shared losses for all ACOs for the applicable performance year. As described in the 2016 proposed rule, we plan to provide additional information about how we may consider the materiality of an error in subregulatory guidance (see 81 FR 5856 through 5857). To illustrate, under such an approach, we could exercise our discretion to reopen the financial reconciliation for a performance year if we determined that a correction to address a CMS technical error would affect total net shared savings and shared losses (that is, the amount of shared savings after the amount of shared losses has been subtracted) for all ACOs for the affected performance year by 3 or more percent. We may consider a higher threshold, such as 5 percent, or a lower threshold, such as 1 or 2 percent. However, based on a review of guidance from the GAO for financial audits of federal entities, we believe that 3 percent could generally be a reasonable threshold for ‘‘material effect.’’ The GAO guidance was developed to assist auditors in assessing material effect for planning the audit scope for federal entities to ensure that VerDate Sep<11>2014 21:42 Jun 09, 2016 Jkt 238001 financial statement audits achieve their intended outcomes of providing enhanced accountability over taxpayerprovided resources. This guidance has been used for a number of years by GAO financial auditors for performing financial statement audits of federal entities. (See the GAO Web site at https://www.gao.gov/special.pubs/ 01765G/vol1_complete.pdf.) Although ACOs are not federal entities, we believe it would be reasonable to consider the GAO guidance in determining when a technical error has a material effect across all ACOs, such that we should use our discretion to reopen for good cause. The Shared Savings Program is a relatively large federal program administered within HHS, including over 400 ACOs (as of January 1, 2016). Accordingly, we believe that the GAO guidance on federal entity audits, while not directly applicable, provides a relevant and appropriate resource in considering when errors in certain payment determinations under the Shared Savings Program are material and whether we should exercise our discretion to reopen for good cause. Comment: Commenters did not directly address the PY1 payment determinations affected by the data source error described in the proposed rule. However, some commenters more broadly urged that CMS hold ACOs harmless for payment determination errors made by CMS. These commenters believe that ACOs ‘‘should not be penalized for CMS errors’’ because ACOs may have already used the affected funds to improve beneficiary care. Response: Except as discussed in the proposed rule for the PY 1 data source error, we do not believe it would be appropriate to establish a finality policy to hold ACOs harmless for payment determination errors made by CMS. We acknowledge that from year to year, corrections could sometimes advantage individual ACOs and sometimes disadvantage individual ACOs. We anticipate that, over time, this approach would not likely have a biased effect on ACOs or Medicare expenditures since the impact of reopenings over time would be equally likely to increase/ decrease net shared savings and losses. We also believe there would be program integrity concerns if we were to hold ACOs harmless for payment determination errors made by CMS. Comment: A few commenters recommended that payment and recoupment activities associated with reopenings and revised initial payment determinations be administered as stand-alone activities rather than being combined with subsequent years’ PO 00000 Frm 00053 Fmt 4701 Sfmt 4700 38001 savings or losses. Their rationale is that ACOs are still evolving and their compositions are changing, sometimes dramatically, from year to year; therefore, recalculation of the financial reconciliation should impact the ACO participants from the corresponding performance year, and not the ACO participants in a subsequent performance year. Response: We indicated in the proposal that we would consider ways to minimize program disruptions for ACOs that could result from one or more reopenings. Our intent is to reduce operational burdens, when feasible, that might result if an ACO were subject to one or more reopenings. The net effect on payments as a result of a reopening will not be different whether we perform the reopening independently or in conjunction with payment reconciliation for another performance year. In either case, we would provide ACOs with details regarding any necessary adjustments in their shared savings or shared losses resulting from reopened financial calculations for each performance year affected. We expect that ACOs would have sufficient information to be able to internally attribute any changes in shared savings/ shared losses for a prior performance year as the ACO believes appropriate and consistent with the ACO’s agreements with its ACO participants. Therefore, to the extent feasible, we will make corrections in a unified reopening (as opposed to multiple reopenings) to correct errors for a given performance year. In addition, we will consider other ways to reduce operational burdens for both ACOs and CMS that could result from making payment adjustments. For example, if we determine that a correction needs to be made to a prior performance year’s results for good cause, we would seek to potentially adjust shared savings payments to the ACO or shared loss recoupments from the ACO for a subsequent performance year. To illustrate, if an ACO that generated shared savings for the second performance year of its agreement period owed CMS money based on a correction made to the payment determination for the prior performance year, we might be able to deduct the amount owed prior to making the current year shared savings payments (subject to the general requirement, discussed in the proposed rule, for ACOs to repay monies owed to CMS within 90 days of notification of the obligation). In either case, we expect to be able to provide ACOs with sufficient details regarding these corrections that they will be able to attribute the E:\FR\FM\10JNR4.SGM 10JNR4 asabaliauskas on DSK3SPTVN1PROD with RULES 38002 Federal Register / Vol. 81, No. 112 / Friday, June 10, 2016 / Rules and Regulations additional payment or recoupment arising from the reopening internally and, as applicable, distribute additional funds to or collect amounts from the appropriate ACO participants from the prior PY. FINAL ACTION: We are finalizing the administrative finality policy as proposed. Specifically, we are finalizing that if CMS determines that the amount of shared savings due to an ACO or the amount of shared losses owed by an ACO has been calculated in error, CMS may reopen the earlier payment determination and issue a revised initial determination: (1) At any time in the case of fraud or similar fault, as defined in § 405.902; or (2) not later than 4 years after the date of notification to the ACO of the initial determination of shared savings or shared losses for the relevant performance year under § 425.604(f), § 425.606(h) or § 425.610(h), for good cause. Good cause may be established when there is new and material evidence of an error or errors, that was not available or known at the time of the payment determination and may result in a different conclusion, or the evidence that was considered in making the payment determination clearly shows on its face that an obvious error was made at the time of the payment determination. Good cause will not be established by a change of legal interpretation or policy by CMS in a regulation, CMS ruling or CMS general instruction, whether made in response to judicial precedent or otherwise. We will have sole discretion to determine whether good cause exists for reopening a payment determination. Also, good cause will not be established by a reconsideration, appeal, or other administrative or judicial review of any determinations precluded under § 425.800. If we determine that the reopening criteria are met, we will recompute the financial results for all ACOs affected by the error or errors. We will not reopen and revise PY 1 payment determinations to address the data source error described previously. We will address issues regarding when an error is material such that it would be appropriate to exercise our discretion to reopen for good cause through subregulatory guidance. We note that the current requirements for ACO repayment of shared losses after notification of the initial determination of shared losses will not be affected by any of the policies that we are adopting in this section of this final rule. As described under § 425.606(h)(3) (Track 2) and § 425.610(h)(3) (Track 3), if an ACO has shared losses, the ACO must make VerDate Sep<11>2014 21:42 Jun 09, 2016 Jkt 238001 payment in full to CMS within 90 days of receipt of notification. These current requirements will continue to apply for repayment by ACOs for shared losses. For example, an ACO will not be able to delay recoupment of any payments required under § 425.606(h)(3) or § 425.610(h)(3) by notifying CMS of a possible error that could merit reopening. Instead, if we later determine that a correction should be made, we would subsequently combine, if feasible, the revised calculation of shared savings or shared losses for the affected performance year with the financial reconciliation for the most recent performance year. For example, we would add any amount owed to the ACO as a result of the reopening, to any shared savings payments for which the ACO is eligible for the most recent performance year. Finally, we had proposed to include these administrative finality provisions as a revision to § 425.314 (Audits and record retention) by removing (a)(4) and adding a new paragraph (e) to specify the circumstances under which we would reopen a payment determination under §§ 425.604(f), 425.606(h), 425.610(h), 425.804, or 425.806. However, we now believe these administrative finality provisions are a sufficiently distinct topic from ‘‘audits and record retention’’ that it would be clearer to instead incorporate these administrative finality provisions in a new, separate section at § 425.315 (Reopening Determinations of ACO Savings or Losses to Correct Financial Reconciliation Calculations). Accordingly, we are revising § 425.314 by removing (a)(4) and are adding a new § 425.315 to specify the circumstances under which we would reopen a payment determination under §§ 425.604(f), 425.606(h), 425.610(h), 425.804, or 425.806. 3. Conforming Change As discussed earlier in the overview for this section, the determination of whether an ACO is eligible for shared savings, and the amount of such shared savings, and the limit on the total amount of shared savings as well as the underlying financial calculations are excluded from administrative and judicial review under section 1899(g) of the Act. Accordingly, in the November 2011 final rule establishing the Shared Savings Program, we adopted the regulation at § 425.800 to preclude administrative and judicial review of the determination of whether an ACO is eligible for shared savings and the amount of shared savings under Track 1 and Track 2 (§ 425.800(a)(4)), and the limit on total amount of shared savings that may be earned under Track 1 and PO 00000 Frm 00054 Fmt 4701 Sfmt 4700 Track 2 (§ 425.800(a)(5)). In the June 2015 final rule, we amended the Shared Savings Program regulations by adding a new provision at § 425.610 to establish a new performance-based risk option (Track 3) that includes prospective beneficiary assignment and a higher sharing rate. However, in the June 2015 final rule we inadvertently did not also update § 425.800 to include references to determinations under § 425.610 (Track 3) in the list of determinations under this part for which there is no reconsideration, appeal, or other administrative or judicial review. Therefore, we proposed a conforming change to amend § 425.800 to add determinations under § 425.610 (Track 3) to the list of determinations under § 425.800(a)(4) and (a)(5) for which there is no reconsideration, appeal, or other administrative or judicial review. Comment: We did not receive comments on this proposed conforming change. Response: We will finalize this conforming change to the regulations to include determinations for Track 3 ACOs to the list of determinations for which there is no reconsideration, appeal, or other administrative or judicial review. FINAL ACTION: We are amending § 425.800 to add determinations under § 425.610 (Track 3) to the list of determinations under § 425.800(a)(4) and (a)(5) for which there is no reconsideration, appeal, or other administrative or judicial review. 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 certain 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 Medicare Parts A and B, and encourages investment in infrastructure and redesigned care processes for high quality and efficient service delivery. These changes are focused on calculations for resetting the financial benchmark for an ACO’s second or subsequent agreement period, E:\FR\FM\10JNR4.SGM 10JNR4 Federal Register / Vol. 81, No. 112 / Friday, June 10, 2016 / Rules and Regulations thereby fulfilling a goal communicated in the Shared Savings Program June 2015 final rule (80 FR 32692), and further discussed in the 2016 proposed rule, to take into account regional expenditures when resetting an ACO’s financial benchmark for a second or subsequent agreement period. asabaliauskas on DSK3SPTVN1PROD with RULES 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 RIA, which to the VerDate Sep<11>2014 21:42 Jun 09, 2016 Jkt 238001 best of our ability presents the costs and benefits of the rulemaking. In keeping with our standard practice, the main analysis presented in this RIA compares the expected outcomes of the modifications finalized with this rulemaking to the expected outcomes under current regulations. We provide our analysis of the expected costs of the payment model under section 1899(i)(3) of the Act compared to the costs that would be incurred under the statutory payment model under section 1899(d) of the Act in section IV.E of this final rule. 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 demonstrating quality of care and efficiency gains within FFS Medicare. As a result, the changes to the Shared Savings Program adopted in this final rule could result in a range of possible outcomes. While evaluation of the program’s overall impact to date is ongoing, the quality and financial results of the first 2 performance years are within the range originally projected for the program in the November 2011 final rule (see Table 8, 76 FR 67963). Also, at this point, we have seen no evidence of selective ACO participation that would systematically bias overall program performance as measured by ACO benchmarks. In the June 2015 final rule, we established a policy for rebasing an ACO’s financial benchmark for a second or subsequent agreement period by weighting each benchmark year equally and taking into account savings generated by the ACO in the previous agreement period. We also discussed potential future modifications to the rebasing methodology that would account for regional FFS expenditures and remove the policy of adding savings generated by the ACO in the previous agreement period. In the 2016 proposed rule, we proposed modifications to the program’s regulations, focused on incorporating regional expenditures into ACOs’ rebased historical benchmarks. In this final rule, we are adopting an alternative benchmarking approach for ACOs starting a second agreement period in 2017 and subsequent years. The rebasing methodology promulgated in the June 2015 rule will apply to ACOs that entered a second agreement period in 2016. The revised rebasing methodology promulgated in this final rule will apply to these ACOs starting in their third agreement period. Under the revised benchmarking methodology adopted in this final rule, an ACO’s PO 00000 Frm 00055 Fmt 4701 Sfmt 4700 38003 reset benchmark will be adjusted by a percentage of the difference between the average per capita expenditure amount for the ACO’s regional service area and the ACO’s rebased historical benchmark amount (described in section II.A.2.c of this final rule). Under the phased approach to using a higher percentage in calculating the adjustment for regional expenditures (described in section II.A.2.c.3 of this final rule): in the ACO’s first agreement period in which the regional FFS adjustment is applied the percentage used in calculating the regional adjustment will be set as high as 35 percent; in the ACO’s second agreement period in which the regional FFS adjustment is applied and subsequent agreement periods, the percentage will be set as high as 70 percent unless the Secretary determines a lower weight should be applied, as specified through future rulemaking. This approach will further limit the link between an ACO’s performance in prior agreement periods and its benchmark in subsequent agreement periods by making the benchmark more reflective of costs in the ACO’s regional service area. These changes are intended to strengthen the incentives for ACOs to invest in infrastructure and care redesign necessary to improve quality and efficiency and meet the goals of the Shared Savings Program. In response to comments, we are finalizing a modification that will moderate the phase-in of the regional FFS adjustment for ACOs that have higher costs than their region and for which the regional adjustment will reduce the ACO’s benchmark. In such cases, the weight placed on the regional FFS adjustment will be reduced to 25 percent (down from 35 percent) in the first agreement period in which the regional FFS adjustment is applied, and 50 percent (down from 70 percent) in the second. By the third agreement period under the revised rebasing methodology, the weight placed on the regional FFS adjustment will be 70 percent for all ACOs, unless the Secretary determines a lower weight should be applied, as specified through future rulemaking. Another key modification to the benchmark rebasing methodology involves refining certain calculations that currently rely on national FFS expenditures and corresponding trends so that they are instead determined according to county FFS trends observed in each ACO’s unique assignment-weighted regional service area. Annual average per capita costs will be tabulated for assignable FFS beneficiaries in each county. For each ACO, a regional weighted average E:\FR\FM\10JNR4.SGM 10JNR4 asabaliauskas on DSK3SPTVN1PROD with RULES 38004 Federal Register / Vol. 81, No. 112 / Friday, June 10, 2016 / Rules and Regulations expenditure will be found by applying ACO assigned-beneficiary weights to the average expenditures tabulated for each county. Changes in an ACO’s regional service area average per capita expenditures (and relative risk reflected in associated HCC risk scores) will define a regional trend specific to each ACO’s region. This regional trend will be utilized in two specific areas of the existing benchmark methodology to replace the: (1) National expenditure trend in calculations establishing the ACO’s rebased historical benchmark; and (2) existing national ‘‘flat dollar’’ growth amount for updating the rebased historical benchmark for each performance year. By replacing the national average FFS expenditure trend and ‘‘flat dollar’’ update with trends observed for county level FFS assignable beneficiaries in each ACO’s unique assignmentweighted regional service area, benchmark calculations will be better structured to account for exogenous trend factors particular to each ACO’s region and the pool of potentiallyassignable beneficiaries therein (for example, higher trend due to a particularly acute flu season or an unusually large area wage index adjustment or change). Although the policy will have mixed effects—increasing or decreasing benchmarks for ACOs in various circumstances—an overall increase in program savings will likely result from taking into account service-area trends in benchmark calculations. In some cases lower benchmarks will be produced, preventing shared savings payments to certain ACOs for whom national average trends and updates would have provided higher updated benchmarks. For other ACOs, such a policy will be more sensitive to regional circumstances outside of the ACO’s control causing higher trends for the ACO’s service area. In such cases, a higher benchmark could improve program cost savings in the long run by reducing the likelihood the ACO would choose to drop out of the program because a shared loss would otherwise have been assessed due to exogenous factors unrelated to the ACO’s changes in care delivery. In addition, applying the regional trend as a percentage (rather than ‘‘flat dollar’’) when updating the benchmark to a performance year basis is anticipated to further reduce program costs by improving the accuracy of updated benchmarks, particularly for ACOs that have historical benchmarks significantly below or above average. The November 2011 final rule discussed the risk that large nominal ‘‘flat dollar’’ VerDate Sep<11>2014 21:42 Jun 09, 2016 Jkt 238001 growth updates could compound over an agreement period to excessively inflate benchmarks for ACOs with relatively low historical benchmark cost and could lead to predictable bias and resulting cost for selective participation in the program (76 FR 67964). Such risk has not materialized in program experience to date, largely due to the historically low national program trend used to update ACO benchmarks through the first 3 years of the program. However, the per capita trend for the Medicare FFS program is anticipated to be higher in future years associated with the period governed by this final rule in contrast to the relatively moderate growth in cost experienced over the first 3 years of the program’s implementation.3 The changes to the methodology for updating the benchmark included in this final rule will apply regional trends to update ACO benchmarks and therefore prevent the increased program cost the current update methodology risks by employing an average ‘‘flat dollar’’ update that compounds over the 3 years of an ACO’s agreement period. Program participation and ACO beneficiary assignment are not homogenously distributed geographically. ACOs tend to have service areas overlapping those of other ACOs in the same urban or suburban market(s). Therefore, to the extent that ACOs in these areas produce significant reductions in expenditures, a greater proportion of such savings will affect ACO-service-area trends than the average effect felt at the national program level, effectively reducing the average ACO’s updated benchmark compared to what the use of a national trend alone would have produced. While such effect has the potential to reduce program costs by reducing net shared savings payments it could be seen as a disadvantage to participating organizations in ‘‘ACO-heavy regions’’ that manage to broadly increase efficiency at the overall regional market level.4 However, on the whole, we anticipate this effect to be a reasonable 3 Traditional fee-for-service Medicare Part A and B annual per capita cost trend is expected to reach approximately 5 percent in 2019, as detailed in the 2017 Medicare Advantage Early Preview accessible at: https://www.cms.gov/Medicare/Health-Plans/ MedicareAdvtgSpecRateStats/Downloads/ EarlyPreview2017GrowthRates.pdf. 4 Similarly, certain regions may be targeted for other care delivery reforms, for example certain Center for Medicare and Medicaid Innovation models. A downward bias on an ACO’s benchmark could be felt to the extent that such activity reduces expenditures for beneficiaries in the ACO’s region but not in a proportional way within the ACO’s assigned population. Such scenarios are more likely when competing models are specifically targeted at beneficiaries not assigned to an ACO. PO 00000 Frm 00056 Fmt 4701 Sfmt 4700 trade-off that will not prevent an overall improvement in the incentive for ACOs to improve efficiency in care delivery in the context of periodic benchmark rebasing as a result of the policies adopted in this final rule. As described previously in this rule, we acknowledge the potential advantages of alternative approaches to determining benchmark updates, for example utilizing the national growth rate adjusted for regional price variation, and we anticipate exploring such approaches in future rulemaking. Additionally, we anticipate significant program savings will result from ending the policy from the June 2015 rule under which savings generated in the previous agreement period are taken into account when resetting the benchmark in an ACO’s second or subsequent agreement period. However, savings from this modification are not wholly retained by the program but are largely redistributed to ACOs that are measured to have demonstrated efficiency in a more standardized way, using a regional FFS adjustment to their benchmarks. As commenters on the 2016 proposed rule noted, roughly twothirds of ACOs in the 2014 public use data released in conjunction with the 2016 proposed rule showed lower expenditures than their countyweighted FFS averages and would therefore likely benefit from the regional FFS adjustment. Changes to the existing benchmark calculations described previously are expected to benefit program cost savings by producing rebased benchmarks with improved accuracy (for example, reflecting regional trends rather than national average trends and ‘flat dollar’ updates) and of somewhat lower per capita cost on average (due to removing the effect of the savings adjustment to the rebased benchmark and because regional trend calculations typically reflect a higher proportion of ACO assigned beneficiary experience than national average trend calculations). However, such savings are expected to be partly offset by increasing shared savings payments to ACOs benefiting from the adjustment to the rebased historical benchmark to reflect a portion of the difference between the average per capita expenditure amount for the ACO’s regional service area and the ACO’s rebased historical benchmark amount. This trade-off reflects our intent to strengthen the reward for attainment of efficiency in an absolute sense, complementing the existing program’s focus on rewarding improvement relative to an ACO’s recent baseline. E:\FR\FM\10JNR4.SGM 10JNR4 Federal Register / Vol. 81, No. 112 / Friday, June 10, 2016 / Rules and Regulations asabaliauskas on DSK3SPTVN1PROD with RULES Making a regional adjustment to the ACO’s rebased historical benchmark will strengthen an ACO’s incentives to generate and maintain efficient care delivery over the long run by weakening the link between an ACO’s prior performance and its future benchmark. This adjustment is expected to marginally increase program participation in agreement periods where risk (Track 2 or 3) is mandatory for an ACO since a significant portion of ACOs will have knowledge that a favorable baseline expenditure comparison to their FFS region will mitigate their risk of being assessed a shared loss in a subsequent agreement period. It is also expected to reduce the frequency with which ACOs in Track 2 or 3 drop out of the program during an agreement period because such ACOs will have somewhat greater certainty regarding the extent to which savings achieved in the prior agreement period will continue to be reflected in a rebased benchmark that incorporates a regional adjustment. However, more predictable relationships, that is, an ACO’s knowledge of its costs relative to FFS expenditures in its region, also create the risk of added cost to the Shared Savings Program by way of—(1) Increasing shared savings payments to ACOs exhibiting expenditures significantly below their region at baseline especially in cases where such differences are related to factors exogenous to efficiency in the delivery of care (where shared savings payments could be further inflated by increased selection of Track 3 over Track 2); (2) potentially losing participation from ACOs with expenditures high above their region at baseline—reducing the opportunity to impact beneficiary populations with the greatest potential for improvements in the cost and quality of care; 5 and (3) from structural shifts by ACOs in ways that would reduce assignment of relatively high cost beneficiaries and increase assignment of relatively healthy populations or shift the geography of their service area to similarly effect a more favorable benchmark adjustment. A primary uncertainty and significant potential concern is whether complex patients will continue to have their care successfully coordinated by ACO 5 Early program results indicate that ACOs with expenditures significantly above their risk-adjusted FFS regional average have produced greater than average reductions in expenditures than ACOs with low baseline expenditures relative to their region; however it is not yet evident that such early savings achieved for such relatively high cost populations are likely to grow to an extent that their expenditures would reach parity with their region. VerDate Sep<11>2014 21:42 Jun 09, 2016 Jkt 238001 providers/suppliers under the revised benchmark methodology. If the regional adjustment results in unattainable benchmarks for ACOs serving at-risk and medically complex populations then the program would likely exhibit decreasing participation from providers serving populations where the greatest potential for savings through better care coordination and quality improvement would otherwise be present and therefore we would expect significantly lower savings for the program than currently anticipated. In addition to the uncertainty with respect to the relationship of the potential offsetting effects noted previously, there remains broader uncertainty as to the number of ACOs that will participate in the program (especially under performance-based risk in Track 2 or Track 3), provider and supplier response to financial incentives offered by the program, interactions with other value based models and programs from CMS and other payers, 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. Certain ACOs that have achieved shared savings in their first agreement period may find that they receive significantly lower benchmarks under these revisions (especially in cases where regional expenditures are much lower than expenditures for the ACO’s assigned beneficiary population). Other ACOs may seek to maximize sharing in savings by selecting Track 3 if they have assigned beneficiaries with significantly lower expenditures at baseline relative to their region. 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 included 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. A summary of assumptions and assumption ranges utilized in the model includes the following: • Approximately 100, 100, and 200 ACOs will consider renewing in 2017, 2018, and 2019, respectively. • ACOs will choose not to renew if— ++ Under the current policy: The ACO’s gross loss in the prior performance year was 5 percent or greater; or ++ Under the policies included in this final rule: The ACO’s gross loss is PO 00000 Frm 00057 Fmt 4701 Sfmt 4700 38005 3 percent or greater in the prior performance year after accounting for the expected effect of the revised rebasing methodology (for example, considering differences between the ACO’s spending and that of its region) and adjusting for ACO participant changes that result in baseline cost reduction of 2 percent on average (see discussion elsewhere in this final rule). In either scenario, the thresholds are calibrated to approximate the level of baseline loss an ACO would correlate to an expected shared loss from its rebased benchmark. The magnitude of the loss is roughly equal to the revenue ACO participating physicians may have gained from the 5 percent incentive payment under MACRA 6 that is potentially available to physicians and certain other practitioners in certain ACOs for participation in the Shared Savings Program. The policies included in this final rule are assumed to result in a lower tolerance for renewal after a prior agreement period loss because the regional adjustment to the rebased benchmark is expected to be more consistent from year to year whereas the current rebasing methodology would be expected to generate a higher benchmark reflecting to a greater degree the actual spending from the prior agreement period that led to the prior loss. However, ACOs that do renew under the policies included in this final rule are expected to be more likely to remain in the program for the entire agreement period because the benchmark adjustment improves the likelihood that favorable changes to the methodology for rebasing the benchmark that led the ACO to renew its agreement will continue to be evidenced in future performance years. • Renewing ACO will choose higher risk in Track 3 if— ++ Under the current policies: The ACO’s gross savings in prior performance year are 4 percent or greater; or ++ Under the policies included in this final rule: The ACO’s prior performance year gross savings adjusted by regional expenditures are 2 percent or greater. In either scenario, similar to the renewal assumption, policies included in the final rule offer greater certainty that adjusted prior performance will correlate to future performance and therefore the threshold for selecting 6 The Medicare Access and CHIP Reauthorization Act of 2015 (MACRA) established new incentives to encourage physicians and certain other practitioners to participate in alternative payment models; pending final rulemaking, such incentive payments may equate to approximately 5 percent of physician fee schedule revenue to eligible clinicians participating in certain qualifying ACOs. E:\FR\FM\10JNR4.SGM 10JNR4 asabaliauskas on DSK3SPTVN1PROD with RULES 38006 Federal Register / Vol. 81, No. 112 / Friday, June 10, 2016 / Rules and Regulations Track 3 is lower than what is assumed for the baseline scenario. • Marginal gross savings will increase by between 0.0 percent to 1.0 percent for ACOs selecting higher performancebased risk in Track 3 and between 0.0 percent to 0.2 percent for all ACOs due to the adjusted rebasing methodology. These ranges were chosen to encompass a range of relative savings rates observed for performance-based risk accepted by ACOs participating in the Pioneer ACO Model relative to Shared Savings Program ACOs, the vast majority of which have elected to participate under the one-sided shared savings model (Track 1). • ACOs experiencing a loss during the rebased agreement period are assumed to drop out prior to the second or third performance year if a shared loss from the prior performance year exceeds 2 percent. While Pioneer ACO Model experience would predict a lower tolerance for remaining in the program after a loss, 2 percent was chosen to approximate the incentive payment under MACRA that may be made available (pending final rulemaking) to physicians and certain other practitioners participating in ACOs in Track 2 and Track 3, which was not available to participants in Pioneer ACOs. • ACOs will make adjustments to their ACO Participant Lists that reduce their cost relative to region by approximately 2 percent on average. This assumption is based on empirical analysis of 2015 ACO Participant List change requests and resulting impact on ACO baseline expenditures due to changes in assignment; the magnitude of bias is assumed to be greater for ACOs starting higher than their corresponding regional average expenditures and/or with a relatively small assigned beneficiary population and lower for ACOs starting below regional average expenditures and/or with a relatively large assigned beneficiary population. • ACOs will achieve a mean quality score of 80 percent (based on analysis of Shared Savings Program ACO quality scores in 2013 and 2014). • ACO savings will have an impact on regional expenditures and trends proportional to ACO assignment saturation of the FFS beneficiary population in the market. VerDate Sep<11>2014 21:42 Jun 09, 2016 Jkt 238001 Assumptions for ACO baseline costs, including variations in trends for ACOs and their relationship to their respective regions were determined by analyzing existing ACO expenditures and corresponding regional expenditures back to 2009, the first benchmark year used for the first wave of ACOs that entered the program in 2012. (Note, associated data for the 2012 through 2014 time period were released in conjunction with the 2016 proposed rule to assist commenters in modeling implications of the proposed policy changes.) The empirical time series data were randomly extrapolated to form baseline time series data through the end of the rebased agreement period by applying growth rates to ACOs and their regions by randomly sampling empirical growth rates for ACOs (and their respective regions) with similar characteristics in terms of size and relative cost to region. Using a Monte Carlo simulation approach, the model randomly draws a set of extrapolated ACO baseline trends and 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 1,000 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. Table 4 details our estimate of the 3year net impact of the policy changes included in this final rule on net FFS benefit claims costs, net shared savings payments to ACOs, and the resulting impact on net Federal cost. Projected impacts are detailed for the first 3 cohorts of ACOs that would be renewing agreements under these changes, renewing respectively for agreement periods starting in 2017, 2018, and 2019. During these agreement periods, a 35 percent weight would be placed on the benchmark expenditure adjustment for regional FFS expenditures (or a lower 25 percent weight in cases where the ACO’s rebased costs are higher than its regional FFS average). In such agreement periods, total savings from these changes to the methodology for calculating and trending expenditures during the benchmark period in order to PO 00000 Frm 00058 Fmt 4701 Sfmt 4700 establish and update the benchmark, as well as anticipated savings from marginally increased program participation and improved incentives for creating efficiency, are expected to be greater than the increase in cost of net shared savings payments due to selective participation in response to adjustments that are predictably significant (either favorable or unfavorable) upon examination of how expenditures for the ACO’s historically assigned beneficiary population compare to the expenditure level for the ACO’s regional service area at baseline. For this reason the net Federal impact is projected to be a savings (that is, a negative change in net Federal cost) for the first 3 years for each renewing cohort, and correspondingly a $110 million net Federal savings for the first 3 calendar years of the projection window, 2017 through 2019. Such median impact on net Federal cost results from a projected increase in savings on net benefit claims costs of $410 million partially offset by a $300 million increase in net shared savings payments to ACOs. The last two rows of Table 4 enumerate the range of potential net Federal cost impacts our modeling projected, specifically the 10th percentile of simulation outcomes (a $240 million net Federal increase in cost) and the 90th percentile ($480 million net Federal savings). Overall, approximately two-thirds of trials resulted in combined net Federal savings over 2017 to 2019. The estimate for this final rule reflects $10 million higher net Federal cost than the impact estimated for the 2016 proposed rule. As a result of finalizing a phase-in approach that reduces the weight for the regional FFS adjustment during an ACO’s first and second agreement periods under the revised rebasing methodology in cases where it decreases the ACO’s rebased benchmark, we estimate: (1) An increase in shared savings payments net of shared losses of $50 million over 2017 through 2019 compared to the corresponding estimate in the proposed rule, mainly because of increases to certain ACOs’ rebased benchmarks; (2) a decrease in gross claims costs due to increased participation of $40 million relative to the corresponding estimate in the 2016 proposed rule. E:\FR\FM\10JNR4.SGM 10JNR4 Federal Register / Vol. 81, No. 112 / Friday, June 10, 2016 / Rules and Regulations 38007 TABLE 4—ESTIMATED 3-YEAR IMPACT OF CHANGES (INCLUDING A MAXIMUM 35 PERCENT WEIGHT USED IN DETERMINING REGIONAL ADJUSTMENT AMOUNT) ON NET BENEFIT COSTS, NET PAYMENTS TO ACOS, AND OVERALL NET FEDERAL COSTS CYS 2017 THROUGH 2019 [Impacts are Median Results Unless Otherwise Noted] 2017 2018 Impact on Net Claims Costs ($Million): ACOs Renew 2017 ................................................................................... ACOs Renew 2018 ................................................................................... ACOs Renew 2019 ................................................................................... ¥70 ........................ ........................ ¥70 ¥60 ........................ ¥80 ¥70 ¥60 ¥220 ¥130 ¥60 All ACO Total ..................................................................................... ¥70 ¥130 ¥210 ¥410 Impact on Net Shared Savings Pay ($Million): ACOs Renew 2017 ................................................................................... ACOs Renew 2018 ................................................................................... ACOs Renew 2019 ................................................................................... 50 ........................ ........................ 40 40 ........................ 40 40 90 130 80 90 All ACO Total ..................................................................................... 50 80 170 300 Overall Impact on Net Federal Costs ($Million): ACOs Renew 2017 ................................................................................... ACOs Renew 2018 ................................................................................... ACOs Renew 2019 ................................................................................... ¥20 ........................ ........................ ¥30 ¥20 ........................ ¥40 ¥30 30 ¥90 ¥50 30 All ACO Total ..................................................................................... ¥20 ¥50 ¥40 ¥110 Low (10th %-ile) ............................................................................................... High (90th %-ile) .............................................................................................. asabaliauskas on DSK3SPTVN1PROD with RULES Calendar year 20 ¥70 50 ¥160 170 ¥250 240 ¥480 The stochastic model and resulting financial estimates were prepared by the CMS Office of the Actuary (OACT). The median result of $110 million increase in savings in net Federal cost is a reasonable ‘‘point estimate’’ of the impact of the changes included in this final rule on the Shared Savings Program during the period between 2017 through 2019. However, we emphasize the possibility of outcomes differing substantially from the median estimate, as illustrated by the estimate distribution. Accordingly, this RIA presents the costs and benefits of this final rule to the best of our ability. As further data emerge and are analyzed, we may 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 will 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 will result in corresponding adjustments to MA payment rates. Neither of these secondary impacts has been included in the analysis shown. a. Effects of the Final Rule in Subsequent Agreement Periods For an ACO’s third agreement period (that is, the second rebased agreement period under the revised benchmarking VerDate Sep<11>2014 21:42 Jun 09, 2016 Jkt 238001 methodology, for example the 3-year period covering 2020 through 2022 for ACOs renewing for a second agreement period in 2017) the weight on the adjustment to the benchmark for regional FFS expenditures will increase to 70 percent (except in cases where the ACO’s rebased costs are higher than costs for its region in which case the weight will increase to 50 percent for the second rebased agreement period). Increasing the weight of the adjustment reduces the strength of the link between an ACO’s effect on the cost of care for its assigned beneficiaries and the benchmark calculated for an ensuing agreement period. Weakening this link may increase the incentive for ACOs to make investments in care delivery reforms because resulting potential savings will be more likely to be rewarded over multiple agreement periods rather than being ‘baked’ back into the benchmark at the next rebasing. On the other hand, efficiency gains will need to be significantly greater than those currently achieved by the ACOs participating in the program to result in budget neutrality by sufficiently offsetting increased shared savings payments to ACOs favored by a regional adjustment with a 70 percent weight. As discussed previously, we are setting the maximum weight of the regional adjustment at 70 percent for ACOs with lower costs than their region in their second agreement period under the revised benchmarking methodology, PO 00000 Frm 00059 Fmt 4701 Sfmt 4700 2019 3-Year total and for all ACOs in their third and all subsequent agreement periods under this methodology, unless the Secretary determines a lower weight should be applied, as specified through future rulemaking. This determination, which could be made in advance of the agreement period beginning January 1, 2020, may be based on an assessment of the effects of the regional adjustment (and other modifications to the program made under this rule) on the Shared Savings Program such as: The effects on net program costs; the extent of participation in the Shared Savings Program; and the efficiency and quality of care received by beneficiaries. ACOs demonstrate a wide range of differences in expenditures relative to risk adjusted expenditure levels for their region (for the sample of roughly 200 ACOs that started in the program in 2012 or 2013 the percentage by which ACO per capita expenditures exceed or are exceeded by their respective riskadjusted regional per capita expenditures varies with a standard deviation of approximately 10 percent). Transitioning to a 70 percent weight to calculate the regional adjustment effectively down-weights the savings generated by the changes we are making to the existing benchmark calculation, since an ACO’s benchmark would have increased dependence on the regional FFS expenditures and correspondingly a decreasing dependence on the historical expenditures for the ACO. At the same E:\FR\FM\10JNR4.SGM 10JNR4 asabaliauskas on DSK3SPTVN1PROD with RULES 38008 Federal Register / Vol. 81, No. 112 / Friday, June 10, 2016 / Rules and Regulations time, increasing the weight used to calculate the regional adjustment could result in selective participation and increases in shared savings payments to ACOs that have low beneficiary expenditures at baseline. If that were to happen, the overall anticipated cost of net shared savings payments would rise and outweigh the anticipated potential gains from additional care management and associated improvements in net benefit costs spurred by the improved incentives for efficiency generated by partially delinking ACO benchmarks from their own historical costs. An element of the regional adjustment which becomes apparent when reviewing the accompanying data files and the performance of ACOs in 2013 and 2014 (for those roughly 200 ACOs that started in 2012 and 2013) is that ACOs that are above or below the regional service area expenditure amount used to adjust their rebased benchmark in 1 year tend to have a similar bias in the following year. Placing a 100 percent weight on the regional service area expenditure amount illustrates this. Of the 50 ACOs that were the furthest below their estimated regional service area expenditure level in 2013, all were at least 10 percent below and their average expenditures were roughly 15 percent below the expenditures for the region. In the subsequent year, 2014, none of these ACOs exceeded its regional service area expenditure level, and the average expenditure difference only moved by about 2 percentage points. Similar yet less glaring results occur in those ACOs above their regional service area expenditure level, with the 50 ACOs the furthest above their regional service area expenditure level having costs an average of approximately 10 percent above the regional service area expenditure level in 2013—an average difference for the group that only moved by about 2 percentage points the following year. Of the approximately 150 ACOs that were more than 0.5 percent below their regional service area expenditure level, only about 10 percent were above their regional service area expenditure level in the following year. Again, ACOs above their regional service area expenditure level follow a similar pattern, though less drastic. Of the ACOs above their regional service area expenditure level by more than 0.5 percent, approximately 25 percent performed below their regional service area expenditure level in the following year. Notwithstanding the potential for behavioral changes, this illustrates that for a significant portion of existing ACOs, there is evidence of a bias when VerDate Sep<11>2014 21:42 Jun 09, 2016 Jkt 238001 compared to their regional service area expenditure level and that bias is likely to be predictable over time. We have accounted for cost associated with program selection for ACOs favored by such bias and considered attrition in participation by ACOs disfavored by such bias. However, for some ACOs of the latter condition, it may take multiple years to sufficiently redesign their care delivery processes in order to generate savings substantial enough to offset high expenditures relative to their region at baseline. We note that this analysis is based on data from the first 2 years of program operations, and longer term effects may emerge to mitigate bias for certain ACOs with high expenditures at baseline. Additionally, the passage of MACRA established new incentives to encourage providers to participate in alternative payment models. Paying for value and incentivizing better care coordination and integration is a top priority for us, and we have been implementing policies that encourage a shift towards paying for value instead of volume. MACRA provides additional tools to encourage care integration and valuebased payment. Although implementation of MACRA is ongoing and many details are still to be finalized through rulemaking, the incentives created by MACRA could result in increased market pressure on providers to participate in ACOs. This may lower the risk of selective participation and potentially lead to higher expected net Federal savings. Emerging data will be monitored in order to provide additional information for updating projections as part of the use of a higher percentage (70 percent) in calculating the regional adjustment amount for ACOs entering a third or subsequent agreement period. For example, if ACOs respond by generating new efficiencies in care beyond those that are anticipated, and/or potential selective participation responses are lower than expected, then a 70 percent weight could potentially be associated with revised expectations regarding net costs or net savings. However, it is also possible that gains in efficiency will fail to materialize and/or selective participation and other behavioral responses will increase cost beyond the level that is currently anticipated; in such scenario, we would consider further rulemaking as necessary to protect the Medicare Trust Funds (for example, in order to apply a lower percent weight in calculating the regional adjustment amount). PO 00000 Frm 00060 Fmt 4701 Sfmt 4700 b. Further Considerations This final rule introduces regional expenditure trends and a regional adjustment to the rebased historical benchmark that includes prospective HCC risk adjustment to ensure trending and the regional adjustment appropriately account for differences in risk between an ACO’s assigned beneficiary population and its regional service area assignable beneficiary population. Current program experience supports the hypothesis that the current approach of applying conditional reliance on demographic risk ratios for a continuously-assigned subset of beneficiaries for purposes of adjusting the historical benchmark to a performance year basis provides a reasonable balance between accounting for changes in risk of the population and limiting the risk that coding intensity shifts would artificially inflate ACO benchmarks. This final rule retains this policy for adjusting the historical benchmark to a performance year basis. However, for the changes involving the use of regional expenditure trends (to trend forward the benchmark years and to update the ACO’s rebased historical benchmark) and the adjustment to the rebased benchmark for expenditures in the ACO’s regional service area, we are not implementing any additional explicit policy for limiting coding intensity sensitivity at this time (beyond what is described in section II.A of this final rule), but rely on the difference between the average prospective HCC scores for the ACO’s assigned beneficiary population and its regional service area assignable beneficiary population. Regional trend calculations for the rebased historical base years are expected to mitigate the risk of sensitivity to potential coding intensity efforts by ACO providers/ suppliers for several reasons. The benchmark years for the new agreement period correspond to performance years from a prior agreement period where incentives for coding intensity changes were already actively limited by the continuously assigned demographic alternative calculation. In addition, coding intensity shifts that are uniform over a prior agreement period would not affect the trending of historical expenditures from the first 2 years to the third year of such period because such historical adjustments are only sensitive to risk score changes between the first 2 years and the third year of such baseline period. The CMS–HCC model has been updated for 2016 in ways that reduce its sensitivity to subjective coding levels for chronic conditions that are known to have historically E:\FR\FM\10JNR4.SGM 10JNR4 asabaliauskas on DSK3SPTVN1PROD with RULES Federal Register / Vol. 81, No. 112 / Friday, June 10, 2016 / Rules and Regulations accounted for differences in coding levels for MA beneficiaries relative to FFS Medicare. Lastly, ACOs tend to neighbor each other in markets where any ACO coding intensity shifts would then likely drive similar market-wide effects (including effects from market spillover affecting diagnosis codes submitted for patients receiving care from ACO providers/suppliers but who are not ultimately assigned to an ACO) that would tend to net out any coding shifts in the calculation of risk scores relative to the ACO’s region. This final consideration also offers a degree of reassurance that the calculation of the adjustment reflecting the difference between an ACO’s expenditures relative to its region would be less likely to be materially biased by ACO coding intensity shifts. We intend to carefully monitor emerging program data to assess whether the overall benchmark methodology as revised remains appropriately balanced between sensitivity to real changes in assigned population risk and protection from making shared savings payments due to potential coding intensity shifts. Of particular concern for close monitoring (and potential future rulemaking changes, if necessary) are the unique circumstances related to the use of a prospective beneficiary assignment methodology in Track 3 and the associated benchmark calculations for Track 3 ACOs. Prospective assignment creates an overlap between the claims considered for purposes of determining beneficiary assignment to the ACO and the period in which diagnosis submissions from claims are utilized for calculating a beneficiary’s prospective HCC score for the year during which the beneficiary will be assigned to the ACO. A related area for monitoring is whether regional FFS expenditures tabulated at a county level for assignable beneficiaries determined using the assignment methodology used in Track 1 and Track 2 would provide an unbiased comparison to a beneficiary population assigned under the prospective assignment methodology for Track 3. For these reasons, as part of our monitoring we will consider the potential necessity to undertake rulemaking in order to make adjustments to regional calculations for Track 3 ACOs to avoid biasing the results. 2. Effects on Beneficiaries As explained in more detail previously, we believe the changes included in this final rule will provide additional incentive for ACOs to improve care management efforts and VerDate Sep<11>2014 21:42 Jun 09, 2016 Jkt 238001 maintain program participation. In addition, ACOs with low baseline expenditures relative to their region are more likely to transition to and sustain participation in a risk track (Tracks 2 or 3) in future agreement periods. Consequently, the changes in this final rule will also benefit beneficiaries through broader improvements in accountability and care coordination (such as through the use of the waiver of the 3-day stay SNF rule by Track 3 ACOs) than would occur under current regulations. Also, in this final rule we are finalizing a modified version of our proposal in order to provide a more gradual phase-in of the regional adjustment for ACOs with higher costs than their region. It is anticipated this modification will improve the ability of ACOs serving at-risk and medially complex populations to continue to participate and succeed in the program over the medium to long run. Additionally, we intend to continue to analyze emerging program data to monitor for any potential unintended effect that the introduction of a regional adjustment to the ACO’s rebased historical benchmark could potentially have on the incentive for ACOs to serve vulnerable populations (and for ACOs to maintain existing partnerships with providers and suppliers serving such populations). Further refinements that could be addressed in future rulemaking if monitoring ultimately revealed such problems could include reducing the percentage applied to the adjustment to the benchmark for regional expenditures, introducing additional adjustments (for example, enhancements or complements to the prospective CMS–HCC risk model) to control for exogenous factors impacting an ACO’s costs relative to its region, or otherwise modifying the benchmark calculation to improve the balance between rewarding attainment and improvement in the efficiency and quality of care delivery for the full spectrum of beneficiaries enrolled in FFS Medicare. 3. Effects on Providers and Suppliers We anticipate that including an adjustment to an ACO’s historical benchmark reflecting a percentage of the difference between the ACO’s regional service area average per capita expenditure amount and the ACO’s rebased historical benchmark amount will provide an additional incentive for ACOs to make investments to improve care coordination. At the same time, this change in methodology also shifts the benchmark policy focus from rewarding improvement in trend relative to an ACO’s original baseline to an incentive PO 00000 Frm 00061 Fmt 4701 Sfmt 4700 38009 that places more weight on attainment of efficiency—how an ACO compares in absolute expenditures to its region. Certain ACOs that joined the program from a high expenditure baseline relative to their region and that showed savings under the first agreement period benchmark methodology will likely expect lower benchmarks and greater likelihood of shared losses under a methodology that includes at least a 25 percent weight on the regional expenditure adjustment. Additionally, certain ACOs that joined the program with relatively low expenditures relative to their region may now expect significant shared savings payments even if they failed to generate shared savings in their first agreement period under the existing benchmark methodology. 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 a small business 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/smallbusiness-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. 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 developed 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. For example, networks of individual practices of ACO professionals are eligible to form an ACO. Also, the use of a MSR under Track 1, and, if elected by the ACO under Tracks 2 and 3, that varies by the size of the ACO’s population that is calculated using a lower confidence E:\FR\FM\10JNR4.SGM 10JNR4 38010 Federal Register / Vol. 81, No. 112 / Friday, June 10, 2016 / Rules and Regulations asabaliauskas on DSK3SPTVN1PROD with RULES interval allows the MSRs (and, if applicable, MLRs) for smaller ACOs to be significantly lower than they would have been had CMS applied the higher confidence intervals used to derive MSRs (and MLRs) applicable to medium and large size ACOs. Further, eligible ACOs may remain under the one-sided model for a second agreement period to give them additional time to gain experience with the accountable care model before undertaking performancebased risk. Small entities are both allowed and encouraged to participate in the Shared Savings Program, provided the ACO has 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 believe the policies included in this final rule, including facilitating the transition to performance-based risk (see section II.C of this final rule), may further encourage participation by small entities. For example, smaller entities (among others) that are risk averse but ready to transition to a performance-based risk track may elect the option that would defer by one year their entrance into a two-sided model. Once under a twosided model, ACOs will have the opportunity for greater reward compared to participation under the one-sided model although they will be at risk for shared losses. As detailed in this RIA, total median shared savings payments net of shared losses are expected to increase by $300 million over the 2017 to 2019 period as a result of changes that will increase benchmarks for certain ACOs participating in the Shared Savings Program and therefore increase the average small entity’s shared savings revenue. However, the impact on any single small entity may depend on its relationship to costs calculated for the counties comprising its regional service area. 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 VerDate Sep<11>2014 21:42 Jun 09, 2016 Jkt 238001 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 are changing our regulations such that benchmark trend calculations and adjustments for ACOs that include rural hospitals as ACO participants will reflect FFS costs and trends in the ACO’s regional service area. Overall, we expect the average ACO to receive greater shared savings revenue under these changes ($300 million greater net sharing anticipated over 2017 through 2019). However, the impact on individual ACOs and their participating small rural hospitals may differ from the program average. Comment: A commenter acknowledged that the impact on small entities and rural hospitals remains to be seen and suggested that CMS monitor the effects of the benchmarking changes to ensure that small entities and hospitals, particularly in rural and underserved areas, are not placed at a disadvantage. Response: We appreciate the commenter’s suggestion. This final rule describes a number of issues for monitoring and future consideration with respect to the changes being finalized to the methodology for resetting the ACO’s benchmark, including: The approach to calculating regional FFS expenditures (in particular in relation to the methodology for defining the ACO’s regional service area and use of assignable beneficiaries for determining county FFS expenditures), factors for consideration in relation to the weight applied in calculating the regional adjustment to the ACO’s rebased historical benchmark, and the impact of coding initiatives on ACO benchmarks. This monitoring will include considerations relevant across the ACOs participating in the Shared Savings Program, which represent diverse interests by virtue of their ACO participant composition, patient populations, locations, and organizational structures, among other factors. Comment: Although not discussing the specifics of data modeling, comments from stakeholders representing rural ACOs supported moving to the use of regional comparison data when resetting ACO benchmarks, indicating their belief that this approach creates a more meaningful comparison group and better reflects the health care environment in which the ACO operates. PO 00000 Frm 00062 Fmt 4701 Sfmt 4700 Response: We appreciate commenters’ feedback and also share commenters’ beliefs that the revised rebasing methodology may benefit ACOs, including ACOs located in rural areas, by the increasing the weight on regional FFS expenditures in calculating the benchmark, and moving away from benchmarks based on the ACO’s historical spending. 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 2016, that is approximately $146 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 $146 million in any 1 year. Furthermore, participation in this program is voluntary and is not mandated. D. Alternatives Considered As indicated in the June 2015 final rule (see 80 FR 32795 through 32796), and as discussed in the 2016 proposed rule (see 81 FR 5833 through 5834), we also considered an alternative method for establishing benchmarks for subsequent agreement periods that would incorporate regional trends. Under such method we would apply the regional trend to inflate an ACO’s historical benchmark from the prior (that is, first) agreement period to represent expenditures expected for the most recent base year preceding the ACO’s subsequent agreement period. This approach would therefore be delinked from an ACO’s performance over the prior agreement period (except to the extent an ACO’s assigned population impacts its wider regional trend)—improving the incentive for ACOs to invest in efforts to improve efficiency. In contrast to the methodology for calculating a regional adjustment established with this rule, it would also retain sensitivity to baseline costs demonstrated by beneficiaries assigned to the ACO in the prior agreement period, potentially mitigating concerns regarding certain types of program selection and possibly providing a more incremental transition for ACOs familiar with the existing benchmark methodology. Specifically it was estimated that blending an ACO’s rebased benchmark with its prior (first) historical benchmark inflated by a regional trend E:\FR\FM\10JNR4.SGM 10JNR4 Federal Register / Vol. 81, No. 112 / Friday, June 10, 2016 / Rules and Regulations asabaliauskas on DSK3SPTVN1PROD with RULES would produce an overall budget neutral change in net program cost for the subsequent agreement period if the blending were accomplished via a 70 percent weight on an ACO’s trended prior benchmark and a 30 percent weight on its rebased benchmark. While such blend would reasonably be expected to result in an improvement in program incentives for ACOs to generate new efficiencies in care delivery despite rebasing concerns, other considerations impacted the decision to ultimately set forth the different approach detailed in this final rule. Primarily, program experience to date indicates that many ACOs make significant changes to their provider composition over the course of an agreement period. Attempting to lock-in a first historical benchmark that would be trended to form 70 percent of the historical benchmark for future agreement periods would invariably be complicated and in many cases biased by changes in provider composition made years after the ACO’s first entry into the program. Such operational complications and potential biases would invariably grow in magnitude for subsequent agreement periods, necessitating modifications to future rebasing, for example by reducing the weight on the regionally-trended component of the benchmark or requiring the regionally trended component always to be sourced from the rebased benchmark from the prior agreement period—changes that would likely dampen the incentive for ACOs to make significant investments in redesigning care in efficient ways. Furthermore, the rebasing methodology adopted in this final rule has the comparative advantage of linking the regional adjustment to an ACO’s historical expenditures to its region’s contemporary standardized cost as opposed to the level of cost (and associated efficiency) that happened to be exhibited in an ACO’s prior historical benchmark period. Therefore, it was determined that the approach we are adopting in this final rule generally offers a less complicated and more consistent and equitable mechanism for adjusting ACO rebased benchmarks to reflect regional expenditures over the long term. E. Compliance With Requirements of Section 1899(i)(3)(B) of the Act As previously discussed in this final rule, certain policies, including both existing policies and new policies adopted in this final rule, rely upon the authority granted in section 1899(i)(3) of the Act to use other payment models that the Secretary determines will VerDate Sep<11>2014 21:42 Jun 09, 2016 Jkt 238001 improve the quality and efficiency of items and services furnished to Medicare FFS beneficiaries. Section 1899(i)(3)(B) requires that such other payment model must not result in additional program expenditures. Policies falling under the authority of section 1899(i)(3) of the Act include: Performance-based risk, refining the calculation of national expenditures used to update the historical benchmark to use the assignable subpopulation of total FFS enrollment, updating benchmarks with regional trends as opposed to national average absolute growth in per capita spending, and adjusting performance year expenditures to remove IME, DSH, and uncompensated care payments. A comparison was constructed between the projected impact of the payment methodology that incorporates all changes and a hypothetical baseline payment methodology that excludes the elements described previously that require section 1899(i)(3) of the Act authority—most importantly performance based risk in Tracks 2 and 3 and updating benchmarks using regional trends. The hypothetical baseline was assumed to include adjustments allowable under section 1899(d)(1)(B)(ii) of the Act including the provision from the June 2015 final rule whereby an ACO’s rebased benchmark might include an adjustment reflecting a portion of savings measured during the ACO’s prior agreement period and the 35 percent weight used in calculating the regional adjustment to the ACO’s rebased historical benchmark in this rule (or 25 percent weight should such regional adjustment be negative, as specified in this rule). The stochastic model and associated assumptions described previously in this section were adapted to reflect the agreement period spanning 2017 through 2019 for roughly 100 ACOs expected to renew in 2017. Such analysis estimated approximately $130 million greater average net program savings under the alternative payment model that includes all policies that require the authority of section 1899(i)(3) than would be expected under the hypothetical baseline in total over the 2017 to 2019 agreement period cycle. Furthermore, approximately 79 percent of stochastic trials resulted in greater or equal net program savings. The alternative payment model, as adopted in this final rule, is projected to result in both greater savings on benefit costs and net payments to ACOs. Participation in performance-based risk under Track 2 and Track 3 is assumed to improve the incentive for ACOs to increase the efficiency of care for PO 00000 Frm 00063 Fmt 4701 Sfmt 4700 38011 beneficiaries (similar to as assumed in the modeling of the impacts, described previously). Such added savings are partly offset by lower participation associated with the requirement to transition to performance-based risk. Correspondingly, net shared savings payments are also expected to be greater under the alternative payment model under section 1899(i)(3) of the Act than under the hypothetical baseline, mainly driven by the higher sharing rates and potentially lower minimum savings requirements in Track 2 and Track 3, but partly offset mainly by lower benchmarks resulting from ending the policy adopted in the June 2015 final rule of adding a portion of savings to the rebased benchmark, the use of more accurate regional benchmark updates, and new shared loss revenue. Additionally, we projected a lower net federal savings of approximately $10 million would result from using the hypothetical baseline described previously, but without the adjustment to account for a portion of savings generated during the ACO’s prior agreement period, which we eliminated from the hypothetical baseline’s rebased benchmarks. We believe ending the adjustment for savings generated in the ACO’s prior agreement period will enable us to place a greater weight on the amount of the regional adjustment in the future, while not over crediting or penalizing an ACO for its prior performance (discussed in section II.A.2.c of this final rule). This alternative hypothetical baseline more closely resembles the future hypothetical baseline that would be used in our analysis of the application of a higher weight in calculating the regional adjustment in subsequent agreement periods (for example, if we undertake future rulemaking further amending the methodology for rebasing and updating the benchmark, as discussed previously in this final rule). Relative savings projected for the ACOs starting a second agreement period in 2017 participation cycle are reasonably assumed to be proportional for ACOs starting a second agreement period in 2018 and 2019 because the assumptions and parameters would be the same or similar. Accordingly, the requirement under section 1899(i)(3)(B) of the Act that an alternative payment model not result in additional program expenditures is therefore satisfied for the period 2017 through 2019. As discussed elsewhere in this final rule, we will reexamine this projection in the future to ensure that the requirement under section 1899(i)(3)(B) of the Act that an alternative payment model not result in additional program E:\FR\FM\10JNR4.SGM 10JNR4 38012 Federal Register / Vol. 81, No. 112 / Friday, June 10, 2016 / Rules and Regulations expenditures continues to be satisfied, taking into account, for example, increasing the weight placed on the regional adjustment to an ACO’s rebased historical benchmark, which will increase to 70 percent for an ACO’s second (or third for ACOs with higher costs than their region) and subsequent agreement periods under the revised rebasing methodology (unless the Secretary determines a lower weight should be applied, as specified through future rulemaking). In the event that we conclude that the payment model established under section 1899(i)(3) of the Act no longer meets this requirement, we would undertake additional notice and comment rulemaking to make adjustments to the payment model to assure continued compliance with the statutory requirements. F. Accounting Statement and Table As required by OMB Circular A–4 under Executive Order 12866, in Table 5, we have prepared an accounting statement showing the change in net federal monetary transfers resulting from provisions of this final rule as compared to baseline. TABLE 5—ACCOUNTING STATEMENT ESTIMATED IMPACTS [CYs 2017–2019] Category Primary estimate Minimum estimate Maximum estimate Source citation (RIA, preamble, etc.) Impact on Net Federal Cost From Finalized Changes to Medicare Shared Savings Program ¥36.2 million ............ ¥36.5 million ............ Notes: Amounts are expressed in 2016 dollars. 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. G. Publicly Available Data asabaliauskas on DSK3SPTVN1PROD with RULES Annualized monetized: Discount rate: 7% ....... Annualized monetized: Discount rate: 3% ....... findings within their comment letters. For example, several comments reflect estimates that approximately two-fifths to two-thirds of ACOs will have their benchmarks upwardly adjusted as a result of the revised rebasing methodology. A commenter described its analysis as indicating some ACOs will experience significant and unexpected swings in their reset historical benchmarks (when comparing the benchmark values resulting from the current methodology versus the revised methodology). Another commenter explained its analysis showed relatively high-cost ACOs face increasing headwinds as their benchmarks converge with their region, whereas relatively low-cost ACOs would have more favorable benchmarks. Another commenter specified that the 35 percent weight used to calculate the regional adjustment for an ACO’s first agreement period under the revised rebasing methodology would result in a benchmark reduction of about 2 percent for ACOs with spending one standard deviation above the regional mean, and noted this would be substantial relative to estimated savings. Response: We appreciate commenters’ careful attention to the details of the 2016 proposed rule, modeling of the proposed policies, and informative comments including their analyses. We note that the analyses provided by commenters pertaining to the key change to the methodology—institution of a regional FFS adjustment to the In response to requests from ACOs and other stakeholders for data to allow for modeling of proposed changes to the benchmark rebasing methodology, CMS made new data files available through the Shared Savings Program’s Web site, to coincide with the issuance of the 2016 proposed rule (https:// www.cms.gov/Medicare/Medicare-Feefor-Service-Payment/sharedsavings program/Statutes-RegulationsGuidance.html). These files included: Average per capita county-level FFS spending and risk scores for 3 historical years; and ACO-specific data, on the total number of assigned beneficiaries residing in each county where at least 1 percent of the ACO’s assigned beneficiaries reside, for 3 historical years. A listing of all publicly available Shared Savings Program ACO data and ACO performance data sources maintained by CMS is available through the Shared Savings Program Web site (see the guide titled ‘‘Medicare Shared Savings Program Publicly available ACO data and ACO performance data sources maintained by CMS’’ available online at https://www.cms.gov/Medicare/ Medicare-Fee-for-Service-Payment/ sharedsavingsprogram/). Comment: Some commenters modeled the proposed benchmarking changes using the publicly available data files released with the 2016 proposed rule, and other sources of Shared Savings Program performance data, and included remarks about their VerDate Sep<11>2014 21:42 Jun 09, 2016 Jkt 238001 PO 00000 Frm 00064 Fmt 4701 76.6 million ................ 78.5 million ................ Sfmt 4700 ¥155.9 million ........... ¥158.2 million. Table 4. rebased benchmark—are generally in harmony with CMS’ calculations in developing the rule and this impact analysis, providing reassurance that the data provided were a sufficient tool to allow the public to analyze the general impact of the new method for rebasing. We took into account commenters’ observations regarding ACOs with high baseline costs for which a positive savings adjustment under the prior methodology will be replaced by a negative regional FFS adjustment. By reducing the weight applied to the regional FFS adjustment during the first two agreement periods under the revised rebasing methodology in cases where it lowers ACOs’ benchmarks, this final rule will encourage continued participation by certain ACOs with significant potential to generate additional savings despite high baseline costs. We believe this change in policy from the proposed rule addresses concerns raised by commenters and illustrated in their analyses that the regional adjustment could disadvantage certain ACOs that have shown cost savings but may require longer than one agreement period to bring costs down toward the regional average in order to avoid a significant negative adjustment to their rebased benchmarks. H. 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 E:\FR\FM\10JNR4.SGM 10JNR4 Federal Register / Vol. 81, No. 112 / Friday, June 10, 2016 / Rules and Regulations Shared Savings Program for CYs 2017 through 2019 is net federal savings of $110 million greater than what would have been saved if no changes were made. Although this is the best estimate of the financial impact of the Shared Savings Program during CYs 2017 through 2019, a relatively wide range of possible outcomes exists. While approximately two-thirds of the stochastic trials resulted in an increase in net program savings, the 10th and 90th percentiles of the estimated distribution show a net increase in costs of $240 million to net savings of $480 million, respectively. Overall, our analysis projects that improvements in the accuracy of benchmark calculations, including through the introduction of a regional adjustment to the ACO’s rebased historical benchmark, are expected to result in increased overall participation in the program. These changes are also expected to improve the incentive for ACOs to invest in effective care management efforts, increase the attractiveness of participation under performance-based risk in Track 2 or 3 for certain ACOs with lower beneficiary expenditures, and result in overall greater gains in savings on FFS benefit claims costs than the associated increase in expected shared savings payments to ACOs. We intend to monitor emerging results for effects on claims costs, changing participation (including risk for cost due to selective changes in participation), and unforeseen bias in benchmark adjustments due to diagnosis coding intensity shifts. Such monitoring will be used to inform future rulemaking, such as if the Secretary determines that a lower weight should be used in calculating the regional adjustment amount. In accordance with the provisions of Executive Order 12866, this rule was reviewed by the Office of Management and Budget. asabaliauskas on DSK3SPTVN1PROD with RULES 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, the Centers for Medicare & Medicaid Services amends 42 CFR part 425 as set forth below: PART 425—MEDICARE SHARED SAVINGS PROGRAM 1. The authority citation for part 425 is revised to read as follows: ■ Authority: Secs. 1102, 1106, 1871, and 1899 of the Social Security Act (42 U.S.C. 1302, 1306, 1395hh, and 1395jjj). VerDate Sep<11>2014 21:42 Jun 09, 2016 Jkt 238001 2. Amend § 425.20 by adding in alphabetical order definitions for ‘‘ACO’s regional service area’’, ‘‘Assignable beneficiary’’, and ‘‘BY’’ to read as follows: ■ § 425.20 Definitions. * * * * * ACO’s regional service area means all counties where one or more beneficiaries assigned to the ACO reside. * * * * * Assignable beneficiary means a Medicare fee-for-service beneficiary who receives at least one primary care service with a date of service during a specified 12-month assignment window from a Medicare-enrolled physician who is a primary care physician or who has one of the specialty designations included in § 425.402(c). * * * * * BY stands for benchmark year. * * * * * ■ 3. Amend § 425.200 as follows: ■ A. In paragraph (b)(2) introductory text by removing the phrase ‘‘all subsequent years’’ and adding in its place the phrase ‘‘through 2016’’. ■ B. By adding paragraph (b)(3). ■ C. By adding paragraph (e). The additions read as follows: § 425.200 CMS. Participation agreement with * * * * * (b) * * * (3) For 2017 and all subsequent years— (i) The start date is January 1 of that year; and (ii) The term of the participation agreement is 3 years, except the term of an ACO’s initial agreement period under Track 1 (as described under § 425.604) may be extended, at the ACO’s option, for an additional year for a total of 4 performance years if the conditions specified in paragraph (e) of this section are met. * * * * * (e) Optional fourth year. (1) To qualify for a fourth performance year as described in paragraph (b)(3)(ii) of this section, the ACO must meet all of the following conditions: (i) Is currently participating in its first agreement period under Track 1. (ii) Has requested renewal of its participation agreement in accordance with § 425.224. (iii) Has selected a two-sided model (as described under § 425.606 or § 425.610 of this part) in its renewal request. (iv) Has requested an extension of its current agreement period and a 1-year PO 00000 Frm 00065 Fmt 4701 Sfmt 4700 38013 deferral of the start of its second agreement period in a form and manner specified by CMS. (v) CMS approves the ACO’s renewal, extension, and deferral requests. (2) An ACO that is approved for renewal, extension, and deferral that terminates its participation agreement before the start of the first performance year of the second agreement period is— (i) Considered to have terminated its participation agreement for the second agreement period under § 425.220; and (ii) Not eligible to participate in the Shared Savings Program again until after the date on which the term of that second agreement period would have expired if the ACO had not terminated its participation, consistent with § 425.222. § 425.314 [Amended] 4. Amend § 425.314 by removing paragraph (a)(4). ■ 5. Add § 425.315 to read as follows: ■ § 425.315 Reopening Determinations of ACO Shared Savings or Shared Losses to Correct Financial Reconciliation Calculations. (a) Reopenings. (1) If CMS determines that the amount of shared savings due to the ACO or the amount of shared losses owed by the ACO has been calculated in error, CMS may reopen the initial determination or a final agency determination under subpart I of this part and issue a revised initial determination: (i) At any time in the case of fraud or similar fault as defined in § 405.902; or (ii) Not later than 4 years after the date of the notification to the ACO of the initial determination of savings or losses for the relevant performance year under § 425.604(f), § 425.606(h) or § 425.610(h), for good cause. (2) Good cause may be established when— (i) There is new and material evidence that was not available or known at the time of the payment determination and may result in a different conclusion; or (ii) The evidence that was considered in making the payment determination clearly shows on its face that an obvious error was made at the time of the payment determination. (3) A change of legal interpretation or policy by CMS in a regulation, CMS ruling or CMS general instruction, whether made in response to judicial precedent or otherwise, is not a basis for reopening a payment determination under this section. (4) CMS has sole discretion to determine whether good cause exists for reopening a payment determination under this section. E:\FR\FM\10JNR4.SGM 10JNR4 38014 Federal Register / Vol. 81, No. 112 / Friday, June 10, 2016 / Rules and Regulations (b) [Reserved] 6. Amend § 425.602 by: A. Revising the section heading. B. Revising paragraphs (a)(4), (5), and (8). ■ C. Adding paragraph (a)(9). ■ D. Revising paragraphs (b)(1) and (2). ■ E. Removing paragraph (c). The revisions and additions read as follows: ■ ■ ■ asabaliauskas on DSK3SPTVN1PROD with RULES § 425.602 Establishing, adjusting, and updating the benchmark for an ACO’s first agreement period. (a) * * * (4) Truncation of expenditures: (i) For agreement periods beginning before 2017— (A) 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 benchmark year in order to minimize variation from catastrophically large claims; and (B) For the 2017 performance year and any subsequent performance years in agreement periods beginning in 2014, 2015 and 2016, the benchmark is adjusted to reflect the use of assignable beneficiaries in determining the 99th percentile of Medicare fee-for-service expenditures for purposes of truncating expenditures for assigned beneficiaries during each benchmark year as specified in paragraph (a)(4)(ii) of this section. (ii) For agreement periods beginning in 2017 and subsequent years, 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 for assignable beneficiaries identified for the 12-month calendar year corresponding to each benchmark year in order to minimize variation from catastrophically large claims. (5) Trending expenditures: (i) For agreement periods beginning before 2017— (A) Using CMS Office of the Actuary national Medicare expenditure data for each of the years making up the historical benchmark, determines national growth rates and trends expenditures for each benchmark year (BY1 and BY2) to the third benchmark year (BY3) dollars. (B) To trend forward the benchmark, CMS makes separate calculations for expenditure categories for each of the following populations of beneficiaries: (1) ESRD. (2) Disabled. (3) Aged/dual eligible Medicare and Medicaid beneficiaries. (4) Aged/non-dual eligible Medicare and Medicaid beneficiaries. VerDate Sep<11>2014 21:42 Jun 09, 2016 Jkt 238001 (C) For the 2017 performance year and any subsequent performance years in agreement periods beginning in 2014, 2015 and 2016, the benchmark is adjusted to reflect the use of assignable beneficiaries to perform each of these calculations as specified in paragraph (a)(5)(ii) of this section. (ii) For agreement periods beginning in 2017 and subsequent years— (A) Using CMS Office of the Actuary national Medicare expenditure data for each of the years making up the historical benchmark, determines national growth rates for assignable beneficiaries identified for the 12-month calendar year corresponding to each benchmark year, and trends expenditures for each benchmark year (BY1 and BY2) to the third benchmark year (BY3) dollars. (B) To trend forward the benchmark, CMS makes separate calculations for expenditure categories for each of the following populations of beneficiaries: (1) ESRD. (2) Disabled. (3) Aged/dual eligible Medicare and Medicaid beneficiaries. (4) Aged/non-dual eligible Medicare and Medicaid beneficiaries. * * * * * (8) The benchmark is adjusted to take into account the expenditures for beneficiaries who would have been assigned to the ACO in any of the 3 most recent years prior to the agreement period using the most recent certified ACO participant list for the relevant performance year. (9) The historical benchmark is further adjusted at the time of reconciliation for a performance year to account for changes in severity and case mix for newly and continuously assigned beneficiaries using prospective HCC risk scores and demographic factors as described under §§ 425.604(a)(1) through (3), 425.606(a)(1) through (3), and 425.610(a)(1) through (3). (b) * * * (1) For performance years before 2017, CMS updates the historical benchmark annually for each year of the agreement period based on the flat dollar equivalent of the projected absolute amount of growth in national per capita expenditures for Parts A and B services under the original Medicare fee-forservice program. (i) CMS updates the fixed benchmark by the projected absolute amount of growth in national per capita expenditures for Parts A and B services under the original Medicare fee-forservice program using data from CMS’ Office of the Actuary. PO 00000 Frm 00066 Fmt 4701 Sfmt 4700 (ii) To update the benchmark, CMS makes expenditure calculations for separate categories for each of the following populations of beneficiaries: (A) ESRD. (B) Disabled. (C) Aged/dual eligible Medicare and Medicaid beneficiaries. (D) Aged/non-dual eligible Medicare and Medicaid beneficiaries. (2) For the 2017 performance year and subsequent performance years, CMS updates the historical benchmark annually for each year of the agreement period based on the flat dollar equivalent of the projected absolute amount of growth in national per capita expenditures for Parts A and B services under the original Medicare fee-forservice program for assignable beneficiaries identified for the 12-month calendar year corresponding to the year for which the update is calculated. (i) CMS updates the fixed benchmark by the projected absolute amount of growth in national per capita expenditures for Parts A and B services under the original Medicare fee-forservice program for assignable beneficiaries identified for the 12-month calendar year corresponding to the year for which the update is being calculated using data from CMS’ Office of the Actuary. (ii) To update the benchmark, CMS makes expenditure calculations for separate categories for each of the following populations of beneficiaries: (A) ESRD. (B) Disabled. (C) Aged/dual eligible Medicare and Medicaid beneficiaries. (D) Aged/non-dual eligible Medicare and Medicaid beneficiaries. ■ 7. Add § 425.603 to read as follows: § 425.603 Resetting, adjusting, and updating the benchmark for a subsequent agreement period. (a) An ACO’s benchmark is reset at the start of each subsequent agreement period. (b) For second agreement periods beginning in 2016, CMS establishes, adjusts, and updates the rebased historical benchmark in accordance with § 425.602(a) and (b) with the following modifications: (1) Rather than weighting each year of the benchmark using the percentages provided at § 425.602(a)(7), each benchmark year is weighted equally. (2) An additional adjustment is made to account for the average per capita amount of savings generated during the ACO’s previous agreement period. The adjustment is limited to the average number of assigned beneficiaries (expressed as person years) under the ACO’s first agreement period. E:\FR\FM\10JNR4.SGM 10JNR4 asabaliauskas on DSK3SPTVN1PROD with RULES Federal Register / Vol. 81, No. 112 / Friday, June 10, 2016 / Rules and Regulations (c) For second or subsequent agreement periods beginning in 2017 and subsequent years, CMS establishes the rebased historical benchmark by determining the per capita Parts A and B fee-for-service expenditures for beneficiaries who would have been assigned to the ACO in any of the 3 most recent years before the agreement period using the certified ACO participant list submitted before the start of the agreement period as required under § 425.118. CMS does all of the following: (1) Calculates the payment amounts included in Parts A and B fee-for-service claims using a 3-month claims run out with a completion factor. The calculation— (i) Excludes IME and DSH payments; and (ii) Considers individually beneficiary identifiable payments made under a demonstration, pilot or time limited program. (2) Makes separate expenditure calculations 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. (3) Adjusts expenditures for changes in severity and case mix using prospective HCC risk scores. (4) 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 for assignable beneficiaries identified for the 12-month calendar year corresponding to each benchmark year in order to minimize variation from catastrophically large claims. (5) Trends forward expenditures for each benchmark year (BY1 and BY2) to the third benchmark year (BY3) dollars using regional growth rates based on expenditures for the ACO’s regional service area as determined under paragraphs (e) and (f) of this section, making separate expenditure calculations 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. (6) Restates BY1 and BY2 trended and risk-adjusted expenditures in BY3 proportions of the following populations of beneficiaries: (i) ESRD. (ii) Disabled. VerDate Sep<11>2014 21:42 Jun 09, 2016 Jkt 238001 (iii) Aged/dual eligible Medicare and Medicaid beneficiaries. (iv) Aged/non-dual eligible Medicare and Medicaid beneficiaries. (7) Weights each benchmark year equally. (8) The ACO’s benchmark will be adjusted in accordance with § 425.118(b) for the addition and removal of ACO participants or ACO providers/suppliers during the term of the agreement period. To adjust the benchmark, CMS does the following: (i) Takes into account the expenditures for beneficiaries who would have been assigned to the ACO in any of the 3 most recent years prior to the agreement period using the most recent certified ACO participant list for the relevant performance year. (ii) Redetermines the regional adjustment amount under paragraph (c)(9) of this section, according to the ACO’s assigned beneficiaries for BY3 resulting from the most recent certified ACO participant list for the relevant performance year. (9) Adjusts the historical benchmark based on the ACO’s regional service area expenditures, making separate calculations for the following populations of beneficiaries: ESRD, disabled, aged/dual eligible Medicare and Medicaid beneficiaries, and aged/ non-dual eligible Medicare and Medicaid beneficiaries. CMS does all of the following: (i) Calculates an average per capita amount of expenditures for the ACO’s regional service area as follows: (A) Determines the counties included in the ACO’s regional service area based on the ACO’s BY3 assigned beneficiary population. (B) Determines the ACO’s regional expenditures as specified under paragraphs (e) and (f) of this section for BY3. (C) Adjusts for differences in severity and case mix between the ACO’s assigned beneficiary population and the assignable beneficiary population for the ACO’s regional service area identified for the 12-month calendar year that corresponds to BY3. (ii) Calculates the adjustment as follows: (A) Determines the difference between the average per capita amount of expenditures for the ACO’s regional service area as specified under paragraph (c)(9)(i) of this section and the average per capita amount of the ACO’s rebased historical benchmark determined under paragraphs (c)(1) through)(8) of this section, for each of the following populations of beneficiaries: (1) ESRD. PO 00000 Frm 00067 Fmt 4701 Sfmt 4700 38015 (2) Disabled. (3) Aged/dual eligible Medicare and Medicaid beneficiaries. (4) Aged/non-dual eligible Medicare and Medicaid beneficiaries. (B) Applies a percentage, determined as follows: (1) The first time an ACO’s benchmark is rebased using the methodology described under paragraph (c) of this section, CMS calculates the regional adjustment as follows: (i) Using 35 percent of the difference between the average per capita amount of expenditures for the ACO’s regional service area and the average per capita amount of the ACO’s rebased historical benchmark, if the ACO is determined to have lower spending than the ACO’s regional service area; (ii) Using 25 percent of the difference between the average per capita amount of expenditures for the ACO’s regional service area and the average per capita amount of the ACO’s rebased historical benchmark, if the ACO is determined to have higher spending than the ACO’s regional service area. (2) The second time that an ACO’s benchmark is rebased using the methodology described under paragraph (c) of this section, CMS calculates the regional adjustment to the historical benchmark as follows: (i) Using 70 percent of the difference between the average per capita amount of expenditures for the ACO’s regional service area and the average per capita amount of the ACO’s rebased historical benchmark, unless the Secretary determines a lower weight should be applied, if the ACO is determined to have lower spending than the ACO’s regional service area; (ii) Using 50 percent of the difference between the average per capita amount of expenditures for the ACO’s regional service area and the average per capita amount of the ACO’s rebased historical benchmark, if the ACO is determined to have higher spending than the ACO’s regional service area. (3) The third or subsequent time that an ACO’s benchmark is rebased using the methodology described under paragraph (c) of this section, CMS calculates the regional adjustment to the historical benchmark using 70 percent of the difference between the average per capita amount of expenditures for the ACO’s regional service area and the average per capita amount of the ACO’s rebased historical benchmark, unless the Secretary determines a lower weight should be applied. (4) To determine if an ACO has lower or higher spending compared to the ACO’s regional service area, CMS does the following: E:\FR\FM\10JNR4.SGM 10JNR4 asabaliauskas on DSK3SPTVN1PROD with RULES 38016 Federal Register / Vol. 81, No. 112 / Friday, June 10, 2016 / Rules and Regulations (i) Multiplies the difference between the average per capita amount of expenditures for the ACO’s regional service area and the average per capita amount of the ACO’s rebased historical benchmark for each population of beneficiaries (ESRD, Disabled, Aged/ dual eligible Medicare and Medicaid beneficiaries, Aged/non-dual eligible Medicare and Medicaid beneficiaries) as calculated under paragraph (c)(9)(ii)(A) of this section by the applicable proportion of the ACO’s assigned beneficiary population (ESRD, Disabled, Aged/dual eligible Medicare and Medicaid beneficiaries, Aged/non-dual eligible Medicare and Medicaid beneficiaries) for benchmark year 3 of the rebased historical benchmark. (ii) Sums the amounts determined in paragraph (c)(9)(ii)(B)(4)(i) of this section across the populations of beneficiaries (ESRD, Disabled, Aged/ dual eligible Medicare and Medicaid beneficiaries, Aged/non-dual eligible Medicare and Medicaid beneficiaries). (iii) If the resulting sum is a net positive value, the ACO is considered to have lower spending compared to the ACO’s regional service area. If the resulting sum is a net negative value, the ACO is considered to have higher spending compared to the ACO’s regional service area. (iv) If CMS adjusts the ACO’s benchmark for the addition or removal of ACO participants or ACO providers/ suppliers during the term of the agreement period as specified in paragraph (c)(8) of this section, CMS redetermines whether the ACO is considered to have lower spending or higher spending compared to the ACO’s regional service area for purposes of determining the percentage used in calculating the adjustment in paragraphs (c)(9)(ii)(B)(1) and (2) of this section. (10) The historical benchmark is further adjusted at the time of reconciliation for a performance year to account for changes in severity and case mix for newly and continuously assigned beneficiaries using prospective HCC risk scores and demographic factors as described under §§ 425.604(a)(1) through (3), 425.606(a)(1) through (3), and 425.610(a)(1) through (3). (d) For second or subsequent agreement periods beginning in 2017 and subsequent years, CMS updates the rebased historical benchmark under paragraph (c) of this section, annually for each year of the agreement period by the growth in risk adjusted regional per beneficiary FFS spending for the ACO’s regional service area by doing all of the following: VerDate Sep<11>2014 21:42 Jun 09, 2016 Jkt 238001 (1) Determining the counties included in the ACO’s regional service area based on the ACO’s assigned beneficiary population used to determine financial reconciliation for the relevant performance year. (2) Determining growth rates based on expenditures for counties in the ACO’s regional service area calculated under paragraphs (e) and (f) of this section, for the performance year compared to BY3 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. (3) Updating the benchmark by making separate calculations 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. (e) For second or subsequent agreement periods beginning in 2017 and subsequent years, CMS does all of the following to determine risk adjusted county fee-for-service expenditures for use in calculating the ACO’s regional fee-for-service expenditures: (1)(i) Determines average county feefor-service expenditures based on expenditures for the assignable population of beneficiaries in each county, where assignable beneficiaries are identified for the 12-month calendar year corresponding to the relevant benchmark or performance year. (ii) Makes separate expenditure calculations for each of the following populations of beneficiaries: (A) ESRD. (B) Disabled. (C) Aged/dual eligible Medicare and Medicaid beneficiaries. (D) Aged/non-dual eligible Medicare and Medicaid beneficiaries. (2) Calculates assignable beneficiary expenditures using the payment amounts included in Parts A and B feefor-service claims with dates of service in the 12-month calendar year for the relevant benchmark or performance year, using a 3-month claims run out with a completion factor. The calculation— (i) Excludes IME and DSH payments; and (ii) Considers individually beneficiary identifiable payments made under a demonstration, pilot or time limited program. (3) Truncates a beneficiary’s total annual Parts A and B fee-for-service per PO 00000 Frm 00068 Fmt 4701 Sfmt 4700 capita expenditures at the 99th percentile of national Medicare fee-forservice expenditures for assignable beneficiaries identified for the 12-month calendar year that corresponds to the relevant benchmark or performance year, in order to minimize variation from catastrophically large claims. (4) Adjusts fee-for-service expenditures for severity and case mix of assignable beneficiaries in the county using prospective CMS–HCC risk scores. The calculation is made according to 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. (f) For second or subsequent agreement periods beginning in 2017 and subsequent years, CMS calculates an ACO’s risk adjusted regional expenditures by— (1) Weighting the risk-adjusted county-level fee-for-service expenditures determined under paragraph (e) of this section according to the ACO’s proportion of assigned beneficiaries in the county, determined by the number of the ACO’s assigned beneficiaries in the applicable population (according to Medicare enrollment type) residing in the county in relation to the ACO’s total number of assigned beneficiaries in the applicable population (according to Medicare enrollment type) for the relevant benchmark or performance year 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. (2) Aggregating the values determined under paragraph (f)(1) of this section for each population of beneficiaries (according to Medicare enrollment type) across all counties within the ACO’s regional service area; and (3) Weighting the aggregate expenditure values determined for each population of beneficiaries (according to Medicare enrollment type) under paragraph (f)(2) of this section by a weight reflecting the proportion of the ACO’s overall beneficiary population in the applicable Medicare enrollment type for the relevant benchmark or performance year. ■ 8. Amend § 425.604 as follows: ■ A. In paragraphs (a)(1) and (a)(2)(i) and (ii) by removing the phrase ‘‘adjust for changes’’ and adding in its place the E:\FR\FM\10JNR4.SGM 10JNR4 Federal Register / Vol. 81, No. 112 / Friday, June 10, 2016 / Rules and Regulations phrase ‘‘adjust the benchmark for changes’’. ■ B. In paragraph (a)(3) introductory text by removing the phrase ‘‘In adjusting for health status’’ and adding in its place the phrase ‘‘In adjusting the benchmark for health status’’. ■ C. Redesignating paragraph (a)(4) as paragraph (a)(4)(i). ■ D. In newly redesignated paragraph (a)(4)(i) by removing the phrase ‘‘To minimize variation’’ and adding in its place the phrase ‘‘For performance years before 2017 to minimize variation’’. ■ E. Adding paragraph (a)(4)(ii). The addition reads as follows: § 425.604 Calculation of savings under the one-sided model. asabaliauskas on DSK3SPTVN1PROD with RULES (a) * * * (4) * * * (ii) For the 2017 performance year and subsequent performance years, 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-forservice expenditures as determined for the applicable performance year for assignable beneficiaries identified for the 12-month calendar year corresponding to the performance year. * * * * * ■ 9. Amend § 425.606 as follows: ■ A. In paragraphs (a)(1) and (a)(2)(i) and (ii) by removing the phrase ‘‘adjust for changes’’ and adding in its place the phrase ‘‘adjust the benchmark for changes’’. ■ B. In paragraph (a)(3) introductory text by removing the phrase ‘‘In adjusting for health status’’ and adding in its place the phrase ‘‘In adjusting the benchmark for health status’’. ■ C. Redesignating paragraph (a)(4) as paragraph (a)(4)(i). ■ D. In newly redesignated paragraph (a)(4)(i) by removing the phrase ‘‘To VerDate Sep<11>2014 21:42 Jun 09, 2016 Jkt 238001 minimize variation’’ and adding in its place the phrase ‘‘For performance years before 2017 to minimize variation’’. ■ E. Adding paragraph (a)(4)(ii). The addition reads as follows: § 425.606 Calculation of shared savings and losses under Track 2. (a) * * * (4) * * * (ii) For the 2017 performance year and subsequent performance years, 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-forservice expenditures as determined for the applicable performance year for assignable beneficiaries identified for the 12-month calendar year corresponding to the performance year. * * * * * ■ 10. Amend § 425.610 as follows: ■ A. In paragraphs (a)(1) and (a)(2)(i) and (ii) by removing the phrase ‘‘adjust for changes’’ and adding in its place the phrase ‘‘adjust the benchmark for changes’’. ■ B. In paragraph (a)(3) introductory text by removing the phrase ‘‘In adjusting for health status’’ and adding in its place the phrase ‘‘In adjusting the benchmark for health status’’. ■ C. Redesignating paragraph (a)(4) as paragraph (a)(4)(i). ■ D. In newly redesignated paragraph (a)(4)(i) by removing the phrase ‘‘To minimize variation’’ and adding in its place the phrase ‘‘For performance years before 2017 to minimize variation’’. ■ E. Adding paragraph (a)(4)(ii). The addition reads as follows: § 425.610 Calculation of shared savings and losses under Track 3. (a) * * * (4) * * * PO 00000 Frm 00069 38017 (ii) For the 2017 performance year and subsequent performance years, 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-forservice expenditures as determined for the applicable performance year for assignable beneficiaries identified for the 12-month calendar year corresponding to the performance year. * * * * * § 425.800 [Amended] 11. Amend § 425.800 as follows: A. In paragraph (a)(4) by— ■ i. Removing the phrase ‘‘The determination of whether’’ and adding in its place the phrase ‘‘The initial determination or revised initial determination of whether’’. ■ ii. Removing the phrase ‘‘including the determination’’ and adding in its place the phrase ‘‘including the initial determination or revised initial determination’’. ■ iii. Removing the cross-reference ’’§ 425.602, § 425.604, and § 425.606’’ and adding in its place the crossreference ‘‘§§ 425.602, 425.604, 425.606, and 425.610’’. ■ B. In paragraph (a)(5) by removing the cross-reference ‘‘§ 425.604 and 425.606’’ and adding in its place ‘‘§§ 425.604, 425.606, and 425.610’’. ■ ■ Dated: May 27, 2016. Andrew M. Slavitt, Acting Administrator, Centers for Medicare & Medicaid Services. Dated: June 3, 2016. Sylvia M. Burwell, Secretary, Department of Health and Human Services. [FR Doc. 2016–13651 Filed 6–6–16; 4:15 pm] BILLING CODE 4120–01–P Fmt 4701 Sfmt 9990 E:\FR\FM\10JNR4.SGM 10JNR4

Agencies

[Federal Register Volume 81, Number 112 (Friday, June 10, 2016)]
[Rules and Regulations]
[Pages 37949-38017]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-13651]



[[Page 37949]]

Vol. 81

Friday,

No. 112

June 10, 2016

Part V





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--Revised Benchmark Rebasing Methodology, Facilitating 
Transition to Performance-Based Risk, and Administrative Finality of 
Financial Calculations; Final Rule

Federal Register / Vol. 81 , No. 112 / Friday, June 10, 2016 / Rules 
and Regulations

[[Page 37950]]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Part 425

[CMS-1644-F]
RIN 0938-AS67


Medicare Program; Medicare Shared Savings Program; Accountable 
Care Organizations--Revised Benchmark Rebasing Methodology, 
Facilitating Transition to Performance-Based Risk, and Administrative 
Finality of Financial Calculations

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

ACTION: Final rule.

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SUMMARY: Under the Medicare Shared Savings Program (Shared Savings 
Program), providers of services and suppliers that participate in an 
Accountable Care Organization (ACO) continue to receive traditional 
Medicare fee-for-service (FFS) payments under Parts A and B, but the 
ACO may be eligible to receive a shared savings payment if it meets 
specified quality and savings requirements. This final rule addresses 
changes to the Shared Savings Program, including: Modifications to the 
program's benchmarking methodology, when resetting (rebasing) the ACO's 
benchmark for a second or subsequent agreement period, to encourage 
ACOs' continued investment in care coordination and quality 
improvement; an alternative participation option to encourage ACOs to 
enter performance-based risk arrangements earlier in their 
participation under the program; and policies for reopening of payment 
determinations to make corrections after financial calculations have 
been performed and ACO shared savings and shared losses for a 
performance year have been determined.

DATES: Effective date: The provisions of this final rule are effective 
on August 9, 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: Elizabeth November, (410) 786-8084. 
Email address: aco@cms.hhs.gov.

SUPPLEMENTARY INFORMATION: Table 1 lists key changes that have an 
applicability date other than 60 days after the date of publication of 
this final rule. By indicating that 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 or agreement period.

   Table 1--Applicability Dates of Select Provisions of the Final Rule
------------------------------------------------------------------------
                              Section title/
    Preamble section           description          Applicability date
------------------------------------------------------------------------
II.A.2.................  Integrating regional     Second or subsequent
                          factors in resetting     agreement periods
                          ACO benchmarks.          beginning in 2017 and
                                                   subsequent years.
II.A.2.e.3.............  For factors based on     Agreement periods
                          National FFS             beginning in 2017 and
                          expenditures used in     subsequent years. For
                          establishing the ACO's   2014 starters
                          historical benchmark:    electing the
                          Use expenditures for     participation option
                          assignable               to defer by 1 year
                          beneficiaries to         entrance into a
                          determine trend          second agreement
                          factors and truncation   period under a two-
                          thresholds.              sided model, 2015
                                                   starters, and 2016
                                                   starters/renewals,
                                                   historical benchmarks
                                                   will be adjusted for
                                                   the 2017 performance
                                                   year and any
                                                   subsequent years in
                                                   the current agreement
                                                   period.
II.A.2.e.3.............  For factors based on     Performance year 2017
                          National FFS             and subsequent
                          expenditures used in     performance years.
                          benchmark calculations
                          and performance year
                          expenditure
                          calculations during
                          the agreement period:
                          Use expenditures for
                          assignable
                          beneficiaries to
                          determine the annual
                          benchmark update, and
                          the truncation
                          thresholds for
                          determining
                          performance year
                          expenditures.
II.C...................  An additional            Second agreement
                          participation option     period beginning in
                          that would allow         2017 and subsequent
                          eligible Track 1 ACOs    years.
                          to defer by 1 year
                          their entrance into a
                          performance-based risk
                          model (Track 2 or 3)
                          for their second
                          agreement period.
------------------------------------------------------------------------

Acronyms

ACO Accountable Care Organization
APM Alternative Payment Model
AWI Area Wage Index
BY Benchmark Year
CAHPS Consumer Assessment of Healthcare Providers and Systems
CBSA Core Based Statistical Area
CMS Centers for Medicare & Medicaid Services
CSA Combined Statistical Area
CY Calendar Year
DSH Disproportionate Share Hospital
ESRD End Stage Renal Disease
FFS Fee for service
GAO Government Accountability Office
GPCI Geographic Practice Cost Index
HCC Hierarchical Condition Category
IME Indirect Medical Education
MA Medicare Advantage
MACRA Medicare Access and CHIP Reauthorization Act of 2015
MedPAC Medicare Payment Advisory Commission
MIPS Merit-Based Incentive Payment System
MLR Minimum Loss Rate
MSA Metropolitan Statistical Area
MSR Minimum Savings Rate
NPI National Provider Identifier
OACT Office of the Actuary
PGP Physician Group Practice
PUF Public Use File
PY Performance Year
RHC Rural Health Clinic
RIA Regulatory Impact Analysis
TIN Taxpayer Identification Number

I. Executive Summary and Background

A. Executive Summary

1. Purpose

    Section 1899 of the Social Security Act (the Act) established the 
Shared Savings Program, which promotes accountability for a patient 
population, fosters coordination of items and services under Medicare 
Parts A and B, and encourages investment in infrastructure and 
redesigned care processes for high quality and efficient health care 
service delivery. We published the proposed rule entitled ``Medicare 
Program; Medicare Shared Savings Program; Accountable Care 
Organizations--Revised Benchmark Rebasing Methodology, Facilitating

[[Page 37951]]

Transition to Performance-Based Risk, and Administrative Finality of 
Financial Calculations'' (2016 proposed rule), which appeared in the 
February 3, 2016 Federal Register (81 FR 5824). In the 2016 proposed 
rule, we proposed changes to the regulations for the Shared Savings 
Program that were promulgated in November 2011 and June 2015, and 
codified at 42 CFR part 425. Our intent in this rulemaking is to make 
refinements to the Shared Savings Program to address concerns raised by 
stakeholders regarding the benchmarking methodology, and to establish 
additional options for ACOs to enter performance-based risk 
arrangements, as well as to address policies for reopening of payment 
determinations to make corrections after financial calculations have 
been performed and ACO shared savings and shared losses for a 
performance year have been determined.
2. Summary of the Major Provisions
    The policies adopted in this final rule are designed to improve 
program function and transparency in the following areas:
     Modifying the methodology for rebasing and updating ACO 
historical benchmarks when an ACO renews its participation agreement 
for a second or subsequent agreement period to incorporate regional 
expenditures, thereby making the ACO's cost target more independent of 
its historical expenditures and more reflective of FFS spending in its 
region.
     Applying a methodology for risk adjustment to account for 
the health status of the ACO's assigned population in relation to FFS 
beneficiaries in the ACO's regional service area in determining the 
regional adjustment that is applied to the ACO's rebased historical 
benchmark.
     Adding a participation agreement renewal option to 
encourage ACOs to enter performance-based risk arrangements earlier in 
their participation in the Shared Savings Program.
     Defining circumstances under which we would reopen payment 
determinations to make corrections after the financial calculations 
have been performed and ACO shared savings and shared losses for a 
performance year have been determined.
    Although we proposed revisions to the methodology for adjusting ACO 
benchmarks to account for changes in ACO participant (TIN) composition, 
we will not finalize that proposal and are deferring any revisions to 
the methodology until future rulemaking. However, we are finalizing 
conforming changes to the current methodology for adjusting ACO 
benchmarks for ACO Participant List changes, to specify that the 
regional adjustment to the ACO's rebased historical benchmark will be 
redetermined annually using the most recent certified ACO Participant 
List for the relevant performance year.
3. Summary of Costs and Benefits
    As a result of this final rule, the median estimate of the 
financial impact of the Shared Savings Program for CYs 2017 through 
2019 is net federal savings of $110 million greater than what would 
have been saved if no changes were made. Although this is the best 
estimate of the financial impact of the Shared Savings Program during 
CYs 2017 through 2019, a relatively wide range of possible outcomes 
exists. While approximately two-thirds of the stochastic trials 
resulted in an increase in net program savings, the 10th and 90th 
percentiles of the estimated distribution show a net increase in costs 
of $240 million to net savings of $480 million, respectively.
    Overall, our analysis projects that improvements in the accuracy of 
benchmark calculations, including through the introduction of a 
regional adjustment to the ACO's rebased historical benchmark, are 
expected to result in increased overall participation in the program. 
These changes are also expected to improve the incentive for ACOs to 
invest in effective care management efforts, increase the 
attractiveness of participation under performance-based risk in Track 2 
or 3 for certain ACOs with lower beneficiary expenditures, and result 
in overall greater gains in savings on FFS benefit claims costs than 
the associated increase in expected shared savings payments to ACOs. We 
intend to monitor emerging results for effects on claims costs, 
changing participation (including risk for cost due to selective 
changes in participation), and unforeseen bias in benchmark adjustments 
due to diagnosis coding intensity shifts. Such monitoring will be used 
to inform future rulemaking, such as if the Secretary determines that a 
lower weight should be used in calculating the regional adjustment 
amount.

B. 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 Public Law 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.
    Section 3022 of the Affordable Care Act amended Title XVIII of the 
Act (42 U.S.C. 1395 et seq.) by adding 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. 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. Consistent with the purpose of 
the Shared Savings Program, in establishing the 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 published the final rule entitled ``Medicare Program; Medicare 
Shared Savings Program: Accountable Care Organizations'' (November 2011 
final rule), which appeared in the November 2, 2011 Federal Register 
(76 FR 67802) to establish the program. We viewed this 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 (Innovation Center) under section 1115A of the 
Act.
    Thereafter, we published a subsequent final rule entitled 
``Medicare Program; Medicare Shared Savings Program: Accountable Care 
Organizations'' (June 2015 final rule), which appeared in the June 9, 
2015 Federal Register (80 FR 32692). In that rule, we adopted policies 
designed to codify existing guidance, reduce

[[Page 37952]]

administrative burden, and improve program function and transparency in 
a number of areas, such as eligibility for program participation and 
data sharing. Additionally, we modified policies related to the 
financial model, in response to stakeholder feedback, to encourage 
greater and continued ACO participation, for example, by offering ACOs 
the opportunity to continue participating under the one-sided model for 
a second agreement period, modifying the existing two-sided 
performance-based risk track (Track 2), and offering an alternative 
two-sided performance-based risk track (Track 3). Track 3 includes 
prospective beneficiary assignment and a higher sharing rate for shared 
savings as well as the potential for greater liability for shared 
losses, among other features, informed by CMS' experience with the 
Pioneer ACO Model. We finalized new policies for resetting an ACO's 
financial benchmark in a second or subsequent agreement period, by 
adding back a portion of the ACO's savings generated during the 
previous agreement period and equally weighting the historical 
benchmark years, to encourage ACOs to seek to continue their 
participation in the program and to address stakeholder concerns about 
the benchmark rebasing methodology. We also stated our intention to 
address other modifications to program rules in future rulemaking in 
the near term including modifying the methodology for resetting 
benchmarks by incorporating regional trends and costs.
    We are encouraged by the high degree of interest in participation 
in the Shared Savings Program. As of January 1, 2016, over 400 ACOs 
were participating in the Shared Savings Program. This includes 147 
ACOs with 2012 and 2013 agreement start dates that entered into a new 
3-year agreement effective January 1, 2016, to continue their 
participation in the program, and 100 ACOs that entered the program for 
a first agreement period beginning January 1, 2016. See Fact Sheet: CMS 
Welcomes New Medicare Shared Savings Program (Shared Savings Program) 
Participants, (January 11, 2016) available online at https://www.cms.gov/Newsroom/MediaReleaseDatabase/Fact-sheets/2016-Fact-sheets-items/2016-01-11-2.html.
    We continue to look to experience gained by the Innovation Center 
in testing ACO models. In January 2016, we announced that 21 ACOs would 
be participating in the first performance year of the Next Generation 
ACO Model, a new ACO initiative being tested by the Innovation Center. 
The Next Generation ACO Model allows ACOs that are experienced in 
coordinating care for populations of patients to assume higher levels 
of financial risk and reward than are available under the Pioneer ACO 
Model and Shared Savings Program. See HHS press release: New hospitals 
and health care providers join successful, cutting-edge federal 
initiative that cuts costs and puts patients at the center of their 
care (January 11, 2016) available online at https://www.hhs.gov/about/news/2016/01/11/new-hospitals-and-health-care-providers-join-successful-cutting-edge-federal-initiative.html.
    In the 2016 proposed rule (81 FR 5824), we proposed further 
modifications to the program's regulations, addressing several policy 
areas that we believed should be revisited in light of the additional 
experience we have gained during program implementation, including the 
methodology for resetting benchmarks, participation options to 
encourage ACOs to enter performance-based risk tracks, and reopening of 
payment determinations to make corrections.

II. Provisions of the Final Regulations and Responses to Public 
Comments

    We received a total of 74 timely comments on the 2016 proposed rule 
(81 FR 5824). Stakeholders offered comments that addressed both high 
level issues related to the Shared Savings Program as well as our 
specific proposals and requests for comments. We extend our deep 
appreciation to the public for their interest in the program and the 
many thoughtful comments that were made in response 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 
Shared Savings Program quality performance standard; suggestions for 
implementing the Skilled Nursing Facility (SNF) 3-day rule waiver for 
eligible Shared Savings Program ACOs; requests to modify the approach 
used to account for the costs of Critical Access Hospitals 
participating in Shared Savings Program ACOs; suggestions for limiting 
the liability of individual providers for shared losses incurred by 
ACOs; suggestions for modifying the financial incentives within the 
Shared Savings Program to encourage ACOs to use innovative treatments, 
technologies and diagnostics; suggestions for CMS to provide greater 
support for beneficiary engagement in their health care; and 
suggestions for the development of regulations pursuant to the Medicare 
Access and CHIP Reauthorization Act of 2015 (MACRA). 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 this 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: Some commenters are encouraged by the momentum of the 
program in attracting organizations and advancing our goal of 
transitioning providers away from traditional FFS to arrangements 
focused on value-based payments. However, some pointed to the 
statistics on the number of ACOs eligible for shared savings payments 
in the initial performance years of the Shared Savings Program and the 
attrition rate from the program as evidence of the need for changes to 
the program including: (1) Policy changes to provide greater rewards to 
ACOs for their cost reductions and quality improvements for Medicare 
beneficiaries; (2) policy options to reward organizations of differing 
provider compositions, sophistication and cost history; and (3) 
additional resources from CMS, such as more timely and actionable data, 
to support their success. Commenters addressing the sustainability of 
the program over the longer term often pointed to the intersections of 
various policy factors as being influential, most commonly the need for 
a benchmarking methodology that allows ACOs to continue to generate 
sufficient returns over time to support their care coordination and 
quality improvement activities to meet the program's goals, and the 
need for policies to reduce beneficiary churn in an ACO's assigned 
beneficiary population (for example, through prospective beneficiary 
assignment in all program Tracks and implementation of an attestation 
process for beneficiaries to voluntarily align to an ACO). Some 
commenters underscored the challenges for ACOs in moving FFS providers 
towards payment models based on value instead of volume and for already 
efficient organizations to realize further reward within the Shared 
Savings Program.
    In general, some commenters pointed to the need for sufficient 
stability and predictability in the program to

[[Page 37953]]

effectively drive ACOs to enter performance-based risk models. Some 
commenters, including commenters representing rural providers, 
suggested CMS consider allowing ACOs to remain under a one-sided model 
for a long period, and perhaps even indefinitely, particularly ACOs 
that continue to generate savings.
    Response: We thank all commenters for helping us continue to 
develop the Shared Savings Program. We appreciate commenters' support 
for the program generally, as well as their thoughtful remarks on 
overarching considerations for the future of the Shared Savings 
Program.
    The ACOs participating in the Shared Savings Program are recognized 
as being a critical part of the Administration's goal to help drive 
Medicare and the health care system at large towards rewarding the 
quality of care as opposed to the quantity of care provided to 
beneficiaries. In January 2015, the Administration announced an 
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 (https://www.cms.gov/Newsroom/MediaReleaseDatabase/Fact-sheets/2015-Fact-sheets-items/2015-01-26-3.html). In March 2016, the Administration 
announced that it estimated having achieved this first goal, 11 months 
ahead of schedule, in part a result of entry by new ACOs in CMS ACO 
initiatives including the Shared Savings Program (https://www.cms.gov/Newsroom/MediaReleaseDatabase/Fact-sheets/2016-Fact-sheets-items/2016-03-03-2.html).
    With these goals in mind, we believe this final rule will further 
strengthen the Shared Savings Program. In particular we believe it is 
critical to ensuring the sustainability of the program to make an ACO's 
benchmark incrementally less dependent on the ACO's historical spending 
and more reflective of spending in the ACO's region as the ACO 
continues in the program for multiple agreement periods. We also 
believe that the benchmarking methodology is only one of several 
factors that are important to ACOs' success in the Shared Savings 
Program. For example, we believe refinements to the Shared Savings 
Program's data sharing policies, finalized in the June 2015 final rule, 
including a streamlined process for ACOs to access Medicare beneficiary 
claims data and expanding the data that is made available through 
informational program reports, will facilitate ACOs' health care 
operations. Further, we believe that ACOs are more likely to become 
successful in achieving the goals of the accountable care model over 
time, as indicated by performance results showing that ACOs with more 
experience in the program are more likely to generate shared savings 
(CMS Fact Sheet: Medicare ACOs Provide Improved Care While Slowing Cost 
Growth in 2014, available online at https://www.cms.gov/Newsroom/MediaReleaseDatabase/Fact-sheets/2015-Fact-sheets-items/2015-08-25.html).
    We also recognize the needs of the Shared Savings Program are 
dynamic and will continue to change as CMS and ACOs gain more 
experience with the accountable care model being implemented on a 
national scale. We welcome and encourage stakeholders' engagement with 
CMS on future program improvements and policy considerations, including 
through the rulemaking process.
    Comment: Some commenters requested that CMS address broader market 
dynamics, particularly in relation to aligning financial and quality 
targets between the Shared Savings Program and Medicare Advantage (MA). 
Several commenters pointed to this alignment as allowing for more 
equitable comparison between traditional FFS Medicare, MA and ACOs. 
Some pointed to the need for this alignment when indicating that Shared 
Savings Program ACOs and MA plans compete. A commenter explained that 
competition between traditional FFS Medicare, ACOs and MA plans would 
maximize value for Medicare beneficiaries and the Medicare program.
    Response: We appreciate commenters' continued interest in 
developing the design of the Shared Savings Program to foster greater 
comparability between Medicare payment models. As explained in the June 
2015 final rule, we continue to believe there are important 
distinctions between MA plans and the accountable care model in the 
Shared Savings Program. The Shared Savings Program is not a managed 
care program like MA. Under the Shared Savings Program, providers and 
suppliers receive traditional FFS Medicare payments, and Medicare FFS 
beneficiaries retain all rights and benefits under traditional 
Medicare, including the right to see any physician of their choosing. 
In addition, Medicare FFS beneficiaries do not enroll in the Shared 
Savings Program (see 80 FR 32696). However, in the 2016 proposed rule 
we acknowledged that one consideration in developing the proposed 
methodology for use of county-FFS data in calculating expenditures for 
an ACO's regional service area was to align more closely with the MA 
ratesetting methodology (see 81 FR 5829). Although we have relied on 
our experience in other Medicare programs, including MA, 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 MA or other Medicare programs (see 80 FR 32697).
    As discussed elsewhere in this final rule, we are finalizing, with 
certain modifications, our proposal to determine an ACO's regional FFS 
expenditures based on the county FFS expenditures for the ACO's 
regional service area for populations of beneficiaries according to 
Medicare enrollment type (ESRD, disabled, aged/dual eligible, aged/non-
dual eligible). Although this approach differs from the MA rate-setting 
methodology (with respect to calculation of values for the ESRD 
population, and the number of years of data used in the calculating 
county FFS expenditures), we believe it continues to be a substantial 
step towards aligning the Shared Savings Program benchmarking 
methodology with the MA rate-setting methodology.

A. Modifications to the Benchmarking Methodology

1. Background on Establishing, Updating, and Resetting the Benchmark
    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 3 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 FFS program, as estimated by the Secretary. Such 
benchmark shall be reset at the start of each agreement period. In 
addition to the statutory benchmarking methodology established in 
section 1899(d) of the Act, 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

[[Page 37954]]

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.
    In the November 2011 final rule establishing the Shared Savings 
Program, we adopted policies for establishing, updating and resetting 
the benchmark at Sec.  425.602. Under this methodology, we use national 
FFS spending and trends as part of establishing, updating and resetting 
ACO-specific benchmarks. Specifically, we calculate a benchmark for 
each ACO using a risk-adjusted average of per capita Parts A and B 
expenditures for original Medicare FFS beneficiaries who would have 
been assigned to the ACO in each of the 3 calendar years prior to the 
start of the agreement period. In calculating an ACO's benchmark 
expenditures, we include individually beneficiary identifiable payments 
made under a demonstration, pilot or time limited program, and we make 
an adjustment to exclude IME payments and DSH and uncompensated care 
payments. We trend forward each of the first 2 benchmark years' 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). In 
establishing the benchmark for an ACO's first agreement period, 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.
    For each performance year, we adjust the ACO's historical benchmark 
for changes in the health status and demographic factors of the ACO's 
assigned beneficiaries (Sec.  425.604(a), Sec.  425.606(a), Sec.  
425.610(a)). Consistent with section 1899(d)(1)(B)(ii) of the Act, we 
update the ACO's benchmark annually, based on our estimate of the 
projected absolute amount of growth in national per capita expenditures 
for Parts A and B services under the original FFS program. 
Additionally, as described further in section II.B of this final rule, 
we also adjust ACO historical benchmarks annually based on changes to 
the ACO's certified ACO Participant List. In making this adjustment, 
the historical benchmark period remains constant, but beneficiary 
assignment is revised to reflect the influence of the ACO Participant 
List changes.
    In trending forward the historical benchmark, adjusting for changes 
in beneficiary characteristics, and annually updating the benchmark by 
growth in national per capita Medicare FFS expenditures, we make 
calculations for populations of beneficiaries in each of the following 
Medicare enrollment types: ESRD, disabled, aged/dual eligible, aged/
non-dual eligible. Furthermore, 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 for the 
applicable Medicare enrollment type (ESRD, disabled, aged/dual 
eligible, aged/non-dual eligible).
    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 new agreement period. In the June 2015 final 
rule, we revised Sec.  425.602(c) to specify that in resetting the 
historical benchmark for ACOs in their second or subsequent agreement 
period we: (1) Weight each benchmark year equally; and (2) make an 
adjustment to reflect the average per capita amount of savings earned 
by the ACO in its prior agreement period, reflecting the ACO's 
financial and quality performance, during that prior agreement period. 
The additional per capita amount is applied as an adjustment 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 prior agreement period. If an ACO was not determined to have 
generated net savings in its prior agreement period, we do not make any 
adjustment to the ACO's rebased historical benchmark. We use 
performance data from each of the ACO's performance years under its 
prior agreement period in resetting the ACO's benchmark for its second 
or subsequent agreement period. In the June 2015 final rule, in which 
this adjustment was finalized, we stated that we believed it would 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 future changes to the benchmarking methodology to 
incorporate regional FFS expenditures (see 80 FR 32791; see also 80 FR 
32795 through 32796).
    The June 2015 final rule also included a discussion of several 
options and methods for incorporating regional factors when 
establishing, updating, and resetting the benchmark, and CMS committed 
to engaging in additional rulemaking around modifications to the Shared 
Savings Program's methodology for resetting benchmarks (see 80 FR 32791 
through 32796; see also 79 FR 72839 through 72843 (discussing options 
for revising the methodology for resetting an ACO's historical 
benchmark)). The 2016 proposed rule expanded upon the issues discussed 
in the June 2015 final rule. The proposed changes (reviewed in greater 
detail within this final rule) focused on incorporating regional FFS 
expenditures into the methodology for establishing, adjusting, and 
updating an ACO's historical benchmark for its second or subsequent 
agreement period.
2. Integrating Regional Factors When Resetting ACOs' Benchmarks
a. Overview
    In the June 2015 final rule, we summarized comments received on 
three approaches to account for regional FFS expenditures in ACO 
benchmarks and technical issues related to these alternatives (80 FR 
32791 through 32796). We committed to engaging in additional rulemaking 
to propose modifications to the Shared Savings Program's methodology 
for resetting ACO benchmarks. We signaled our anticipated policy 
direction by outlining an approach to rebasing that would account for 
regional expenditures and identified additional methodological issues 
we would need to address in implementing this approach (80 FR 32795 
through 32796).
    In the 2016 proposed rule, we acknowledged that any proposed 
changes to the benchmark rebasing policies would require consideration 
of tradeoffs among several criteria that were initially described in 
the June 2015 final rule (81 FR 5828):
     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.
     Generating benchmarks that reflect ACOs' actual costs in 
order to avoid potential selective participation by (and excessive 
shared payments to) ACOs with high benchmarks.

[[Page 37955]]

    Further, we explained the addition of the following guiding 
principles to our considerations for modifying the benchmarking 
methodology (81 FR 5828):
     Transparency: Developed based on identifiable sources of 
data, and where possible publicly available data and data sets, in 
order to allow stakeholders to understand and model impacts.
     Predictability: Enable ACOs to anticipate their updated 
benchmark targets and their likely performance under the program.
     Simplicity: Methodology can be explained in relatively 
simple terms and in sufficient detail to be readily understood by ACOs 
and stakeholders.
     Accuracy: Methodology generates benchmarks that are an 
accurate reflection of the ACOs' expenditures and relevant regional 
expenditures, and can be accurately implemented and calculated, 
validated and disseminated in a timely manner.
     Maintain program momentum and market stability by 
providing sufficient notice of methodological changes and phase-in of 
these changes.
    Applying these principles, we proposed the following changes, to 
the methodology for resetting an ACO's benchmark for a second or 
subsequent agreement period beginning on or after January 1, 2017:
     Replace the national trend factors with regional trend 
factors for establishing the ACO's rebased historical benchmark, and 
remove the adjustment to explicitly account for savings generated under 
the ACO's prior agreement period.
     Make an adjustment when establishing the ACO's rebased 
historical benchmark, to reflect a percentage of the difference between 
regional FFS expenditures in the ACO's regional service area and the 
ACO's historical expenditures. A higher percentage would be used in 
calculating this adjustment to the ACO's rebased historical benchmark 
for the ACO's third agreement period and all subsequent agreement 
periods. We further proposed to apply this phased approach to 
transitioning to the use of a higher weight in the calculation of the 
regional adjustment for ACOs with 2012 and 2013 agreement start dates 
that elected to continue their participation in the program for a 
second 3-year agreement period effective January 1, 2016, beginning in 
their third agreement period (starting in 2019).
     Annually, update the rebased benchmark to account for 
changes in regional FFS spending, replacing the current update, which 
is based solely on the absolute amount of projected growth in national 
FFS spending.
    We proposed to define an ACO's regional service area to include any 
county where one or more assigned beneficiaries reside and to weight 
county-level FFS costs by the proportion of the ACO's assigned 
beneficiaries in the county. We proposed to calculate risk adjusted 
county FFS expenditures for the ACO's regional service area using the 
assignable beneficiary population, as a subset of the broader FFS 
population, residing in counties included in the ACO's regional service 
area. We proposed to align the calculation of regional FFS expenditures 
with the approach to calculating an ACO's benchmark and performance 
year expenditures. We also proposed a program-wide policy, to use 
beneficiaries eligible for ACO assignment instead of all FFS 
beneficiaries as the basis for program calculations using regional and 
national FFS expenditures. As part of the process of incorporating the 
revised rebasing methodology, we also proposed a number of technical 
changes to the program regulations to clarify the regulations text on 
the benchmarking methodology.
    In the 2016 proposed rule we explained that the proposed approach 
to incorporating regional expenditures would make the ACO's cost target 
more independent of its historical expenditures and more reflective of 
FFS spending in its region (81 FR 5825). We also explained that adding 
the regional adjustment and replacing the current benchmark trend 
factor and annual update (calculated based on National FFS 
expenditures) with regional growth rates, would have mixed effects on 
ACOs overall by increasing or decreasing benchmarks for ACOs in various 
circumstances. For example, we explained that the proposed regional 
adjustment would likely benefit existing low spending ACOs operating in 
regions with relatively higher spending and/or higher growth in 
expenditures (81 FR 5834). We further explained that a phased-approach 
to transitioning to use of a higher weight in the calculation of the 
regional adjustment balanced our preference for quickly transitioning 
ACOs to a rebasing methodology that is more reflective of expenditures 
in the ACO's region than the ACO's historical expenditures with our 
concerns about the opportunity for arbitrage, and the potential for 
ACOs to alter their healthcare provider and beneficiary compositions or 
take other such actions in order to achieve more favorable performance 
relative to their region without actually changing their efficiency (81 
FR 5834 through 5836). We also explained that the use of regional trend 
factors in resetting ACO benchmarks and regional growth rates to update 
benchmarks annually would likely result in relatively higher benchmarks 
for ACOs that are low growth in their region compared to benchmarks for 
ACOs that are high growth relative to their region (81 FR 5838 through 
5840).
    We anticipated these changes would strengthen the incentives for 
ACOs to invest in infrastructure and care redesign necessary to improve 
quality and efficiency and meet the goals of the Shared Savings Program 
(81 FR 5859). However, we expressed uncertainty about the effect on the 
level of ACO participation, provider and supplier response to the 
financial incentives under the program, interactions with other value-
based payment models and programs, and the ultimate effectiveness of 
the changes in care delivery (81 FR 5860).
    In section II.A.2 of this final rule, we discuss our final actions 
on the proposals for modifying the Shared Savings Program benchmarking 
methodology. Table 2 summarizes the final actions discussed in this 
section of the final rule. We begin this discussion by addressing 
comments on broader considerations for revising the benchmarking 
methodology.
    Comment: Most commenters addressed the proposed changes to the 
benchmarking methodology, with the majority expressing support, in 
general, for incorporating regional FFS expenditures into ACOs' 
benchmarks. Many commenters offered specific suggestions on the 
proposed policies.
    Some commenters detailed concerns, more generally, about the 
sustainability of the current rebasing methodology. A principal concern 
raised by commenters is that the current rebasing methodology forces 
ACOs to continually beat their own performance, by using historical 
expenditures from the performance years under an ACO's prior agreement 
period to reset the benchmark. Commenters raised a variety of concerns 
about the effects of this approach, including: ACOs that have performed 
well in the past are penalized under this methodology, while those who 
have performed poorly are rewarded; ACOs with lower spending have 
relatively lower benchmarks (and less opportunity for reward) compared 
to those with higher historical spending, including ACOs operating in 
different markets (with differing spending trends) as well as ACOs 
operating within the same market; over time there will be

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diminishing opportunities to produce savings, that are used in part to 
support ACO operations (including investments that result in the 
provision of high value care), and ACOs will ultimately be forced to 
leave the program or participation in the program will be discouraged 
more generally. Many commenters explained that making an ACO's 
benchmark more independent of its historical expenditures and 
performance and more reflective of FFS spending and the healthcare 
environment in the ACO's region would be an improvement over the 
current approach.
    Several commenters recognized that incorporating regional factors 
when resetting ACO benchmarks accounts for geographic variation in 
healthcare utilization. While some commenters considered this a 
necessary methodological development to ensure the sustainability of 
the Shared Savings Program, a commenter specified that this would be 
antithetical to CMS' larger goal of decreasing variability in per 
beneficiary spending on a nationwide scale. A commenter suggested CMS 
delay finalizing the proposed changes in light of CMS' concerns 
(including the potential for arbitrage or behavioral changes by ACOs) 
and the uncertainties about the impact of the alternative rebasing 
methodology, and further suggested CMS revisit the proposed changes in 
future rulemaking, after further analysis and once the Merit-Based 
Incentive Payment System (MIPS) and Alternative Payment Model (APM) 
requirements are proposed. However, even among those commenters that 
raised concerns about the details of the proposed policies, very few 
suggested that CMS abandon altogether an approach for incorporating 
regional FFS expenditures into ACO benchmarks.
    The discussion in the comments also reflects commenters' 
consideration of the tradeoffs CMS identified in the proposed rule 
related to providing sufficiently strong incentives for ACOs to improve 
efficiency and continue participation in the program, while guarding 
the Trust Funds against the possibility that over inflating certain 
ACOs' reset benchmarks would result in selective participation by and 
excessive payments to ACOs with high benchmarks. Commenters illuminated 
that the balance of these concerns is complicated due to the diversity 
of the program's participants and regional variations/market 
circumstances.
    Many commenters recognized that the benchmarking methodology, 
including any changes adopted in this final rule, will be crucial for 
determining the profile/characteristics of organizations that will have 
an incentive to enter and remain in the program over time. Comments 
discussed the effects of the proposed changes to the benchmarking 
methodology, including the following:
     Many commenters generally agreed that the proposed changes 
would encourage participation by ACOs that are historically efficient 
(low spending) in relation to their region, especially in high spending 
regions. Many commenters expressed support for the proposed policies to 
encourage participation by efficient ACOs. However, some commenters 
believe the resulting incentives would still be inadequate to encourage 
these ACOs to enter or remain in the program over the long term, citing 
concerns about diminishing returns when a component of the ACO's 
rebased historical benchmark continues to be based on expenditures 
under the ACO's prior agreement period and thereby reflects the ACO's 
past success.
     Some commenters expressed concern there may be little 
incentive for ACOs with spending equal to or higher than their region 
to enter the Shared Savings Program or continue participating under the 
proposals.
     Several commenters expressed concerns that the proposed 
changes could disadvantage certain ACOs, especially those in ACO-heavy 
markets and ACOs in existing low cost regions, as well as smaller ACOs 
comprised of geographically distant small- and mid-sized providers.
     Others expressed concern about the potential that the 
proposed changes would have unanticipated effects on particular 
organizations, pointing to the discussion in the proposed rule that ``a 
wide range of potential outcomes'' exist regarding financial 
performance under the proposed changes. Some commenters expressed 
uncertainty about the potential effects of the proposed changes and 
indicated that they lacked sufficient information to determine what 
outcomes they may have.
    Some commenters addressed these concerns by suggesting CMS offer 
various benchmarking options to allow ACOs greater flexibility in 
determining the methodology that would be applied to determine their 
benchmark. Some commenters also suggested CMS stratify the regional 
benchmarking methodologies for historically low and high cost ACOs (in 
relation to their regions).
    Response: We appreciate commenters' thoughtful remarks on the 
proposed changes to the benchmarking methodology, including the 
tradeoffs that we identified as relevant to the consideration of any 
revisions to the methodology for resetting an ACO's historical 
benchmark for a second or subsequent agreement period. The discussion 
in the latter sections of this final rule reflect our continued 
consideration of these important issues during the development of the 
policies in this final rule, and we believe the policies we are 
finalizing represent a balance of these considerations. We also believe 
the policies we are finalizing are responsive to a principal concern 
among stakeholders, as reflected in the comments, about the way in 
which ACOs' past performance is reflected in their benchmarks over 
time.
    As explained in the 2016 proposed rule, the policy modifications 
are designed to reduce the impact of past performance and better 
reflect regional expenditures. We continue to believe an approach that 
incorporates regional FFS expenditures into an ACO's rebased historical 
benchmark will have mixed effects, increasing or decreasing benchmarks 
for ACOs in various circumstances. However, we believe that taking an 
incremental approach to incorporating regional elements when resetting 
the ACO's benchmark offers a balance between requests for faster or 
slower phase-in of these changes, and is responsive to the 
circumstances of differently situated organizations as we transition to 
this revised approach. When taking these issues into consideration, on 
the whole, we believe that this approach is consistent with a 
sustainable vision for the future of the Shared Savings Program, under 
which a variety of organizations will have sufficient incentive to 
enter and continue in the program, working to achieve the program's 
goals of better care for individuals, better health for populations, 
and lower growth in expenditures.
    While we acknowledge the variation across ACOs participating in the 
program, in terms of their patient populations, location, and 
organizational structure, among other factors, we do not believe it is 
desirable or operationally feasible to implement an approach that would 
allow each ACO to select from a menu of options for customizing the 
benchmark methodology that would apply in any given performance year or 
agreement period. Doing so would introduce considerable operational 
complexity into the program's benchmarking methodology. Further an 
approach that allows an ACO to choose the more favorable of several 
methodologies for establishing its cost target would exacerbate our 
concerns about the potential for benchmarks to become

[[Page 37957]]

overly inflated to the point where ACOs need to do little to maintain 
or change their care practices to generate savings. We are concerned 
that this flexibility could lead to opportunities for arbitrage and may 
dull incentives for ACOs to improve their performance under the Shared 
Savings Program.
    Comment: Several commenters also, generally, agreed with the 
importance of transparency, predictability, simplicity, accuracy, and 
stability as guiding principles in developing a revised rebasing 
methodology, and provided feedback on how to accomplish these aims.
    Response: We appreciate commenters' acknowledgement and support of 
the principles that guided our consideration of potential revisions to 
the methodology for resetting an ACO's historical benchmark for a 
second or subsequent agreement period. These principles also guided the 
development of our final policies, as reflected in the discussion 
throughout this section of this final rule.
    Comment: A few commenters suggested alternative rebasing 
methodologies exceeding the scope of the modifications described in the 
proposed rule (for instance, allowing ACOs, particularly small and 
rural ACOs, to choose whether to move to the revised rebasing 
methodology; transitioning to pure regional benchmarks, or pure 
national benchmarks, or using a combination of ACO historical costs and 
blended regional/national costs in benchmarks; adopting the Next 
Generation ACO model methodology into the Shared Savings Program; and 
eliminating rebasing or reducing the frequency of rebasing). A 
commenter questioned whether CMS could establish a benchmark floor, an 
actuarial number beyond which CMS would not lower an ACO's benchmark. 
Another commenter suggested CMS adopt an option to allow Shared Savings 
Program ACOs to transition to a different payment model altogether such 
as a capitated payment model or population-based payments.
    Response: Although we appreciate commenters' thoughtful 
recommendations for alternative methodologies for resetting the ACO's 
historical benchmark, and other approaches for improving the rewards 
under the Shared Savings Program, we consider these suggestions to be 
beyond the scope of this final rule, and decline at this time to adopt 
commenters' recommendations.
    Comment: A commenter expressed concern about CMS' use of 
inconsistent terminology when describing the benchmarking methodology. 
In particular, the commenter noted that CMS used the words ``reset'' or 
``rebase'' interchangeably. The commenter also noted a lack of clarity 
regarding the use of ``trend'' or ``trending.'' This commenter, 
pointing to the length of the program's rulemaking documents and the 
complexity of the policies discussed therein, encouraged CMS to be 
precise in its language.
    Response: We thank the commenter for raising this concern about the 
language used in technical discussions within rulemaking for the Shared 
Savings Program. To clarify, we consider the references to reset/
resetting and rebase/rebasing an ACO's historical benchmark to be 
synonymous (see for example, 76 FR 67912 (specifying ``. . . the 
benchmark would be reset (or rebased) [at] the start of each agreement 
period.'')) However, the use of the words trend and trending could have 
a meaning specific to the context in which the term is used. For 
example, we refer to the use of trend factors (or trending) when 
discussing the existing policy for restating BY1 and BY2 expenditures 
in terms of BY3 expenditures when establishing an ACO's historical 
benchmark. However, ``trends'' may refer more generally to historical 
Medicare spending and cost experience.
b. Regional Definition
    As explained in the 2016 proposed rule (see 81 FR 5829 through 
5830), we consider an ACO's region to be synonymous with the service 
area from which it derives its assigned beneficiaries. Furthermore, as 
discussed in this section of this final rule, issues related to the 
definition of an ACO's regional service area include: (1) The selection 
of the geographic unit of measure to define this area; and (2) 
identification of the population of beneficiaries to include in this 
area. Calculation of the FFS expenditures for this area is discussed in 
detail in sections II.A.2.b.2 and II.A.2.e.2 of this final rule.
    A fundamental concept underlying our consideration of the 
definition of an ACO's regional service area is that this geographic 
definition bear a relationship to the area of residence of the ACO's 
assigned beneficiaries, as a means of accounting for the geographic 
spread of the ACO's assigned population. In some cases, an ACO's 
assigned beneficiary population may span multiple geographic 
boundaries, for example in cases where an ACO provides services to 
beneficiaries residing in multiple counties within a single state or 
multiple states. The approach of defining an ACO's regional service 
area based on the area of residence of its assigned beneficiaries would 
therefore reflect regionally-related factors unique to the region the 
ACO serves, including the health status of the region's population, the 
geographic composition of the region (such as rural versus urban 
areas), and socio-economic differences within the regional population.
(1) Defining the ACO's Regional Service Area
    In the 2016 proposed rule, we considered the geographic unit of 
measure to use in defining an ACO's regional service area for the 
purpose of determining the corresponding regional FFS expenditures to 
be used in calculations based on regional spending in the modified 
approach to establishing, adjusting and updating the ACO's rebased 
historical benchmark (see 81 FR 5829). We explained that these regional 
FFS expenditures would be used in determining the regional adjustment 
to an ACO's rebased historical benchmark and in calculating the growth 
rates in regional spending used in establishing and updating the ACO's 
rebased historical benchmark.
    We proposed to determine an ACO's regional service area by the 
counties of residence of the ACO's assigned beneficiary population. We 
explained our belief that county-level data offers a number of 
advantages over the other options, including Core Based Statistical 
Areas (CBSAs), Metropolitan Statistical Area (MSAs), Combined 
Statistical Area (CSAs), States/territories, and Hospital Referral 
Regions (HRR). Our considerations included the following:
     Counties tend to be stable regional units compared to some 
alternatives, as the definition of county borders tends not to change.
     The agency has experience with identifying populations of 
beneficiaries by county of residence and calculating county-level rates 
based on their costs, including using county-level data to set cost 
targets for value based purchasing initiatives. CMS used counties to 
define the service areas of Physician Group Practice (PGP) 
demonstration sites (a predecessor of CMS' ACO initiatives) and used 
Parts A and B spending by county as part of setting benchmarks for 
these organizations. We also use county-level FFS expenditure data, in 
combination with other adjustments, to establish the benchmarks used 
for setting local MA rates.
     In terms of determining regional costs, smaller areas 
(such as counties) better capture regional variation in Medicare 
expenditures, and allow for more customized regional definitions for 
each ACO, but risk being dominated

[[Page 37958]]

by expenditures from a single ACO or group of ACOs, which could 
potentially reduce ACO benchmarks in clustered markets. We explained 
that we can guard against the potential bias from this effect by using 
a sufficiently large county-based population.
     Currently, we produce quarterly and annual reports for 
Shared Savings Program ACOs that include aggregate data on distribution 
of assigned beneficiary residence by county.
    Consistent with this proposed definition of regional service area, 
we proposed to define regional costs as county FFS expenditures for the 
counties in which the ACO's assigned beneficiaries reside calculated 
using the methodology discussed in section II.A.2.e.2 of this final 
rule. We explained that use of county-level FFS data in calculating 
expenditures for an ACO's regional service area would permit ACOs to be 
viewed as being on the spectrum between traditional FFS Medicare and 
MA, a concept some commenters in response to the December 2014 proposed 
rule and stakeholders have urged CMS to articulate. Additionally, we 
noted that use of county FFS expenditure data, which are publicly 
available, would allow for increased transparency in ACO benchmark 
calculations and would ease ACOs' and stakeholders' access to data for 
use in modeling and predictive analyses.
    These proposals were reflected in our proposed addition of a new 
definition of ``ACO's regional service area'' to Sec.  425.20 and in a 
proposed new Sec.  425.603 describing the calculations that would be 
used in resetting an ACO's historical benchmark for a second or 
subsequent agreement period. We sought comment on these proposals and 
on the alternatives for defining an ACO's regional service area, 
specifically use of CBSA, MSA, CSA or State/territory designations.
    Comment: Many of the commenters addressing the regional definition 
favored the proposed use of counties of residence of an ACO's assigned 
beneficiaries as the geographic unit of measure in defining an ACO's 
regional service area. Commenters explaining their support for the 
proposal cited a variety of reasons, including: Counties provide a 
stable, clearly defined geographic unit; counties will be effective in 
capturing regional variation, and allow for greater customization of 
the ACO's regional definition; and use of county-level data will 
further align ACOs with MA and other CMS initiatives. Of the few 
comments on alternatives discussed in the proposed rule (CBSAs, MSAs, 
CSAs, HRRs, states/territories), opinions tended to split for and 
against these approaches. A commenter pointed to the need for CMS to 
more consistently use the same geographic unit of measure for defining 
a region across its initiatives, preferring use of MSAs, which are also 
used by CMS in other payment systems and models. Several commenters 
raised alternatives not considered in the proposed rule. For instance, 
a commenter suggested CMS consider using a more sophisticated and 
granular methodology such as Primary Care Service Areas (PCSAs), 
pointing to consideration for use of this geographic unit in the Part B 
Drug Payment Model. Another commenter advised against using census 
regions.
    Response: We are finalizing our proposal to define an ACO's 
regional service area by the counties of residence of the ACO's 
assigned beneficiary population. We continue to believe that using 
counties as the geographic unit of measure offers advantages over other 
approaches, as supported by some commenters. Counties tend to be stable 
geographic units. Use of counties in setting the ACO's regional service 
area more easily allows for the use of county FFS expenditures in 
calculating regional factors, an approach that will more closely align 
the Shared Savings Program methodology for incorporating regional FFS 
expenditures into ACO benchmarks with the MA rate-setting methodology. 
We have experience with use of county level data not only through MA 
but also previously with the PGP demonstration. In addition, we 
currently provide informational reports to Shared Savings Program ACOs 
that include aggregate data on distribution of assigned beneficiary 
residence by county. Given the short timeframe for implementing the 
changes in the benchmarking methodology described in this final rule, 
we believe this operational experience with use of county-level data 
within the Shared Savings Program will facilitate implementation of the 
revised methodology. We also believe that by using counties, rather 
than larger geographic units, we can more accurately reflect the 
geographic areas that the ACO serves. We decline at this time to use a 
different methodology to establish an ACO's regional service area, 
particularly alternatives that were not contemplated in the 2016 
proposed rule, which may prove challenging to implement within a short 
period of time for the Shared Savings Program and without notice to 
ACOs and other stakeholders. We also recognize that CMS uses different 
geographic units of measure across payment models, but continue to 
believe that use of counties, similar to the approach used in Medicare 
Advantage, is an appropriate methodology for the Shared Savings 
Program.
    FINAL ACTION: We are finalizing our proposal to determine an ACO's 
regional service area by the counties of residence of the ACO's 
assigned beneficiary population. Furthermore, we are finalizing our 
proposal to define regional costs as county FFS expenditures for the 
counties in which the ACO's assigned beneficiaries reside calculated 
using the methodology discussed in greater detail in section II.A.2.e 
of this final rule. These final policies are reflected in the addition 
of a new definition of ``ACO's regional service area'' to Sec.  425.20 
and new Sec.  425.603 describing the calculations that will be used in 
resetting an ACO's historical benchmark for a second or subsequent 
agreement period.
(2) Establishing the Beneficiary Population Used To Determine 
Expenditures for an ACO's Regional Service Area
    In the 2016 proposed rule we explained that the population that is 
the basis for calculating regional FFS costs must be sufficiently large 
to produce statistically stable mean expenditure estimates (avoiding 
biases that result from small numbers), and must be representative of 
the demographic mix, health status and cost trends of the beneficiary 
population within the ACO's regional service area. Therefore, as 
discussed in section II.A.2.b.1 of this final rule, we proposed to 
define the ACO's regional service area to include any county where one 
or more of the ACO's assigned beneficiaries reside.
    We also proposed to calculate county FFS expenditures using the 
expenditures for all assignable FFS beneficiaries (a subset of the 
broader FFS population) residing within the county, including ACO 
assigned beneficiaries. We stated that we believed that this approach 
would result in the most accurate and predictable regional expenditure 
factor for each ACO (81 FR 5831).
    We detailed in a different section of the 2016 proposed rule 
proposals related to the definition of assignable FFS beneficiaries (81 
FR 5843). (See also the discussion in section II.A.2.e of this final 
rule.) In discussing which expenditures should be included in these 
calculations, we explained that the overall FFS population includes 
beneficiaries who are not eligible for assignment to an ACO. Including 
expenditures for all FFS beneficiaries

[[Page 37959]]

would introduce bias into the calculation of the ACO's regional service 
area expenditures.
    We also considered whether to include the ACO's assigned 
beneficiaries within the population used to determine expenditures for 
the ACO's regional service area. We concluded that attempting to 
identify regional FFS expenditures for only non-ACO beneficiaries (or 
customizing the calculation of regional FFS expenditures for each ACO 
by excluding its own beneficiaries) would add significant complexity 
and create potential bias. Furthermore, excluding the ACO's assigned 
beneficiaries from the population used to determine regional FFS 
expenditures may also produce biased results where an ACO tends to 
serve beneficiaries of a particular Medicare enrollment type, 
demographic or socio-economic status (for example, ACOs serving largely 
dual-eligible populations) and when an ACO tends to dominate (serve a 
large proportion of FFS beneficiaries) in a region.
    We considered addressing the circumstance of ACOs that are dominant 
in their region, by expanding the scope of the ACO's region (for 
example, by including adjoining counties) to allow the ACO's regional 
service area to include a greater mix of beneficiaries who are not 
assigned to the ACO. However, we explained our belief that this 
approach may be challenging to apply consistently and accurately given 
the potential for variation of populations across and within regional 
areas, and would be a potentially cumbersome policy to maintain as ACOs 
continue to develop across the country. Therefore, we indicated we 
would monitor for cases where an ACO tends to serve a large proportion 
of FFS beneficiaries in its region, and consider the effect of these 
circumstances on ACO benchmarks. If warranted, we would explore 
developing adjustments to the definition of an ACO's regional service 
area to account for this circumstance in future rulemaking.
    Further, we proposed to weight an ACO's regional expenditures 
relative to the proportion of its assigned beneficiaries in each 
county, determined by the number of the ACO's assigned beneficiaries 
residing in the county in relation to the ACO's total number of 
assigned beneficiaries. We explained that absent this weighting, we 
could overstate or understate the influence of the expenditures for a 
county where relatively few or many of an ACO's assigned beneficiaries 
reside.
    These proposals on the calculation of county FFS expenditures and 
regional FFS expenditures were reflected in the proposed new Sec.  
425.603. We sought comment on alternatives to the proposal to use 
assignable beneficiaries, including beneficiaries assigned to the ACO, 
in establishing the expenditures for an ACO's regional service area, 
such as using all Medicare FFS beneficiaries in determining these 
expenditures.
    Comment: While some commenters expressed support for the proposal 
to include any county in which at least one assigned beneficiary 
resides in an ACO's regional service area, many other commenters 
opposed this proposal. Some commenters questioned whether including 
data from counties with small numbers of assigned beneficiaries 
sufficiently improves the accuracy of the benchmark to justify the 
added complexity and administrative burden. The most commonly suggested 
alternative was to specify a higher threshold for the minimum number of 
assigned beneficiaries residing in a county included in the ACO's 
regional service area. For instance, commenters suggested we include in 
the definition of the ACO's regional service area counties where at 
least 1 percent of an ACO's assigned beneficiaries reside. Commenters 
also pointed out that publicly available ACO assignment data files 
(made available to support modeling of the proposed policies) as well 
as the PGP Demonstration methodology, omitted counties with less than 1 
percent of ACO assigned beneficiaries.
    Response: We are finalizing our proposal to include in the 
definition of an ACO's regional service area any county where one or 
more beneficiaries assigned to the ACO reside. We continue to believe 
this approach is necessary to accurately reflect the diversity of the 
ACO's assigned beneficiary population and to provide a complete picture 
of the ACO's regional service area. Based on our initial modeling of 
this policy using preliminary assignment data for 433 ACOs 
participating in the program for performance year 2016, we observed 
that ACOs have on average about 7 percent of their assigned 
beneficiaries residing in counties in which less than 1 percent of the 
ACO's total assigned beneficiary population resides. In this analysis, 
we observed a median of approximately 6 percent of assigned 
beneficiaries residing in counties where less than 1 percent of the 
ACO's total assigned beneficiary population resides, a minimum of 
approximately 2 percent, and a maximum of approximately 44 percent. We 
also observed that for nearly 20 percent of these ACOs (78 of the 433) 
more than 10 percent of the ACO's assigned beneficiaries were dispersed 
across counties in which less than 1 percent of the ACO's total 
assigned beneficiary population resides. Applying a threshold for 
including counties within the ACO's regional service area would likely 
affect ACOs differently depending on the size of the ACO's assigned 
beneficiary population residing in counties below the threshold because 
the remaining counties would need to be weighted proportionately 
higher, which could have a significant impact on the calculation of 
regional expenditures for an ACO. Further, we believe our approach to 
weighting county FFS expenditures, described later in this section of 
this final rule, will result in counties with very few assigned 
beneficiaries having a proportionately small effect on the expenditures 
for the ACO's regional service area.
    Comment: The vast majority of commenters discussing the proposal to 
base regional FFS expenditures on assignable beneficiaries (instead of 
all FFS beneficiaries), favored an approach that would exclude from 
these calculations beneficiaries who would not meet the requirements 
for being assigned (such as non-utilizers of primary care services). A 
commenter expressed support for use of all Medicare beneficiaries from 
a particular region, instead of only assignable beneficiaries, in 
calculating regional expenditures. This commenter indicated that 
including expenditures for all Medicare FFS beneficiaries in these 
calculations accounts for beneficiaries seeking care within and outside 
the ACO, addresses concerns about smaller populations biasing the 
calculation, and is in line with other CMS initiatives that use 
calculations based on the entire Medicare population.
    While some commenters favored the proposed inclusion of ACO 
assigned beneficiaries in the regional expenditure calculations, many 
opposed this proposal. Those opposed usually suggested that CMS exclude 
from these calculations either the ACO's assigned beneficiaries or all 
beneficiaries assigned to participants in any CMS ACO initiative 
(Shared Savings Program, Pioneer ACO Model, Next Generation ACO Model) 
or more broadly to participants in any alternative payment model. 
Commenters expressed concerns that including ACO beneficiaries' 
expenditures would skew regional expenditure calculations by reflecting 
ACOs' efforts to coordinate care and reduce expenditures for their 
assigned populations. Commenters indicated these concerns were more 
pronounced for ACOs that have significant market saturation, for

[[Page 37960]]

example, in cases where an ACO is dominant in its market, or where many 
ACOs have formed within the same market (referred to as ``ACO-heavy'' 
regions). A commenter expressed a concern which was also reflected in 
other comments, that this would create another dynamic where an ACO 
must compete against its own historical performance. Another commenter 
noted that inclusion of an ACO's assigned population in a comparison 
group would be unusual in a commercial ACO contract.
    Among the commenters expressing support for the inclusion of the 
ACO's assigned beneficiaries in expenditure calculations for the ACO's 
regional service area, some indicated that the approach would protect 
both ACOs and the Trust Funds. A commenter explained this approach 
would reduce the impact of the regional adjustment impact, particularly 
in less densely populated areas, but did not detail the reason for this 
belief. Another commenter specified that if ACOs are successful in 
limiting growth of expenditures, then including their beneficiaries in 
calculations of county FFS spending would serve to control the growth 
in calculated regional FFS spending, and ultimately allow the Medicare 
program to capture further savings as ACOs' benchmarks move toward the 
regional average. Several commenters explained that removing the ACO's 
assigned beneficiaries from the population used to determine regional 
FFS expenditures could bias results, but did not explain the nature of 
this potential bias. A commenter expressed concern that excluding the 
ACO's assigned beneficiaries from the population used to determine 
regional FFS expenditures could effectively penalize ACOs for caring 
for the sickest patients, particularly if these ACOs are dominant in 
their markets. Some commenters also urged CMS to consider whether the 
proposed use of assignable beneficiaries in regional benchmark 
calculations could disadvantage rural ACOs, by showing artificially 
lower utilization rates in rural communities.
    Response: We are finalizing as proposed the policy to include the 
expenditures for all assignable FFS beneficiaries (including ACO 
assigned beneficiaries) residing in the counties that make up the ACO's 
regional service area in calculating county FFS expenditures.
    We discuss in detail, in section II.A.2.e.3 of this final rule, the 
definition of assignable beneficiaries. Some commenters seemed to 
misunderstand the scope of beneficiaries included within the assignable 
population (perceiving it as a broader population than the population 
currently used to calculate factors based on national FFS 
expenditures). To clarify, assignable FFS beneficiaries are a subset of 
the broader FFS population (see 81 FR 5843). The assignable beneficiary 
population, as defined in this final rule, would include any 
beneficiary receiving a primary care service from a primary care 
physician or from a physician with one of the primary specialty 
designations included in Sec.  425.402(c). This primary care service 
must be one that is billed for under traditional FFS Medicare with a 
date of service during the 12-month assignment window as defined under 
Sec.  425.20.
    For the reasons discussed in the proposed rule, and as summarized 
previously in this section of the final rule, we continue to believe 
that including the ACO's assigned beneficiaries within the assignable 
population used to calculate county FFS expenditures for the ACO's 
regional service area will reduce the chance of bias in the 
calculations, particularly in the case of ACOs serving higher cost 
beneficiaries within the region. We believe that including the ACO's 
assigned beneficiaries among the population used to calculate risk 
adjusted county level expenditures (applying full CMS-HCC risk 
adjustment, as discussed in section II.A.2.e.2 of this final rule) is 
critical to ensuring regional expenditures accurately reflect the cost 
and acuity of beneficiaries in the ACO's region. Additionally, we have 
significant operational concerns with commenters' suggestions that CMS 
remove each ACO's assigned beneficiaries from the ACO's regional 
service area. This approach would entail calculating county rates 
tailored for each ACO for each benchmark and performance year, as 
opposed to the proposed approach of calculating county rates program-
wide and determining on an ACO-specific basis which county expenditures 
to use and how to weight these expenditures. We are deeply concerned 
that this alternative approach would not be transparent because of the 
highly individualized nature of the exclusions that would be required 
for each ACO's county FFS expenditure calculations. In addition, we 
believe determining ACO-specific county-level FFS expenditures would be 
time intensive given the complexity of these calculations, and prevent 
timely provision of program reports based on these data to ACOs.
    Furthermore, we continue to believe that the approach to 
determining county FFS expenditures based on assignable Medicare 
beneficiaries (as opposed to all Medicare beneficiaries) may avoid bias 
in these calculations, including biases that may be more pronounced in 
certain geographic regions as a result of healthcare patterns and 
population demographics. In the 2016 proposed rule, we explained our 
belief that including expenditures for all FFS beneficiaries would 
introduce bias into the calculations of the ACO's regional service area 
expenditures. We explained that regional FFS expenditures, which are 
calculated based on relatively smaller populations than the national 
FFS population currently used in benchmark calculations based on 
national FFS expenditures, may be more susceptible to the influence of 
this bias. For example, in counties where the health status of the 
overall beneficiary population leads more beneficiaries to be non-
utilizers of services, a bias in the direction of relatively lower 
regional expenditures may be more pronounced. On the other hand, a bias 
in the direction of relatively higher regional expenditures may be more 
pronounced in counties where there are established patterns of 
accessing primary care services through specialists who are not the 
basis for assignment. We also noted that ultimately, such differences 
could factor more prominently in certain counties that are used to 
compute an ACO's regional service area expenditures (see 81 FR 5830 and 
5831). Thus, using only assignable beneficiaries in expenditure 
calculations avoids biases that could result from including non-
utilizers, among other factors, and that would be present in 
calculations based on the larger Medicare FFS population.
    Comment: Commenters concerned about the situation of ACOs that have 
a regional service area population that is too small (particularly as a 
result of excluding ACO assigned beneficiaries) suggested alternatives 
for expanding the ACO's regional service area and encouraged CMS to 
adopt such an approach in the final rule (as opposed to monitoring the 
issue). Most commonly, commenters suggested including adjacent counties 
in the ACO's regional definition (for example, citing the approach used 
in the Pioneer ACO model, or describing details of an alternative 
approach), as well as increasing the number of years of data included 
in the calculations (for example, using a 5-year rolling average for 
county-level spending estimates, along the lines of the approach used 
by MA). Some commenters suggested increasing the weight given to the 
counties that have a lower proportion of ACO assigned beneficiaries in 
relation

[[Page 37961]]

to the population of Medicare FFS beneficiaries. However, a commenter 
acknowledged that any methodology for expanding the scope of an ACO's 
region would be both cumbersome and challenging to apply consistently.
    Response: We appreciate commenters' suggestions for alternative 
approaches to defining the ACO's regional service area. In section 
II.A.2.e.2 of this final rule, we address commenters' suggestions to 
use additional years of data to calculate county FFS expenditures. We 
decline at this time to adopt alternatives suggested by commenters for 
expanding the ACO's regional service area population, particularly in 
relation to requests to exclude ACO assigned beneficiaries from the 
assignable population. We do not believe these adjustments are 
necessary under the methodology we are finalizing for determining the 
ACO's regional service area using the assignable FFS beneficiary 
population, including ACO assigned beneficiaries. As we implement the 
revised rebasing methodology established with this final rule, we will 
consider the impact of including ACO assigned beneficiaries within the 
population used to calculate the regional FFS expenditures, including 
the potential for bias in regional FFS expenditure calculations for 
ACOs that are dominant in their regions and ACO-heavy regions. In the 
event we determine that any changes to are necessary to address these 
issues, we will address them in future rulemaking.
    Comment: Although not discussed in the proposed rule, a few 
commenters made suggestions to include or exclude MA beneficiaries in 
the population used to determine expenditures for the ACO's regional 
service area.
    Response: As an initial matter, we wish to clarify the following: 
(1) The assignable population under this final rule could include 
beneficiaries who are enrolled in MA during part of the 12-month 
assignment-window; and (2) the assignable population excludes 
beneficiaries who have no primary care services billed under 
traditional FFS Medicare and thus do not meet the definition of an 
``assignable beneficiary'' under this final rule, such as beneficiaries 
who received services only through a MA plan for the entirety of the 
12-month assignment window. Underlying our proposal to use assignable 
beneficiaries in calculating regional and national FFS expenditures was 
our intent to ensure these calculations were based on beneficiaries 
that have some chance of being assigned to the ACO. Accordingly, we 
decline at this time to include in regional FFS expenditure 
calculations beneficiaries who have only received services through a MA 
plan during the 12-month assignment window used to determine assignable 
beneficiaries and who could not be eligible to be assigned to an ACO. 
However, we wish to clarify that some beneficiaries who meet the 
definition of ``assignable beneficiary'' adopted in this final rule 
will ultimately be excluded from assignment to an ACO for purposes of 
determining the ACO's benchmark or performance year expenditures 
because they fail to meet the assignment criteria specified under Sec.  
425.401(a).
    Comment: Almost all commenters discussing the proposal to weight 
expenditures by the proportion of the ACO's assigned beneficiaries in 
each county supported the proposed approach. Commenters underscored the 
importance of this weighting for accurately reflecting expenditure 
levels in the ACO's market in regional calculations. Absent this 
weighting, CMS could over or understate the influence of expenditures 
for a county. A commenter indicated that the need to perform this 
weighting illustrated the inaccuracies and lack of precision with using 
county-level data, and recommended the use of an alternative 
methodology to define the ACO's regional service area (such as CBSAs, 
MSAs, and CSAs). Some commenters requested clarification of what the 
proposed methodology for establishing an ACO's regional service area 
would mean for ACOs that use a model of geographically distant 
providers to aggregate to the required minimum number of 5,000 assigned 
beneficiaries.
    Response: We are finalizing as proposed the policy of weighting an 
ACO's regional expenditures relative to the proportion of its assigned 
beneficiaries in each county, determined by the number of the ACO's 
assigned beneficiaries residing in the county in relation to the ACO's 
total number of assigned beneficiaries. For the reasons discussed in 
the proposed rule and raised by commenters who supported this approach, 
we believe that weighting county-level FFS expenditures by the 
proportion of assigned beneficiaries in each county will accurately 
reflect expenditure levels in the ACO's market in regional FFS 
expenditure calculations.
    We also note that the need to weight the expenditures is not 
necessarily specific to the choice of counties as the geographic unit 
in the regional definition. Some approach to weighting would be 
necessary in any methodology for calculating expenditures for an ACO's 
regional service area, since ACOs often serve beneficiaries in multiple 
counties within a state or across several states as discussed in the 
2016 proposed rule (81 FR 5831). As a result, we disagree with the 
comment indicating that use of weighting in a methodology for 
calculating regional FFS expenditures is somehow indicative of a lack 
of precision with using county-level data.
    Further, in response to the request for clarification on the 
application of the weighting methodology to smaller ACOs with 
geographically dispersed ACO participants, we note that the methodology 
for determining an ACO's regional service area and calculating regional 
FFS expenditures will be applied consistently across ACOs, regardless 
of ACO size, composition, or geographic location.
    We did not receive comments specifically addressing how county-
level FFS expenditures should be weighted for purposes of determining 
regional FFS expenditures for the ACO's regional service area. In the 
proposed rule, we outlined an approach in the proposed Sec.  
425.603(f). However, following further consideration of this issue, we 
now believe that the proposed provision should be revised to more 
clearly reflect our intended approach. We wish to clarify that when 
determining expenditures for an ACO's regional service area, we intend 
to calculate each county's expenditures by enrollment type, and to 
weight these expenditures by the ACO's proportion of assigned 
beneficiaries in the county for the applicable enrollment type. We will 
then aggregate these values, across counties within the ACO's regional 
service area, for each population by Medicare enrollment type. This 
will result in a separate value for each of the four populations 
identified by Medicare enrollment type, representing county-weighted 
regional FFS expenditures for that Medicare enrollment type. We will 
apply to each of these aggregate expenditure values (specific to a 
Medicare enrollment type) a weight reflecting the ACO's overall 
proportion of assigned beneficiaries in that Medicare enrollment type, 
as determined in relation to its entire assigned population for the 
relevant benchmark or performance year in order to determine the ACO's 
risk adjusted regional expenditures for that enrollment type. We are 
making clarifying revisions to the provision at Sec.  425.603(f) to 
reflect this approach.
    FINAL ACTION: We are finalizing our proposal to define the ACO's 
regional service area to include any county where one or more assigned 
beneficiaries reside, and to reflect this policy through the addition 
of a new definition of ``ACO's regional service

[[Page 37962]]

area'' to Sec.  425.20. We are finalizing several proposals, among 
others described elsewhere in this final rule, on the calculation of 
county FFS expenditures and an ACO's regional FFS expenditures as 
reflected in new Sec.  425.603 to: (1) Include expenditures for all 
assignable FFS beneficiaries (including ACO assigned beneficiaries) 
residing within the county to calculate the county's FFS expenditures; 
and (2) weight an ACO's regional expenditures relative to the ACO's 
proportion of its assigned beneficiaries in each county, determined by 
the number of the ACO's assigned beneficiaries residing in the county 
in relation to the ACO's total number of assigned beneficiaries. As 
discussed in this section of this final rule, we are making revisions 
to Sec.  425.603(f), to clarify the weighting of county-level 
expenditures by the ACO's proportion of beneficiaries by Medicare 
enrollment type (ESRD, disabled, aged/dual eligible, aged/non-dual 
eligible) in each county for purposes of determining the ACO's regional 
expenditures. We will monitor the effects of this methodology on 
calculations of regional FFS expenditures, particularly for bias in the 
calculations among ACOs that are dominant in their regions, as well as 
in ACO-heavy regions, and will address any necessary adjustments to 
this methodology through future rulemaking.
c. Applying Regional Expenditures to the ACO's Rebased Benchmark
(1) Background
    In the 2016 proposed rule (81 FR 5832), we summarized our 
discussion of benchmark alternatives in recent rulemaking, indicating 
there is an array of options for incorporating regional expenditures in 
ACO benchmarks. We explained our agreement with commenters on the 
previous rulemaking regarding the benefits of incorporating regional 
expenditures in rebased benchmarks, and indicated our interest in 
moving to an alternative rebasing approach that builds on the program's 
existing benchmarking methodology established under the authority of 
section 1899(d)(1)(B)(ii) of the Act and codified in the Shared Savings 
Program regulations at Sec.  425.602.
    As we stated in the proposed rule, over 400 ACOs have voluntarily 
entered the Shared Savings Program under the financial models (Track 1 
and Track 2) established in the November 2011 final rule and as 
modified by the June 2015 final rule (adding a choice of Track 3 for 
agreement periods beginning January 1, 2016). Furthermore, 147 ACOs 
with 2012 and 2013 agreement start dates elected to continue their 
participation in the program for a second 3-year agreement period 
effective January 1, 2016, to which the current rebasing methodology, 
finalized in the June 2015 final rule applies. We explained that the 
value proposition of the program's financial models, which is largely 
determined by the methodology used to establish ACO benchmarks, is an 
important consideration for organizations deciding whether to engage 
(or continue to engage) in this new approach to the delivery of health 
care. Therefore, in considering how to incorporate regional 
expenditures into the benchmarking methodology, we expressed our belief 
that building from the existing benchmarking methodology will help 
maintain the stability of the program and ultimately result in revised 
policies that are more easily understood by ACOs and program 
stakeholders, and more readily implemented by CMS.
    Principally, we considered using the Secretary's discretion under 
section 1899(d)(1)(B)(ii) of the Act to adjust the historical benchmark 
by ``such other factors as the Secretary determines appropriate'' in 
order to incorporate regional FFS expenditures into the rebased 
historical benchmark. In the 2016 proposed rule (81 FR 5832 through 
5836), we discussed two approaches to calculating an adjustment to an 
ACO's rebased historical benchmark to account for regional FFS 
expenditures for the ACO's regional service area, and described how the 
adjustment would be applied to the rebased historical benchmark.
    We discussed our belief that although the plain language of section 
1899(d)(1)(B)(ii) of the Act demonstrates Congress' intent that the 
benchmark established for a Shared Savings Program ACO would reflect 
the ACO's historical expenditures in the 3 most recent years prior to 
the start of the ACO's agreement period, Congress also recognized that 
this historical benchmark should be adjusted ``for beneficiary 
characteristics and such other factors as the Secretary determines 
appropriate.'' Therefore, to the extent an ACO's rebased benchmark 
continues to be based on the ACO's historical expenditures in the 3 
years preceding the start of the new agreement period, we expressed our 
belief that adjusting those historical expenditures to account for 
regional FFS expenditures for the ACO's regional service area falls 
within the Secretary's discretion to make adjustments to the historical 
benchmark for ``other factors'' under section 1899(d)(1)(B)(ii) of the 
Act.
    We explained that we currently make several adjustments to an ACO's 
historical benchmark under the Secretary's discretion under section 
1899(d)(1)(B)(ii) of the Act, including to: (1) Adjust benchmark year 
expenditures to exclude IME and DSH payments (Sec.  425.602(a)(1)(i)); 
(2) adjust the historical benchmark for the addition and removal of ACO 
participants (Sec.  425.602(a)(8)); (3) adjust the rebased historical 
benchmark to account for the average per capita amount of savings 
generated during the ACO's previous agreement period (Sec.  
425.602(c)(2)(ii)); and (4) adjust the historical benchmark for changes 
in demographics and health status of the ACO's performance year 
assigned beneficiary population (Sec. Sec.  425.604(a)(1) through (3), 
425.606(a)(1) through (3), 425.610(a)(1) through (3)). We expressed our 
belief that it is appropriate to further adjust ACO historical 
benchmarks to reflect FFS expenditures in the ACO's regional service 
area. Furthermore, in relation to the use of regional FFS expenditures 
in developing the ACO's rebased benchmark, we explained our belief that 
it is appropriate to forgo making an additional adjustment to account 
for savings generated by the ACO in its prior agreement period (81 FR 
5832).
(2) Adjusting the Reset ACO Historical Benchmark To Reflect Regional 
FFS Expenditures
    In the 2016 proposed rule we described two options for calculating 
the regional FFS adjustment and the ACO's rebased historical benchmark. 
The first option would be to calculate a regional adjustment based on a 
regionally-trended version of the ACO's prior historical benchmark. The 
second option would be based on a regional average determined using 
county FFS expenditures (81 FR 5832 and 5833). We proposed to adopt the 
second option.
    Specifically, we proposed to calculate the ACO's rebased historical 
benchmark using the current rebasing methodology established in the 
June 2015 final rule under which an ACO's rebased benchmark is 
calculated based on the 3 years prior to the start of its current 
agreement period. Consistent with the current policy we would equally 
weight the 3 benchmark years. However, in trending forward benchmark 
year (BY) 1 and BY2 expenditures to BY3 dollars, we proposed to use 
regional growth rates (instead of national growth rates) for Parts A 
and B FFS expenditures (81 FR 5833 and 5838).
    Furthermore, in calculating the ACO's rebased historical benchmark, 
we proposed not to apply the current adjustment to account for savings 
generated by the ACO under its prior agreement period. We explained our

[[Page 37963]]

observation that for ACOs generating savings, a rebasing methodology 
that accounts for regional FFS expenditures would generally leave a 
similar or slightly greater share of measured savings in an ACO's 
rebased benchmark for its ensuing agreement period. By contrast, for 
ACOs generating losses, a rebasing methodology that accounts for 
regional FFS expenditures would tend to carry forward a significant 
portion of measured losses into their rebased benchmarks and push 
benchmarks lower than the current rebasing policy. We expressed our 
belief that in transitioning to a benchmark rebasing methodology that 
incorporates an adjustment for regional FFS expenditures, it is 
important to forgo the current adjustment to account for shared savings 
generated by the ACO under its prior agreement period.
    We proposed to calculate the regional FFS adjustment to the ACO's 
rebased historical benchmark based on a regional average determined 
using county FFS expenditures. The calculation of regional average 
expenditures would generally involve the following key steps:
     Calculate risk adjusted regional per capita FFS 
expenditures using county level Parts A and B expenditures for the 
ACO's regional service area for each Medicare enrollment type (ESRD, 
disabled, aged/dual eligible, aged/non-dual eligible); weighted based 
on the proportion of ACO assigned beneficiaries residing in each county 
for the most recent benchmark year. We also proposed a risk adjustment 
approach that would be used in these calculations to adjust for 
differences in health status between an ACO and its regional service 
area (81 FR 5846 through 5848; and as discussed in detail elsewhere 
within this section of this final rule).
     Weight the resulting regional expenditures by the 
proportion of assigned beneficiaries for the most recent benchmark year 
for each Medicare enrollment type (ESRD, disabled, aged/dual eligible, 
aged/non-dual eligible).
    We described in detail and sought comment on the alternative 
option, under which we would calculate the regional FFS adjustment 
based on a regionally-trended version of the ACO's prior historical 
benchmark (81 FR 5833). In comparing the features of the two options, 
we expressed our belief that using regional average expenditures 
offered a preferred approach. While we believed both options would 
avoid penalizing ACOs that improve their spending relative to that of 
their region, the approach of using regional average expenditures would 
not depend on older historical data in calculations as would be 
required under the alternative involving calculation of a regionally-
trended amount. In general, from an operational standpoint, we 
anticipated that using a regional average as part of calculating 
regional FFS expenditures for an ACO's regional service area would be 
easier for ACOs and other stakeholders to understand as well as for us 
to implement in comparison to the alternative considered, and would 
more closely align with the MA ratesetting methodology.
    We also considered how the adjustment based on regional FFS 
expenditures should be applied to the ACO's rebased historical 
benchmark. Our preferred approach was to use the following steps to 
adjust the ACO's rebased historical benchmark:
     Calculations of the ACO's rebased historical benchmark and 
regional average expenditures, as described previously in this section 
of the final rule, would result in average per capita values of 
expenditures for each Medicare enrollment type (ESRD, disabled, aged/
dual eligible, aged/non-dual eligible).
     For each Medicare enrollment type (ESRD, disabled, aged/
dual eligible, aged/non-dual eligible) we would determine the 
difference between the average per capita regional amount and the 
average per capita amount of the ACO's rebased historical benchmark. 
These values may be positive or negative. For example, for a particular 
Medicare enrollment type, if the value of the ACO's rebased historical 
benchmark is greater than the regional average amount, the difference 
between these values will be expressed as a negative number.
     Multiply the resulting difference, for each Medicare 
enrollment type by a percentage determined for the relevant agreement 
period. The value of this percentage is described in detail later in 
this section of the final rule. The products (one for each Medicare 
enrollment type) resulting from this step are the amounts of the 
regional adjustments that will be applied to the ACO's historical 
benchmark.
     Apply the adjustment to the ACO's rebased historical 
benchmark by adding the adjustment amount for the Medicare enrollment 
type to the truncated, trended and risk adjusted average per capita 
value of the ACO's rebased historical benchmark for the same Medicare 
enrollment type.
     Multiply the adjusted value of the ACO's rebased 
historical benchmark for each Medicare enrollment type by the 
proportion of the ACO's assigned beneficiary population for that 
Medicare enrollment type, based on the ACO's assigned beneficiary 
population for benchmark year 3 of the rebased historical benchmark.
     Sum expenditures across the four Medicare enrollment types 
to determine the ACO's adjusted rebased historical benchmark.
    In a separate section of the 2016 proposed rule, we considered 
issues related to risk adjustment when using regional expenditures in 
resetting ACO benchmarks, including considerations raised in prior 
rulemaking (see 81 FR 5846 through 5848). We discussed our concern that 
using CMS-HCC risk scores for an ACO's assigned beneficiary population 
in resetting the ACO's benchmark has the potential to benefit ACOs that 
have systematically engaged in coding initiatives during their prior 
agreement period. We explained that this effect would have been limited 
in the corresponding performance years due to the application of our 
current approach to risk adjusting during the agreement period 
according to the ACO's newly and continuously assigned beneficiary 
populations. We noted that initial financial performance results (for 
the performance years ending December 31, 2013 and 2014) do not show 
strong evidence that concerns about systematic coding practices by ACOs 
have materialized, but complete data are not yet available to analyze 
the effect of coding initiatives in the initial rebasing of ACO 
benchmarks, as initial program entrants (ACOs with 2012 and 2013 
agreement start dates) only began their second agreement periods on 
January 1, 2016.
    To balance our concerns regarding ACO coding practices with the 
recommendations of commenters received through earlier rulemaking, we 
proposed to risk adjust to account for the health status of the ACO's 
assigned population in relation to FFS beneficiaries in the ACO's 
regional service area as part of the methodology for determining the 
adjustment to the ACO's rebased historical benchmark to reflect 
regional FFS expenditures, and indicated we would rigorously monitor 
for the impact of coding initiatives on ACO benchmarks and make 
necessary refinements to the program's risk adjustment methodology 
through future rulemaking if program results show adverse impacts due 
to increased coding intensity. We outlined the methodology of the 
proposed risk adjustment approach. We indicated that we would compute 
for each Medicare enrollment type a measure of risk-adjusted regional 
expenditures that would account for the differences between the average 
CMS-

[[Page 37964]]

HCC risk scores of the ACO's assigned beneficiaries and the average 
CMS-HCC risk scores in the ACO's regional service area. This adjustment 
would also capture differences in patient mix between the ACO's 
assigned population and the FFS population in the ACO's regional 
service area. We noted our belief that this combined approach (risk 
adjustment in combination with monitoring for coding intensity) was 
reasonable given the lack of strong evidence to date that ACOs are 
engaging in more intensive coding practices and given a number of 
factors, described in the 2016 proposed rule (81 FR 5847 through 5848), 
that we believe would mitigate the potential impact of coding intensity 
on ACO financial calculations. We noted that the proposed approach 
would not apply in the calculation of benchmarks for ACOs in their 
first agreement period or in the second agreement period for ACOs that 
started the program in 2012 and 2013 and started a new agreement period 
on January 1, 2016. We also noted that for all ACOs we would continue 
to use the current methodology to adjust the ACO's benchmark annually 
to account for the health status and demographic factors of the ACO's 
performance year assigned beneficiaries (according to the newly and 
continuously assigned populations).
    We sought comment on this proposed approach and on the alternatives 
considered that might be employed in the future to limit the impacts of 
intensive coding while still accounting for changes in health status 
within an ACO's assigned beneficiary population, including: (1) 
Applying the methodology currently used to adjust the ACO's benchmark 
annually to account for the health status and demographic factors of 
the ACO's performance year assigned beneficiaries (according to newly 
and continuously assigned populations) when rebasing the ACO's 
historical benchmark; or (2) developing a coding intensity adjustment 
by looking at risk score changes over time for beneficiaries assigned 
to the ACO for at least two consecutive years, as well as in each 
respective diagnosis collection year (similar to the population 
referred to as stayers under the MA methodology) relative to the 
greater FFS population.
    In another section of the 2016 proposed rule, we proposed program-
wide changes to the methodology used to adjust the ACO's benchmark for 
changes in ACO participant (TIN) composition (81 FR 5850 and 5851). In 
that discussion, we proposed to redetermine the regional FFS adjustment 
to account for changes to the ACO's certified ACO Participant List. 
Specifically, we would redetermine the ACO's regional service area 
during the reference year (benchmark year 3 (BY3)) based on the 
residence of the ACO's assigned beneficiaries for the reference year 
determined using the new ACO Participant List. We would also use this 
assigned population to determine the ACO's proportion of beneficiaries 
by Medicare enrollment type (ESRD, disabled, aged/dual eligible, aged/
non-dual eligible) to be used in calculating the regional adjustment. 
We would then redetermine the regional FFS adjustment to the ACO's 
rebased historical benchmark, based on regional average expenditures 
for the ACO's updated regional service area. In redetermining the 
regional FFS adjustment, we would also adjust for differences between 
the health status of the ACO's assigned beneficiaries determined using 
the new ACO Participant List and the population of assignable 
beneficiaries in the ACO's regional service area based on the reference 
year (BY3). Although we will discuss our proposed revisions to the 
methodology for adjusting benchmarks to account for changes in ACO 
participant composition in more detail in section II.B of this final 
rule, we believe it is appropriate to address the issue of 
redetermining the regional FFS adjustment based on changes in the ACO's 
participant composition in this section of this final rule.
    Consistent with our proposal to incorporate an adjustment for 
regional expenditures into an ACO's rebased benchmark, we proposed to 
revise Sec.  425.602 in order to limit the scope of the provision to 
establishing, adjusting, and updating the benchmark for an ACO's first 
agreement period. We proposed to explain how the benchmark would be 
reset for a subsequent agreement period, including the methodology for 
adjusting an ACO's rebased historical benchmark to reflect FFS 
expenditures in the ACO's regional service area in the ACO's second or 
subsequent agreement period starting on or after January 1, 2017, in a 
new provision of the Shared Savings Program regulations at Sec.  
425.603. We also proposed to include the risk adjustment approach to 
account for differences in health status between the ACO's assigned 
beneficiary population and the broader FFS population in the ACO's 
regional service area in the revised benchmark rebasing methodology 
under Sec.  425.603. In addition, we proposed to specify in the new 
provision at Sec.  425.603 that CMS will redetermine the regional 
adjustment amount annually based on the ACO's assigned beneficiaries 
for BY3 determined using the most recent certified ACO Participant List 
for the relevant performance year.
    Furthermore, we proposed to make conforming and clarifying 
revisions to the provisions of Sec.  425.602, including to: Revise the 
title of the section; remove paragraph (c) and incorporate this 
paragraph in the new Sec.  425.603; and add a paragraph that describes 
the adjustments made to the ACO's historical benchmark during an ACO's 
first agreement period to account for changes in severity and case mix 
for newly and continuously assigned beneficiaries as presently 
specified under Sec.  425.604, Sec.  425.606, and Sec.  425.610. We 
also proposed to specify in Sec.  425.20 that the acronym ``BY'' stands 
for benchmark year.
    We sought comments on our proposals for incorporating regional 
expenditures into rebased ACO benchmarks and on the alternative 
approach of using a regionally-trended amount developed from the ACO's 
historical benchmark for a prior agreement period instead of regional 
average expenditures to adjust the ACO's rebased historical benchmark. 
In particular, we welcomed comments on the design of the approaches for 
calculating the regional adjustment to the ACO's rebased historical 
benchmark described in the 2016 proposed rule, as well as any concerns 
about implementing the regional adjustment.
    Comment: A few commenters supported the proposal to eliminate the 
adjustment to the ACO's historical benchmark for savings achieved by 
the ACO in the previous agreement period. However, most commenters 
strongly opposed the proposal to discontinue the current adjustment to 
the ACO's rebased benchmark for savings generated in the prior 
agreement period. Commenters explained that eliminating the adjustment 
makes it harder for ACOs that have successfully met the goals of the 
program in a prior agreement period to achieve future savings. These 
commenters were critical of CMS' explanation that incorporating 
regional expenditures sufficiently offsets the loss of the adjustment 
for savings in the prior agreement period. Some commenters specified 
that removing the adjustment would undermine the sustainability of the 
program, citing concerns including the following:
     Further reducing benchmarks for ACOs with higher 
historical costs compared to their region that would be negatively 
affected by the introduction of a regional adjustment. Several 
commenters suggested that retaining the

[[Page 37965]]

adjustment could have the effect of more gradually lowering the rebased 
benchmarks for ACOs harmed by the integration of regional expenditures 
over subsequent agreement periods.
     Discouraging successful ACOs from remaining in the program 
as they face increasingly lower benchmarks and diminishing returns, 
with a commenter indicating that the current adjustment helps the many 
existing ACOs that have generated savings but not been eligible to 
share in those savings.
     The need to provide further incentives to retain ACOs with 
comparatively lower historical spending compared to their regions.
    Some commenters pointed to CMS' rationale for the adjustment 
specified in earlier rulemaking as reason to retain it.\1\ Several 
commenters pointed to the need to allow for additional time to evaluate 
the effects of the adjustment, which was applicable beginning in 2016, 
before changing the policy. Some commenters urged CMS to evaluate the 
rationale for accounting for savings in a prior agreement period 
separately from its consideration of incorporating regional cost data 
into benchmarks, believing these to be distinct issues that have 
distinguishable effects on ACOs. A commenter, urged that the adjustment 
be retained, pointing to the need for alignment between federal and 
state value based payment programs, citing as an example a state of New 
York initiative that has committed to including shared savings (or 
losses) when calculating its program benchmarks.
---------------------------------------------------------------------------

    \1\ For example, in the June 2015 final rule we explained our 
belief that the adjustment for savings generated in the ACO's prior 
agreement period is important for encouraging ongoing program 
participation by ACOs that were successful 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 that 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 (see 
80 FR 32788). However, as noted elsewhere in this final rule, in the 
June 2015 final rule we stated our belief that it would 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 future changes to the benchmarking methodology 
to incorporate regional FFS expenditures (see 80 FR 32791). See also 
discussion of the policy in the December 2014 proposed rule (79 FR 
72838 through 72839).
---------------------------------------------------------------------------

    Many commenters favored CMS maintaining the current adjustment. 
Some commenters made suggestions, creating opposing alternatives, for 
CMS broadening or narrowing the amount of the adjustment. Although not 
discussed in the proposed rule, several commenters suggested 
incrementally lowering the adjustment amount over time. For example, a 
commenter suggested adding a percentage of prior savings that would be 
reduced in relation to the proposed phase-in to a higher weight in 
calculating the regional adjustment. A commenter, anticipating that 
ACOs in efficient, low-cost areas will be harmed by the proposed 
transition to benchmarks reflecting regional expenditures, encouraged 
CMS to abandon the proposed benchmark rebasing changes, including the 
removal of the adjustment for prior savings and the proposed regional 
FFS adjustment to the ACO's rebased benchmark, and recommended CMS 
continue to explore alternative methodologies for rebasing ACO 
benchmarks.
    Some comments regarding the adjustment for savings generated in a 
prior agreement period seemed to reflect commenters' misunderstanding 
of the methodology for calculating the adjustment described in the June 
2015 final rule (see 80 FR 32788 through 32791). For example, some 
commenters incorrectly described the methodology as based on savings 
earned (indicating only the amount of shared savings payments to 
eligible ACOs) as opposed to savings generated (accounting for savings 
by ACOs that may have lowered expenditures, but not by enough to earn a 
shared savings payment). A commenter stated that the current adjustment 
accounts for half of the savings achieved by the ACO. However, the 
adjustment takes into account the ACO's final sharing rate, which 
depends on the ACO's track as well as its quality performance.
    Response: We believe our intent to propose eliminating the 
adjustment for prior savings was made clear in the discussion in the 
June 2015 final rule of moving to a rebasing approach that accounts for 
regional FFS costs and trends. In outlining our preferred methodology, 
we specified we would calculate the ACO's rebased historical 
benchmark--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 (80 FR 32796). We also specified that in a 
future rule we would put forward details on a revised rebasing approach 
that would address, among other issues, 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 the June 2015 final rule. We also indicated 
that we would consider whether additional adjustment would be needed to 
transition ACOs to the revised benchmark rebasing methodology when they 
have been previously rebased under the methodology established with the 
June 2015 final rule (80 FR 32796).
    We continue to believe that for ACOs generating savings, a rebasing 
methodology that accounts for regional FFS expenditures would generally 
leave a similar or slightly greater share of measured savings in an 
ACO's rebased benchmark for its ensuing agreement period. We disagree 
with comments suggesting that we either maintain the current adjustment 
without modification or broaden the scope of the adjustment for savings 
generated in the ACO's prior agreement period to make it more generous. 
We believe that as a result, benchmarks could become overly inflated 
for some ACOs (particularly those benefiting from the regional FFS 
adjustment) to the point where ACOs would need to do little to maintain 
or change their care practices to generate savings. Further, continued 
application of the current adjustment for savings generated in an ACO's 
prior agreement period, without modification, further ties an ACO's 
historical benchmark to its past performance, rather than making an 
ACO's benchmark more reflective of FFS spending in its region, an 
important aim of the revisions to the rebasing methodology in this 
final rule.
    Therefore, as proposed, we will apply the revised rebasing 
methodology in the new regulation at Sec.  425.603 to reset an ACO's 
historical benchmark for a second or subsequent agreement period 
beginning in 2017 and subsequent years, and will not include an 
adjustment for savings generated in the ACO's prior agreement period.
    Comment: Most commenters discussing the regional adjustment to the 
ACO's rebased historical benchmark favored the proposed use of regional 
average expenditures in the calculation. Some commenters cited reasons 
for preferring the proposed approach instead of the alternative 
considered in the proposed rule, under which we would calculate the 
regional FFS adjustment using a regionally-trended amount based on an 
ACO's historical benchmark from a prior agreement period, including 
that the use of regional averages more closely aligns with the MA rate-
setting methodology and would not depend on older historical data. A 
commenter explained that the reliance on older historical data under 
the regionally-trended approach would decrease the attainability and

[[Page 37966]]

accuracy of the resulting benchmarks over time. In particular, the 
commenter indicated that the: (1) Comparison of ACO assigned 
beneficiaries to non-ACO assigned beneficiaries will not remain stable 
over time as ACO participation in the Shared Savings Program grows or 
declines in a region; and (2) risk adjustment under this approach may 
not be adequate to account for changes in the ACO's composition over 
time in relation to its region.
    A few commenters expressed support for the alternative (use of a 
regionally-trended amount) or a somewhat similar approach. For example, 
a commenter cited concerns that use of regional averages would 
disadvantage ACOs with historically high-cost providers, such as 
skilled nursing facilities, and ultimately incent ACOs to remove these 
providers as participants in order to generate savings below their 
benchmark. Another commenter, detailing findings based on extensive 
modeling, favored an approach under which the historical benchmark for 
the initial agreement period would be updated for subsequent agreement 
periods to account for regional spending growth and for compositional 
changes in ACO beneficiaries or providers without rebasing it to 
reflect the historical costs for the ACO from the most recent years 
prior to the start of the subsequent agreement period.
    Some commenters addressed the anticipated effects of the regional 
FFS adjustment on benchmarks of ACOs with spending relatively lower and 
higher than their region. Commenters explained that the proposed 
approach rewards an ACO with lower spending than its region by 
increasing the ACO's benchmark value. For an ACO with higher spending 
than its region, the proposed approach was anticipated to decrease the 
ACO's benchmark value. Some commenters expressed particular concern 
about the latter group, explaining that the proposed policy could 
create a disincentive for continued participation by ACOs that were 
successful in earning shared savings payments in their initial 
agreement period, but have spending higher than the regional average 
for their regional service area.
    Response: We are finalizing our proposal to calculate the regional 
adjustment to the ACO's historical benchmark as a percentage of the 
difference between the average per capita expenditure amount for the 
ACO's regional service area and the average per capita amount of the 
ACO's rebased historical benchmark for each Medicare enrollment type 
(ESRD, disabled, aged/dual eligible, aged/non-dual eligible). We 
continue to believe there are benefits to using a regional average in 
calculating the adjustment, rather than the alternative approach of 
using a regionally-trended amount, including: greater alignment with 
the MA rate-setting methodology; lack of dependence on older historical 
data; greater transparency for ACOs and other stakeholders; and easier 
integration and alignment with our existing approach to adjusting the 
historical benchmark when an ACO makes ACO Participant List changes.
    We agree with commenters that the regional FFS adjustment will have 
differing effects on an ACO's benchmark depending on whether the ACO's 
spending is relatively lower or higher than the spending for its 
regional service area. As discussed in this section of this final rule, 
we outlined our preferred approach to calculating the adjustment in the 
2016 proposed rule (see 81 FR 5833 and 5834). We specified that we 
would determine the difference between the average per capita regional 
amount and the average per capita amount of the ACO's rebased 
historical benchmark for each Medicare enrollment type (ESRD, disabled, 
aged/dual eligible, aged/non-dual eligible). We indicated that the 
difference would be expressed as a negative number if the value of the 
ACO's rebased historical benchmark for a particular Medicare enrollment 
type is greater than the regional average amount for that enrollment 
type. The difference would be expressed as a positive number if the 
value of the ACO's rebased historical benchmark for a particular 
Medicare enrollment type is less than the regional average amount. We 
anticipate the regional adjustment value will differ by Medicare 
enrollment type for each ACO, and it will be possible to have a mix of 
positive and negative values for the regional adjustment amount across 
these Medicare enrollment types.
    Generally, we anticipate several aspects of the revised rebasing 
methodology will mitigate concerns about the potential negative effects 
of the regional adjustment. First, as discussed in section II.A.2.b of 
this final rule, we believe the inclusion of ACO assigned beneficiaries 
in the calculation of regional FFS expenditures will be important in 
capturing the cost and health status of the beneficiary population 
served by the ACO. For example, for a high spending ACO operating in a 
lower spending region, including the ACO's assigned population in the 
regional FFS expenditures would likely result in a relatively higher 
regional adjustment value than if these beneficiaries were excluded. 
Second, we anticipate the risk adjustment methodology used in 
calculating the regional FFS adjustment will help mitigate the 
incentive for ACOs to avoid relatively higher cost providers and higher 
cost, higher acuity beneficiaries. As discussed in section II.A.2.e.2 
of this final rule, we will use CMS-HCC scores to risk adjust county 
FFS expenditures when determining expenditures for the ACO's regional 
service area, thereby accounting for the severity of health status and 
case mix of this population. Additionally, as discussed elsewhere in 
this section of this final rule, we are finalizing our proposal to 
account for the difference in health status between the ACO's 
population and the ACO's regional service area in calculating the 
regional FFS adjustment. Under this approach, if an ACO's population is 
healthier than the assignable beneficiaries in the ACO's regional 
service area, with lower average risk scores for the relevant period, 
the risk adjustment would reduce the amount of the regional FFS 
adjustment. Similarly, if the ACO's assigned beneficiary population is 
comparably sicker than the assignable beneficiaries in the ACO's 
regional service area, with higher average risk scores for the relevant 
period, the risk adjustment would increase the amount of the regional 
FFS adjustment. Third, we believe our proposed phase-in approach, as 
described in section II.A.2.c.3. of this final rule, will ease the 
transition to this revised methodology for ACOs with historical 
spending higher than that of their region.
    With respect to a more technical consideration for calculating the 
regional FFS adjustment, we note that the proposed regulations text 
specified that in calculating the regional adjustment we would 
determine the ACO's regional expenditures for benchmark year 3. We did 
not receive comments specifically addressing this proposal. We are 
finalizing the policy of using benchmark year 3 data in calculating the 
regional average used to determine the regional FFS adjustment as 
proposed. We believe that calculating the regional adjustment based on 
data from the most recent year prior to the start of the ACO's new 
agreement period will ensure the adjustment reflects the most recent 
historical expenditures. Although there were no comments directed 
specifically to the number of years of data used in calculating the 
regional adjustment, we believe comments suggesting CMS consider use of 
additional years of data in calculating county FFS expenditures 
(described in section II.A.2.e.2 of this final rule) raise

[[Page 37967]]

an important issue. These comments provoked our consideration of the 
possibility of using additional years of data in calculating the 
regional average, including what factors to use to trend the multiple 
years of data in computing the regional average. We anticipate 
continuing to explore this issue as we gain experience with the 
methodology described in this final rule. For example, we will consider 
whether use of additional years of data would add greater precision to 
calculation of regional averages. In the event we determine that any 
changes to the methodology would be appropriate, we would address this 
issue in future rulemaking, particularly in advance of applying a 
higher weight (70 percent) in the regional adjustment calculation as 
discussed in section II.A.2.c.3. of this final rule.
    Comment: Many commenters expressed support for CMS' proposal to 
adjust for an ACO's risk relative to that of assignable beneficiaries 
in its region when determining the regional adjustment to the rebased 
historical benchmark. A commenter expressed support generally for a 
risk adjustment approach that adequately accounts for the higher costs 
of ACOs that include providers and health systems that care for the 
sickest patients and are providing medically necessary care to 
chronically-ill populations. Further, a commenter recommended that in 
blending regional FFS spending with ACO historical spending, the per 
capita spending for each should be similarly risk adjusted.
    However, a commenter disagreed with CMS' proposal to compute a 
measure of risk-adjusted regional expenditures for each Medicare 
enrollment type that would account for differences in the average CMS-
HCC score of the ACO's assigned beneficiary population and the average 
CMS-HCC risk scores in the ACO's regional service area, describing this 
as a change in methodology. This commenter expressed concern about the 
accuracy of using averages in risk adjustment calculations.
    Some commenters raised a variety of concerns about the Shared 
Savings Program's use of the CMS-HCC prospective risk adjustment model, 
or offered alternative risk adjustment approaches. For example, some 
commenters encouraged CMS to consider factors beyond CMS-HCC risk 
scores when performing risk adjustment in the Shared Savings Program, 
including socio-economic and/or socio-demographic factors. Some 
commenters questioned whether the CMS-HCC risk adjustment model could 
effectively account for increasing acuity in a patient's condition over 
time, clinically complex patients, case mix among patient populations, 
and geographic variation. A commenter explained that concerns regarding 
the current risk adjustment methodology have the effect of discouraging 
participation in the program. A few commenters supported better 
aligning risk adjustment in the Shared Savings Program with MA, for 
example, suggesting that the Shared Savings Program adopt the proposed 
refinements to the MA risk adjustment model aimed at improving the 
accuracy of payments to plans serving low-income and dual eligible 
beneficiaries. Other commenters suggested greater transparency by CMS 
in regards to its use of CMS-HCC scores. For example commenters 
suggested making publicly available additional resources on the 
specifications of the CMS-HCC risk adjustment process and developing 
educational resources about improved coding for providers.
    Response: We are finalizing our proposal to risk adjust to account 
for the health status of the ACO's assigned population in relation to 
FFS beneficiaries in the ACO's regional service area as part of the 
methodology for adjusting the ACO's rebased historical benchmark to 
reflect regional FFS expenditures in the ACO's regional service area as 
proposed. We will use full CMS-HCC risk scores in performing this 
adjustment. We agree with comments received in support of our proposal. 
We believe that failure to risk adjust regional FFS expenditures to 
reflect differences between the risk of the ACO's assigned beneficiary 
population and the risk of the broader FFS population in the ACO's 
regional service area would provide an incentive for ACOs to avoid 
serving sicker beneficiaries, an undesired result.
    While the incorporation of risk-adjusted regional expenditures into 
historical benchmarks is a new approach, we disagree that the use of 
average risk scores when performing risk adjustment constitutes a 
change of methodology. Our current methodology risk-adjusts 
expenditures between years using mean CMS-HCC risk scores among an 
ACO's assigned beneficiaries within a particular enrollment type. We 
therefore believe that the approach for risk-adjusting the regional 
adjustment amount that we are adopting in this final rule is consistent 
with current risk-adjustment practices.
    We appreciate the concerns raised by commenters and the suggestions 
offered for refining the Shared Savings Program's general risk 
adjustment methodology, which relies on the CMS-HCC prospective risk 
adjustment model. We consider these suggestions beyond the scope of 
this final rule. We decline at this time to adopt commenters' 
suggestions for use of alternative risk adjustment models, for example 
accounting for socio-economic or socio-demographic factors outside of 
the CMS-HCC risk adjustment model. To the extent that new information, 
such as social determinants of health, is incorporated into the CMS-HCC 
risk adjustment model in the future, we will account for this when 
using risk scores in the Shared Savings Program methodology.
    Comment: Few commenters directly addressed CMS' plan to rigorously 
monitor for coding intensity efforts in combination with the agency's 
proposal to risk adjust for the health status of an ACO's assigned 
beneficiaries relative to the FFS population in its regional service 
area. A few commenters appreciated CMS' concerns about the potential 
for upcoding and a commenter explicitly supported the agency's 
monitoring plans, noting that differences in coding practices between 
ACO clinicians and other FFS clinicians should be taken into account 
when blending regional FFS spending into ACO benchmarks to ensure 
equity.
    A number of commenters expressed the belief that additional coding 
intensity adjustments are not justified, given the various mitigating 
factors cited by CMS in the 2016 proposed rule such as routine changes 
in the assignment of beneficiaries to the ACO from year to year, and 
the inability of ACOs to submit supplemental codes as occurs in MA. 
Some commenters specified that the proposed use of regional trend 
calculations in resetting the benchmark served as a mitigating factor 
as well. Another commenter warned that even if high levels of coding 
are observed, this could be the direct result of providing more 
comprehensive, patient-centered care and that provider efforts to care 
for complex, chronically ill patients should not be penalized.
    Several commenters expressed opinions, sometimes conflicting, on 
what type of coding intensity adjustment CMS should adopt for the 
Shared Savings Program if some type of adjustment is deemed necessary. 
Several commenters supported an approach similar to that used in MA in 
which a coding intensity adjustment is developed based on beneficiaries 
assigned for at least 2 consecutive risk adjustment data years. Another 
commenter expressed opposition to adopting a MA-like approach because 
they believe it unfairly penalizes

[[Page 37968]]

physician organizations engaged in accurate coding practices.
    Although CMS sought comment on whether the methodology currently 
used to adjust the ACO's benchmark annually to account for the health 
status and demographic factors of the ACO's performance year assigned 
beneficiaries (according to newly and continuously assigned 
populations) should also be applied when rebasing the ACO's historical 
benchmark, many commenters expressed their opposition to the current 
use of this methodology in adjusting an ACO's benchmark for each 
performance year and requested that the agency revise the policy. A 
chief concern raised by many commenters is that the approach does not 
accurately reflect the potential for individuals to become sicker and 
more expensive to care for over time (circumstances referred to by some 
commenters as resulting in a higher ``disease burden''). Several 
commenters noted that it was unreasonable to assume that a provider 
organization, however effective, can manage a population such that 
patient conditions never worsen. Some commenters added that this policy 
particularly disadvantages ACOs that care for more complex patients, 
such as those that include tertiary care facilities or academic medical 
centers. A commenter noted that while it appreciated concerns about the 
potential for upcoding, it believed such concerns to be irrelevant 
relative to the negative impact it perceives the current policy for 
risk adjusting an ACO's benchmark for each performance year has on 
program participants.
    A number of commenters also expressed the belief that the continued 
use of the newly/continuously assigned policy as a remedy for upcoding 
lacks justification. A commenter believed that CMS has not provided 
evidence that actual upcoding is occurring among ACOs, or that it would 
occur in the future. Another commenter opined that any adjustments for 
coding intensity should reflect actual, not perceived, coding 
intensity. Among other concerns raised about the methodology, a 
commenter opined that the approach transfers too much risk to ACOs and 
is responsible for deterring ACOs from entering two-sided risk models. 
Another commenter noted that the policy makes the role of the risk 
scores opaque to participating providers, making it difficult to 
anticipate how risk scores may affect performance.
    In light of the previously noted concerns, many commenters urged 
CMS to allow risk scores to increase year-over-year within an agreement 
period for the continuously assigned beneficiary population, or to 
allow them to increase within limits. A commenter recommended that if 
CMS is unwilling to allow risk scores to increase year-over-year for 
all ACOs, the agency should consider allowing increases for 
participants in two-sided risk models, which could encourage 
progression to higher levels of risk. Another commenter thought that 
CMS should, at a minimum, develop a list of conditions that are high 
cost and not subject to efforts to improve documentation and coding 
(for example, ESRD and cancer) and allow the CMS-HCC score for 
beneficiaries with these conditions to increase to reflect the 
increased illness of the beneficiary.
    Some commenters suggested approaches for limiting the impact of 
intensive coding not discussed in the 2016 proposed rule. For example, 
some commenters recommended that if CMS deems a coding adjustment 
necessary, the agency should consider a method that compares CMS-HCC 
risk scores with changes in self-reported health status through the 
Consumer Assessment of Healthcare Providers and Systems (CAHPS) survey. 
Several other commenters thought CMS should consider approaches used by 
the Next Generation ACO model, including accounting for the difference 
in average CMS-HCC risk scores for the baseline and performance-year 
assigned beneficiaries, and limiting the change in an ACO's average 
risk score between the baseline and performance year to plus or minus 3 
percent.
    Response: We appreciate the suggestions made by commenters 
regarding the development of a coding intensity adjustment for the 
Shared Savings Program. We also appreciate commenters' feedback on the 
current policy for adjusting an ACO's historical benchmark for the 
health status of the ACO's performance year assigned population. At 
this time, we believe that continued use of this policy in the 
determination of an ACO's updated benchmark in combination with the use 
of full CMS-HCC risk adjustment in the calculation of the rebased 
historical benchmark strikes a balance between the need to recognize 
changes in beneficiary health status over time with the need to protect 
against intensive coding practices.
    We plan to monitor for the impact of coding initiatives on ACO 
benchmarks, particularly as we gain more experience with the new 
rebasing methodology. In the event that a formal coding intensity 
adjustment is deemed necessary in the future, we would make necessary 
refinements to the program's risk adjustment methodology through future 
rulemaking.
    FINAL ACTION: We are finalizing our proposals to revise the 
methodology used to rebase ACO benchmarks for new agreement periods 
starting on or after January 1, 2017 to incorporate a regional FFS 
adjustment to the ACO's rebased historical benchmark. We are finalizing 
the proposed approach to calculating the regional FFS adjustment using 
average per capita expenditures for benchmark year 3 for assignable 
beneficiaries in the ACO's regional service area, and to risk adjust to 
account for the health status of the ACO's assigned population in 
relation to the assignable FFS beneficiaries in the ACO's regional 
service area in determining the regional FFS adjustment. We are also 
finalizing our proposal to add new Sec.  425.603 that incorporates our 
policies for resetting, adjusting and updating the benchmark for a 
second or subsequent agreement period.
    We did not receive any comments on the specific proposal to 
redetermine the regional FFS adjustment to account for changes to the 
ACO's certified ACO Participant List. We believe this redetermination 
is necessary to ensure that the regional FFS adjustment reflects the 
ACO's participant composition under the new ACO Participant List. 
Therefore, we are finalizing our proposal to redetermine the regional 
FFS adjustment, consistent with the current approach to adjusting an 
ACO's historical benchmark to account for changes in the ACO's 
certified ACO Participant List during the agreement period. This policy 
is also incorporated in new Sec.  425.603.
    We are also finalizing as proposed the conforming and clarifying 
revisions to the provisions of Sec.  425.602, including to: Revise the 
title of the section; remove paragraph (c) and incorporate this 
paragraph in new Sec.  425.603 to address the methodology for 
establishing, adjusting, and updating the historical benchmark for ACOs 
that entered a second agreement period in 2016; and to add a paragraph 
that describes the adjustments made to the ACO's historical benchmark 
during an ACO's first agreement period to account for changes in 
severity and case mix for newly and continuously assigned beneficiaries 
as presently specified under Sec.  425.604, Sec.  425.606, and Sec.  
425.610. We are also finalizing as proposed a change to Sec.  425.20, 
to specify that the acronym ``BY'' stands for benchmark year.

[[Page 37969]]

(3) Transitioning to a Higher Weight in Calculating the Adjustment for 
Regional FFS Expenditures
    In the 2016 proposed rule, we considered both the potential 
positive and negative consequences of quickly transitioning to use of a 
greater weight (70 percent) in calculating the regional adjustment to 
ACOs' rebased historical benchmarks. We explained our belief that 
placing a greater weight on regional expenditures in adjusting an ACO's 
historical benchmark will encourage existing low spending ACOs in 
higher spending and/or higher growth regions to enter and continue 
their participation in the Shared Savings Program. We reiterated our 
view, expressed in the June 2015 final rule, that the benchmarking 
methodology should be revised to help ensure that an ACO that has 
previously achieved success in the program will be rebased under a 
methodology that encourages its continued participation in the program 
(see 80 FR 32788). Further, we again noted the importance of quickly 
moving to a benchmark rebasing approach that accounts for regional FFS 
expenditures and trends in addition to the ACO's historical 
expenditures and trends (see 81 FR 5834).
    We also explained our concern that existing low spending ACOs 
operating in regions with relatively higher spending and/or higher 
growth in expenditures may be positioned to generate savings under the 
proposed revisions to the rebasing methodology because of the regional 
adjustment to their rebased historical expenditures rather than as a 
result of actual gains in efficiency, creating an opportunity for 
arbitrage. In particular, we expressed concern about the potential for 
ACOs to alter their healthcare provider and beneficiary compositions or 
take other such actions in order to achieve more favorable performance 
relative to their region without actually changing their efficiency. We 
anticipated these effects would be more pronounced the larger the 
percentage that is applied to the difference between the average 
expenditures for the ACO's regional service area and the ACO's rebased 
historical expenditures when calculating the regional adjustment. 
However, we expressed our belief that there is uncertainty around the 
magnitude of these possible negative consequences of adjusting the 
ACO's rebased benchmark based on regional expenditures in the ACO's 
regional service area which have yet to be observed. We noted that we 
believed these concerns are likely to be outweighed by the benefits of 
encouraging more efficient care through a benchmark rebasing 
methodology that encourages continued participation by ACOs that are 
efficient relative to their regional service area by placing greater 
weight on regional expenditures when resetting the ACO's benchmark over 
subsequent agreement periods. We explained that the use of a higher 
percentage in calculating the regional adjustment would create strong 
incentives for higher spending ACOs to be more efficient relative to 
their regional service areas while also improving the quality of care 
provided to their beneficiaries. Furthermore, we explained that this 
approach would also ensure that ACOs' rebased benchmarks continue to 
reflect in part their historical spending.
    To balance these concerns, we proposed to adopt a phased approach 
to transitioning to greater weights in calculating the adjustment 
amount, expressed as a percentage of the difference between regional 
average expenditures for the ACO's regional service area and the ACO's 
rebased historical expenditures. Under this approach we would increase 
the weight used in calculating the adjustment over time, making an 
ACO's benchmark gradually more reflective of expenditures in its region 
and less reflective of the ACO's own historical expenditures. This 
proposed phase-in approach included the following features:
     Maintain the current methodology for establishing the 
benchmark for an ACO's first agreement period in the Shared Savings 
Program based on the historical expenditures for beneficiaries assigned 
to the ACO with no adjustment for expenditures in the ACO's regional 
service area in order to provide continued stability to the program and 
the momentum for attracting new organizations. As over 400 ACOs have 
voluntarily entered the program under this methodology, we believe the 
current methodology is an important part of facilitating entry into the 
program by organizations located throughout the nation that have 
differing degrees of experience with accountable care models and have 
varying provider compositions.
     Increase the percentage used in calculating the regional 
adjustment amount, applied to the ACO's rebased historical benchmark, 
over subsequent agreement periods.
    ++ We proposed to calculate the regional adjustment in the ACO's 
second agreement period by applying a weight of 35 percent to the 
difference between regional average expenditures for the ACO's regional 
service area and the ACO's rebased historical benchmark expenditures.
    ++ We proposed that in the ACO's third and subsequent agreement 
periods, the percentage used in this calculation would be set at 70 
percent unless the Secretary determines a lower weight should be 
applied as specified through future rulemaking.
    We discussed that in making a determination of whether a lower 
weight should be used in calculating the adjustment, the Secretary 
would assess what effects the regional adjustment (and other 
modifications to the program made under this rule) are having on the 
Shared Savings Program, considering factors such as, but not limited 
to: The effects on net program costs; the extent of participation in 
the Shared Savings Program; and the efficiency and quality of care 
received by beneficiaries. As part of this determination, the Secretary 
may also take into account other factors, such as the effect of 
implementation of the Medicare Access and CHIP Reauthorization Act of 
2015 (MACRA) on the Shared Savings Program by incentivizing physicians 
and certain other practitioners to participate more broadly in 
alternative payment models (APMs).
    We noted that such a determination could potentially occur in 
advance of the first application of this higher percentage. For 
example, the determination could be made in advance of the agreement 
period beginning January 1, 2020, which is the start of the third 
agreement period for ACOs that entered the program in January 2014 and 
the first group of ACOs to which the revised rebasing methodology being 
adopted in this final rule will apply. Any necessary modifications to 
program policies as a result of the Secretary's determination, such as 
reducing the long-term weight used in calculating the regional 
adjustment below 70 percent or making other program changes (for 
example, refinements to the risk adjustment methodology) would be 
proposed in future rulemaking, such as through the calendar year (CY) 
2020 Physician Fee Schedule rule. Subsequently, we would periodically 
assess the effects of the regional adjustment over time and address any 
needed modifications to program policies in future rulemaking.
     For ACOs that started in the program in 2012 and 2013 and 
started their second agreement period on January 1, 2016, we proposed 
to apply this phased approach when rebasing for their third and fourth 
(and subsequent) agreement periods, as discussed in section II.A.2.f. 
of this final rule.

[[Page 37970]]

    We explained our belief that this phased approach to moving to a 
higher percentage in calculating the adjustment for regional 
expenditures would give ACOs sufficient notice of the transition to 
benchmarks that reflect regional expenditures. Furthermore, we believed 
this approach to phasing in the use of a greater percentage to 
calculate the regional adjustment provides a smoother transition for 
ACOs to benchmarks reflective of regional FFS expenditures, giving ACOs 
more time to prepare for this change and therefore ultimately 
maintaining the stability of ACOs, the Shared Savings Program and the 
markets where ACOs operate. Accordingly, we proposed to incorporate 
these policies regarding the transition to greater weights in 
calculating the regional adjustment amount in the new regulation at 
Sec.  425.603.
    We sought public comment on our proposed approach to phase in the 
weight used in calculating the regional adjustment. We were 
particularly interested in understanding commenters' thoughts and 
suggestions about the percentage that should be used in calculating the 
adjustment for regional FFS expenditures. We also sought comment on the 
alternatives we considered in the proposed rule including: (1) Limiting 
the weight used in the calculation of the adjustment to 50 percent 
(instead of 70 percent) in the ACO's third and subsequent agreement 
period; (2) a more gradual transition to use of a higher percentage in 
calculating the adjustment (such as 35 percent in the second agreement 
period, 50 percent in the third agreement period, and 70 percent in the 
fourth and subsequent agreement period); and (3) a phase-in approach 
that uses regional (instead of national) FFS expenditures to trend 
benchmark year expenditures when establishing and updating the 
benchmark during an ACO's first agreement period (for agreement periods 
beginning on or after January 1, 2017). We also sought comment on 
alternative approaches to address our concerns about selective program 
participation and arbitrage opportunities that would facilitate our use 
of a higher percentage in calculating the amount of the adjustment.
    Comment: A few commenters shared CMS' concerns about the potential 
for negative consequences that could result from transitioning to use 
of factors based on regional FFS expenditures in resetting ACO 
historical benchmarks, including selective participation creating an 
opportunity for arbitrage. These commenters were somewhat divided as to 
the ultimate outcome of these changes. For example, a commenter 
explained that benchmarking ACOs against their region will have the 
effect of more seamlessly encouraging transformative physician care, 
while simultaneously discouraging agreements with entities unwilling or 
unable to make meaningful changes in care delivery. Further, this 
commenter encouraged CMS to implement safeguards that deter the 
negative consequences of transitioning to the use of factors based on 
regional FFS expenditures in resetting ACO benchmarks (for instance, 
protecting against ACOs that increase their spending to lock in a 
higher benchmark, and protecting against benchmarks becoming overly 
inflated to the point where ACOs need to do little to maintain or 
change their care practices to generate savings). Another commenter, 
concerned about discouraging participation by ACOs with expenditures 
higher than their regions and those with losses in their first 
agreement period, and behavioral responses by providers to the revised 
methodology (for example, ACO avoidance of high-cost beneficiaries), 
encouraged CMS to delay finalizing the proposed modifications. A 
commenter identified the availability of traditional FFS, under which 
providers and suppliers can continue to be paid based on the quantity 
of services provided (thereby maintaining their status quo for 
reimbursement rather than entering value based payment models), as 
being a greater concern for the Trust Funds than the potential threat 
of arbitrage by ACOs under the revised rebasing methodology. The 
commenter also noted that the fact that only a portion of ACOs have 
actually been eligible to share in savings to date is an indication 
that there is little reason for concern about arbitrage by ACOs. 
Another commenter counseled that the arbitrage concerns overestimate 
the flexibility of markets, pointing to the existence of ongoing 
relationships between healthcare providers, tied to a range of risk 
bearing contracts, as an example of a mitigating factor. A few 
commenters specifically encouraged CMS to engage in ongoing monitoring 
of the effects of the changes, if implemented, with a commenter 
suggesting CMS address arbitrage concerns by requiring additional 
reporting by ACOs regarding their use of shared savings payments.
    Response: We greatly appreciate commenters' careful consideration 
of the concerns we specified in the 2016 proposed rule, including the 
participation incentives that could result from the transition to a 
rebasing methodology that places a greater weight on a regional FFS 
adjustment over time. We decline to delay finalizing the changes to 
rebasing methodology altogether because of concerns about the potential 
negative effects that could result from these changes, as recommended 
by a commenter. For the reasons we described in the 2016 proposed rule 
(and reiterated in this final rule), we believe a phased approach to 
transitioning to a higher weight in calculating the regional adjustment 
offers the appropriate balance between our concerns about the potential 
negative effects of a revised rebasing approach that places a greater 
weight on regional FFS expenditures and the anticipated benefits of the 
revised rebasing policies for the sustainability of the program. 
Elsewhere in this section of this final rule, we discuss in detail 
issues related to the application of the revised rebasing methodology 
to ACOs with higher spending than their region. In addition, we will 
consider the concerns raised in the comments as we monitor the effects 
of the revised rebasing methodology and as we consider whether further 
modifications to the rebasing policies are necessary. Any changes to 
the rebasing methodology would be addressed in future rulemaking.
    Comment: Most of the commenters discussing the phase-in of the 
weights used in calculating the adjustment, generally expressed support 
for taking an incremental approach to incorporating regional elements 
when resetting an ACO's benchmark. Some commenters expressed support 
for the proposed phased-approach to applying an increasing weight in 
calculating the regional adjustment: To initially calculate the 
adjustment using a 35 percent weight in rebasing the ACO's second 
agreement period benchmark and then increase to using a 70 percent 
weight for subsequent agreement periods. A commenter explained that the 
proposed phased approach to incorporating regional spending into the 
benchmark gives ACOs ample time to adjust to the methodological 
changes. Several commenters were supportive of monitoring the weight 
(percentage) used in calculating the regional adjustment over time, to 
assure balance is struck in setting benchmarks. A commenter expressed 
support for examining the results of the adjustment before switching to 
a higher weight for the regional spending component. A commenter 
emphasized the need to assess the effects of the modifications to the 
benchmarking methodology and to make needed revisions to the policies 
in

[[Page 37971]]

future rulemaking in order to ensure small entities and hospitals (more 
generally), particularly those in rural and underserved areas, are not 
placed at a disadvantage.
    Many commenters urged CMS to provide more options and greater 
flexibility to ACOs (referred to by some as establishing a ``glide 
path'') as they transition to benchmarks containing regional cost data. 
A few commenters cited the importance of this flexibility to encourage 
continued participation by small and rural ACOs. Commenters' 
suggestions focused on allowing ACOs the choice of the proposed 
approach, as well as options for a faster or slower phase-in, 
ultimately reaching a weight of 70 percent, over the course of one to 
three agreement periods (beginning with the ACO's first agreement 
period), including options for incremental increases in the weight used 
to calculate the regional adjustment within an agreement period.
    Some commenters suggested that CMS apply the phase-in differently 
for individual ACOs depending on certain characteristics, such as their 
historical spending, financial performance in the program, or their 
participation in performance-based risk tracks (Tracks 2 and 3). Some 
commenters suggested phasing-in the weight differently depending on 
whether an ACO's historical expenditures were above or below the 
regional average, encouraging adoption of faster phase-in options to 
more quickly benefit ACOs with low spending compared to their region, 
and slower phase-in options to mitigate the anticipated benchmark 
reductions for ACOs with high spending compared to their region. 
Commenters suggested allowing additional flexibility on the pace of the 
phase-in for high performing ACOs and ACOs entering a performance-based 
risk model (Track 2 or 3).
    Many commenters suggested a variety of alternatives to afford ACOs 
greater choice over the timing of applicability (in particular for ACOs 
that entered the Shared Savings Program in 2012 and 2013 and started 
their second agreement period January 1, 2016, as discussed in greater 
detail in section II.A.2.f of this final rule), and the phase-in to the 
proposed maximum percentage (for example, within an agreement period).
    Commenters supporting incorporation of regional cost data into an 
ACO's benchmark for its first agreement period in the Shared Savings 
Program cited perceived benefits including: consistent application of 
the benchmarking methodology across the program; the potential to 
create more equitable benchmarks within a market (noting that urban and 
suburban ACOs tend to have overlapping service areas); and attracting 
new participants to the Shared Savings Program. When discussing the 
weight that should be applied when calculating the regional adjustment 
for an ACO's first agreement period, commenters suggested a range of 
options, typically with a maximum weight of either 30 or 35 percent. 
Some commenters suggested applying an increasing weight when 
calculating the adjustment for the ACO's first agreement period, such 
as 10 percent in year 1, 20 percent in year 2, and 30 percent (or 35 
percent) in year 3.
    Several commenters suggested alternative approaches to the 
methodology proposed, such as: (1) Applying a 100 percent weight when 
calculating the regional FFS adjustment for ACOs with costs lower than 
their region, and zero percent weight when calculating the adjustment 
for ACOs with costs higher than their region; (2) an alternative 
methodology for calculating the adjustment that would both lower the 
weight on the regional component and slow its rate of increase; and (3) 
setting limits on the amount of reduction in the benchmark value that 
could occur as a result of the regional FFS adjustment.
    Response: We are finalizing with modifications our proposal to 
phase-in a higher weight in calculating the regional adjustment over 
time starting in an ACO's second agreement period beginning in 2017 and 
subsequent years and to apply this phased approach to ACOs that entered 
the program in 2012 and 2013 (that started a second agreement period on 
January 1, 2016) when rebasing for their third and subsequent agreement 
periods (as discussed in section II.A.2.f of this final rule). We are 
persuaded by commenters' concerns that the phase-in outlined in the 
proposed rule would be too rapid for ACOs with relatively higher 
spending compared to their region, for which the regional FFS 
adjustment will be negative and result in lower benchmark values. We 
are especially concerned that the revised benchmarking methodology 
could result in attrition from the Shared Savings Program by ACOs that 
are striving to meet the program's goals, including ACOs that have been 
previously successful in generating shared savings. We agree with 
comments suggesting a phase-in approach that applies differing weights 
in the regional adjustment calculation depending on whether an ACO's 
historical expenditures were above or below the regional average for 
the same period. Specifically, we agree with the commenters that 
suggested use of a lower weight in calculating the adjustment for ACOs 
with higher spending compared to their region.
    Accordingly, we are finalizing an approach that will apply a lower 
weight in calculating the regional adjustment the first and second time 
that an ACO's benchmark is rebased under the revised rebasing 
methodology, for those ACOs determined to have spending higher than 
their region. However, we will ultimately apply a weight of 70 percent 
in calculating the adjustment for all ACOs beginning no later than the 
third time the ACO's benchmark is rebased using the revised 
methodology. Under this approach, we will make an initial determination 
about whether the ACO has higher spending compared to its regional 
service area as part of establishing the ACO's rebased historical 
benchmark for the applicable agreement period. Consistent with the 
approach we are finalizing for redetermining the regional FFS 
adjustment when an ACO makes changes to its certified ACO Participant 
List within an agreement period, we will also redetermine whether the 
ACO has higher spending compared to its region, and therefore whether 
the lower weight should be used in calculating the regional adjustment.
    The determination of whether to apply the lower weight in 
calculating the regional FFS adjustment will include the following 
steps:
     For each Medicare enrollment type (ESRD, disabled, aged/
dual eligible, aged/non-dual eligible) we will determine the difference 
between the average per capita expenditure amount for the ACO's 
regional service area and the average per capita amount of the ACO's 
rebased historical benchmark. We will multiply the difference for each 
Medicare enrollment type by the proportion of the ACO's assigned 
beneficiary population for that Medicare enrollment type, based on the 
ACO's assigned beneficiary population for benchmark year 3 of the 
rebased historical benchmark.
     Take the sum of the differences weighted by the ACO's 
proportion of assigned beneficiaries by Medicare enrollment type 
(determined in the previous step). As summarized in Table 2, the result 
of this step will determine the percentage weight applied in 
calculating the regional FFS adjustment:
    ++ If this sum is a net positive value, we will apply the proposed 
weights for calculating the regional FFS adjustment for the agreement 
period: 35 percent the first time the benchmark is rebased using the 
revised methodology; 70 percent the second time the benchmark

[[Page 37972]]

is rebased under this methodology, and in all subsequent agreement 
periods.
    ++ If this sum is a net negative value, we will apply a relatively 
lower weight in calculating the regional FFS adjustment in the first 
two rebasings for which the regional adjustment applies: 25 percent the 
first time the benchmark is rebased under the revised methodology; and 
50 percent the second time the benchmark is rebased under this 
methodology. A weight of 70 percent will be used in the calculation of 
the regional adjustment for ACOs that are determined to have higher 
spending compared to their regional service area during the third 
rebasing in which this regional adjustment is applied, and in all 
subsequent agreement periods.

   Table 2--Percentage Weight Applied in Calculating the Regional FFS
                               Adjustment
------------------------------------------------------------------------
                                                          Weight used to
                                       ACO's spending        calculate
  Agreement period (for example,       relative to its       regional
 2014 starters renewing for 2017)          region           adjustment
                                                             (percent)
------------------------------------------------------------------------
Performance year within an          ACO spending is                   25
 agreement period to which           higher than its
 regional adjustment is applied      regional service
 for the first time (for example,    area.
 second agreement period beginning
 in 2017).
                                    ACO spending is                   35
                                     lower than its
                                     regional service
                                     area.
Performance year within an          ACO spending is                   50
 agreement period to which           higher than its
 regional adjustment is applied      regional service
 for the second time (for example,   area.
 third agreement period beginning
 in 2020).
                                    ACO spending is                   70
                                     lower than its
                                     regional service
                                     area.
Performance year within an          ACO spending is                   70
 agreement period to which           higher than its                  70
 regional adjustment is applied      regional service
 for the third time (for example,    area.
 fourth agreement period beginning  ACO spending is
 in 2023 and subsequent years).      lower than its
                                     regional service
                                     area.
------------------------------------------------------------------------

    After making the determination of the weight to be applied in 
calculating the regional FFS adjustment, we follow the remaining steps 
for calculating the regional FFS adjustment described in section 
II.A.2.c.2 of this final rule:
     Multiply the difference between the average per capita 
expenditure amount for the ACO's regional service area and the average 
per capita amount of the ACO's rebased historical benchmark for each 
Medicare enrollment type by the applicable percentage shown in Table 2. 
This is the adjustment amount for each Medicare enrollment type.
     Apply the adjustment to the ACO's rebased historical 
benchmark by adding the adjustment amount for the Medicare enrollment 
type to the truncated, trended and risk adjusted average per capita 
value of the ACO's rebased historical benchmark for the same Medicare 
enrollment type.
     Multiply the adjusted value of the ACO's rebased 
historical benchmark for each Medicare enrollment type by the 
proportion of the ACO's assigned beneficiary population for that 
Medicare enrollment type, based on the ACO's assigned beneficiary 
population for benchmark year 3 of the rebased historical benchmark.
     Sum expenditures across the four Medicare enrollment types 
to determine the ACO's adjusted rebased historical benchmark.
    We reiterate that, as we explained in the 2016 proposed rule, the 
Secretary will assess what effects the regional adjustment (and other 
modifications to the program made under this rule) are having on the 
Shared Savings Program to determine whether a lower weight (than 70 
percent) should be used in calculating the regional adjustment. Any 
necessary modifications to program policies as a result of the 
Secretary's determination, such as reducing the long-term weight used 
in calculating the regional adjustment below 70 percent or making other 
program changes would be proposed in future rulemaking.
    We believe this phased approach represents a middle ground between 
the comments supporting the proposal, as well as recommendations for 
relatively faster or slower phase-in of the adjustment based on the 
historical costs of the ACO compared to its region. We chose the lower 
weights of 25 percent (compared to 35 percent) and 50 percent (compared 
to 70 percent) to balance providing a more gradual phase in to ACOs 
with higher spending compared to their region with our projected 
estimates of the impact of this policy on the Medicare Trust Funds. We 
believe these lower weights align with commenters' suggestions for 
application of a weight less than 35 percent (for example, between 10 
percent and 30 percent), as well as our consideration of a more gradual 
phase-in of the adjustment by applying weights of 35 percent, 50 
percent, and 70 percent in calculating the regional adjustment over the 
course of 3 agreement periods under the revised rebasing methodology as 
discussed in the 2016 proposed rule.
    Incrementally lowering benchmarks for ACOs determined to have 
higher spending than their region over the course of multiple agreement 
periods will afford these ACOs time to adapt to the revised rebasing 
methodology. This gradual phase in may be especially important for 
successful ACOs with relatively higher costs that may otherwise leave 
the program if faced with a more rapid phase-in to a rebased benchmark 
reflecting factors based on regional FFS expenditures. We decline to 
forgo applying the regional adjustment altogether to ACOs with costs 
higher than their region, as recommended by the comment suggesting use 
of a zero percent weight in calculating the regional adjustment for 
these ACOs. We believe such an approach, which would ensure that the 
benchmark for these ACOs would continue to be based largely on their 
own historical spending, would undermine the purpose of a policy that 
seeks to incrementally make an ACO's benchmark less dependent on its 
own historical spending and more reflective of spending in its regional 
service area.
    We also continue to believe this phased approach mitigates our 
concerns about the opportunity for arbitrage that could result from 
establishing higher benchmarks for ACOs with relatively lower spending 
compared to their region; a concern that is heightened when considering 
a more rapid phase-in to a higher weight in calculating the regional 
adjustment. Specifically, an approach that would more quickly produce 
more generous benchmarks for ACOs could hasten organizations to alter 
their behavior or composition to

[[Page 37973]]

better position themselves to achieve favorable performance relative to 
their region under this methodology without actually changing their 
efficiency. For this reason, we decline to adopt alternative approaches 
recommended by commenters that would apply higher weights in the 
regional adjustment calculation for ACOs that are lower spending 
compared to their regions (such as applying a 100 percent weight in 
calculating the adjustment).
    The approach we are finalizing recognizes that changes in the ACO's 
certified ACO Participant List during an agreement period could result 
in changes in the ACO's historical spending patterns and accordingly 
would result in a change to the weight used in calculating the regional 
adjustment. We believe this approach is responsive to commenters' 
requests for a flexible approach, particularly because it would ensure 
that we always apply the most advantageous weight in calculating the 
adjustment for each performance year within the agreement period 
according to whether the ACO's historical spending based on its most 
recent certified ACO Participant List is relatively higher or lower 
compared to spending in its regional service area.
    We decline at this time to adopt commenters' suggestions to apply 
differing weights in the calculation of the regional adjustment 
depending on other characteristics of ACOs, such as past performance in 
the Shared Savings Program, or participation in a performance-based 
risk track. At this time, we believe the most significant consideration 
in determining the weight applied in the calculation of the regional 
adjustment is the level of the ACO's historical spending compared to 
its regional service area. Consistent with our decision to finalize the 
proposal to remove the adjustment for savings generated under the ACO's 
prior agreement period in calculating the ACO's rebased historical 
benchmark, as we discuss in section II.A.2.c.2 of this final rule, we 
also decline to otherwise account for an ACO's prior savings in 
determining the regional FFS adjustment that is applied to the ACO's 
rebased historical benchmark.
    We are concerned that offering the broader flexibility suggested by 
commenters, including allowing ACOs to choose from a menu of options 
for when the revised rebasing methodology would apply and the weight 
that would be used to calculate the regional adjustment, may invite 
selective participation by those ACOs that would be most advantaged by 
the new benchmarking methodology, thereby increasing the opportunity 
for arbitrage. As previously noted in this final rule, we do not 
believe it would be operationally feasible to apply customized 
benchmarking methodologies to ACOs across the program.
    In contrast, we believe commenters make a convincing argument for a 
phased approach to incorporating regional factors into ACO benchmarks 
beginning with the ACO's initial agreement period in the Shared Savings 
Program. We find particularly persuasive the suggestion that this 
approach may offer the optimal glide-path for ACOs, and also result in 
greater consistency across program benchmark calculations. However, 
given the diversity of comments suggesting faster and slower phase-in 
of the regional adjustment, we believe it will be important to gain 
experience with the use of the regional adjustment as part of the 
rebasing methodology before seeking to adopt the adjustment as part of 
the methodology used to establish the ACO's first agreement period 
benchmark. Therefore, we plan to explore, the possibility of extending 
the phase-in by applying the regional adjustment to an ACO's first 
agreement period benchmark with a weight equal to or lower than 35 
percent, in combination with using alternative factors to trend the 
ACO's historical benchmark (BY1 and BY2 to BY3) and to update the 
benchmark during the agreement period (discussed in section II.A.2.d. 
of this final rule). Any changes to the methodology used to establish 
an ACO's benchmark for its first agreement period would be addressed in 
future rulemaking.
    FINAL ACTION: We are finalizing with modifications a phased 
approach to transitioning to greater weights in calculating the 
regional adjustment amount, which is expressed as a percentage of the 
difference between regional average expenditures for the ACO's regional 
service area and the ACO's rebased historical expenditures. This 
approach maintains the current methodology for establishing the 
benchmark for an ACO's first agreement period in the Shared Savings 
Program based on the historical expenditures for beneficiaries assigned 
to the ACO with no adjustment for expenditures in the ACO's regional 
service area, and the current methodology for resetting the historical 
benchmark for the second agreement period for ACOs that entered the 
program in 2012 and 2013 and started a new agreement period on January 
1, 2016.
    We will apply the regional adjustment to the ACO's rebased 
historical benchmark for ACOs entering a second or subsequent agreement 
period in 2017 and subsequent years. We will use the following phased-
approach to determine the weight used in calculating the adjustment, 
which includes applying a lower weight the first and second time the 
ACO's benchmark is rebased using the regional adjustment if the ACO is 
determined to have spending higher than its region:
     The first time that an ACO's benchmark is rebased using 
the regional adjustment:
    ++ CMS uses a weight of 35 percent of the difference between the 
average per capita expenditure amount for the ACO's regional service 
area and the ACO's rebased historical benchmark amount, if the ACO is 
determined to have lower spending than its regional service area;
    ++ The percentage used in this calculation will be set at 25 
percent if the ACO is determined to have higher spending than its 
regional service area.
     The second time that an ACO's benchmark is rebased using 
the regional adjustment:
    ++ CMS uses a weight of 70 percent of the difference between the 
average per capita expenditure amount for the ACO's regional service 
area and the ACO's rebased historical benchmark amount if the ACO is 
determined to have lower spending than the ACO's regional service area, 
unless the Secretary determines a lower weight should be applied, as 
specified through future rulemaking;
    ++ The percentage used in this calculation will be set at 50 
percent if the ACO is determined to have higher spending than the ACO's 
regional service area.
     The third or subsequent time that the ACO's benchmark is 
rebased using the regional adjustment, the percentage used in this 
calculation will be set at 70 percent unless the Secretary determines a 
lower weight should be applied, as specified through future rulemaking.
     If CMS adjusts the ACO's benchmark during the term of the 
agreement period to reflect the addition or removal of ACO participants 
or ACO providers/suppliers, CMS will redetermine whether the ACO is 
considered to have lower spending or higher spending compared to the 
ACO's regional service area for purposes of determining the percentage 
to be used in calculating the regional adjustment.
    We are incorporating this phased approach to transitioning to 
greater weights in calculating the regional adjustment in new Sec.  
425.603.
    As discussed in section II.A.2.f of this final rule, this phased 
approach will apply to ACOs that entered the program

[[Page 37974]]

in 2012 and 2013 and started their second agreement period on January 
1, 2016, for the first time in calculating their rebased historical 
benchmark for their third agreement period (beginning in 2019).
d. Parity Between Establishing and Updating the Rebased Historical 
Benchmark
(1) Background
    In the 2016 proposed rule we provided background on policies 
regarding the historical benchmark trend factors and annual benchmark 
updates during the agreement period, including our previous 
consideration of whether to base these trend and update factors on 
State, local or regional expenditures instead of national FFS 
expenditures (see 81 FR 5836 through 5838).
    In the initial rulemaking to establish the Shared Savings Program, 
we identified the need to trend forward the expenditures in each of the 
3 years making up the historical benchmark. As explained in earlier 
rulemaking, because the statute requires the use of the most recent 3 
years of per-beneficiary expenditures for Parts A and B services for 
FFS beneficiaries assigned to the ACO to estimate the benchmark for 
each ACO, the per capita expenditures for each year must be trended 
forward to current year dollars before they are averaged using the 
applicable weights to obtain the benchmark (see 76 FR 19609). In the 
November 2011 final rule, we finalized an approach under Sec.  
425.602(a)(5) for trending forward benchmark expenditures based on 
national FFS Medicare growth rates for each of the following 
populations of beneficiaries: ESRD, disabled, aged/dual eligible, aged/
non-dual eligible (76 FR 67924 and 67925). We also explained that 
making separate calculations for specific groups of beneficiaries--
specifically the aged/dual eligible, aged/non-dual eligible, disabled, 
and ESRD populations--accounts for variation in costs of these groups 
of beneficiaries, resulting in more accurate calculations (76 FR 
67924). We considered using national, State or local growth factors to 
trend forward historical benchmark expenditures (76 FR 19609 through 
19610 and 76 FR 67924 through 67925).
    Among other considerations, we explained that the anticipated net 
effect of using the same trending factor based on the national growth 
rate for all ACOs would be to provide a relatively higher benchmark for 
low growth/low spending ACOs and a relatively lower benchmark for high 
growth/high spending ACOs. ACOs in high cost, high growth areas would 
therefore have an incentive to reduce their rate of growth more to 
bring their costs more in line with the national average; while ACOs in 
low cost, low growth areas would have an incentive to continue to 
maintain or improve their overall lower spending levels (see 76 FR 
67925). We also explained that use of the national growth rate could 
also disproportionately encourage the development of ACOs in areas with 
historical growth rates below the national average (see 76 FR 19610). 
These ACOs would benefit from having a relatively higher benchmark, 
which would increase the chances for shared savings. On the other hand, 
ACOs in areas with historically higher growth rates above the national 
average would have a relatively lower benchmark, and might be 
discouraged from participating in the program (see 76 FR 19610).
    In contrast, as we explained in the initial rulemaking to establish 
the Shared Savings Program, trending expenditures based on State or 
local area growth rates in Medicare Parts A and B expenditures may more 
accurately reflect the experience in an ACO's area and mitigate 
differential incentives for participation based on location (see 76 FR 
19610). We considered, but did not finalize, an option to trend the 
benchmark by the lower of the national projected growth rate or the 
State or the local growth rate (see 76 FR 19610 and 76 FR 67925). This 
option balanced providing a more accurate reflection of local 
experience with not rewarding historical growth higher than the 
national average. We believed this method would instill stronger saving 
incentives for ACOs in both high growth and low growth areas (see 76 FR 
19610).
    Section 1899(d)(1)(B)(ii) of the Act states that the benchmark 
shall be updated by the projected absolute amount of growth in national 
per capita expenditures for Parts A and B services under the original 
Medicare FFS program, as estimated by the Secretary. Further, the 
Secretary's authority under section 1899(i)(3) of the Act, for 
implementing other payment models, allows for alternatives to using 
national expenditures for updating the benchmark, as long as the 
Secretary determines the approach improves the quality and efficiency 
of items and services furnished under Medicare and does not to result 
in additional program expenditures.
    In the initial rulemaking, we finalized our policy under Sec.  
425.602(b) to update the historical benchmark annually for each year of 
the agreement period based on the flat dollar equivalent of the 
projected absolute amount of growth in national per capita expenditures 
for Parts A and B services under the original Medicare FFS program as 
specified under section 1899(d)(1)(B)(ii) of the Act. Further, 
consistent with the final policies for calculating the historical 
benchmark (among other aspects of the Shared Savings Program's 
financial models) the calculations for updating the benchmark are made 
for each of the following populations of beneficiaries: ESRD, disabled, 
aged/dual eligible, aged/non-dual eligible (76 FR 67926 and 67927). In 
developing this policy, we also considered using our authority under 
section 1899(i)(3) of the Act to update the benchmark by the lower of 
the projected absolute amount of growth in national per capita 
expenditures and the projected absolute amount of growth in local/state 
per capita expenditures (see 76 FR 19610 and 19611).
    Among other considerations, we explained that using a flat dollar 
increase, which would be the same for all ACOs, provides a relatively 
higher expenditure benchmark for low growth, low spending ACOs and a 
relatively lower benchmark for high growth, high spending ACOs. 
Therefore, ACOs in high spending, high growth areas must reduce their 
rate of growth more (compared to ACOs in low spending, low growth 
areas) to bring their costs more in line with the national average (see 
76 FR 19610). We also indicated that these circumstances could 
contribute to selective program participation by ACOs favored by the 
national flat-dollar update, and ultimately result in Medicare costs 
from shared savings payments that result from higher benchmarks rather 
than an ACO's care coordination activities (see 76 FR 19610 through 
19611 and 19635). Incorporating more localized growth factors reflects 
the expenditure and growth patterns within the geographic area served 
by ACO participants, potentially providing a more accurate estimate of 
the updated benchmark based on the area from which the ACO derives its 
patient population (76 FR 19610).
    In the June 2015 final rule, we discussed comments received on 
benchmark rebasing alternatives discussed in the December 2014 proposed 
rule that would include using regional FFS expenditures, instead of 
national FFS expenditures, to develop the historical benchmark trend 
factors and to update the benchmark during the agreement period (79 FR 
72839; 79 FR 72841 through 72843; 80 FR 32792, 32794). We indicated our 
plan to consider further what additional

[[Page 37975]]

adjustments should be made to the benchmarking methodology when moving 
to a rebasing approach that accounts for regional FFS trends, including 
whether to incorporate regional FFS expenditures in updating an ACO's 
historical benchmark each performance year or to maintain the 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 FFS program (80 FR 32796).
(2) Regional Growth Rate as a Benchmark Trending Factor
    We proposed to replace the national trend factors currently used 
for trending an ACO's BY1 and BY2 expenditures to BY3 in calculating an 
ACO's rebased historical benchmark with regional trend factors derived 
from a weighted average of risk adjusted FFS expenditures in the 
counties where the ACO's assigned beneficiaries reside. Further, we 
proposed to calculate and apply these trend factors for each of the 
following populations of beneficiaries: ESRD, disabled, aged/dual 
eligible, aged/non-dual eligible. We proposed to incorporate these 
changes in a new regulation at Sec.  425.603.
    To align with the proposed methodology for calculating regional FFS 
expenditures for an ACO's regional service area, we considered the 
following approach for calculating regional FFS trend factors:
     For each benchmark year, calculate risk adjusted county 
FFS expenditures for the ACO's regional service area. County FFS 
expenditures would be determined consistent with other proposals 
discussed in the 2016 proposed rule, by using total county-level FFS 
Parts A and B expenditures for assignable beneficiaries, excluding IME, 
DSH, and uncompensated care payments, but including beneficiary 
identifiable payments made under a demonstration, pilot or time limited 
program; regional expenditures would be calculated for each Medicare 
enrollment type (ESRD, disabled, aged/dual eligible, aged/non-dual 
eligible);
     For each benchmark year, compute a weighted average of 
risk adjusted county-level FFS expenditures using weights that reflect 
the proportion of an ACO's assigned beneficiaries residing in each 
county within the ACO's regional service area. Calculations would be 
done by Medicare enrollment type (ESRD, disabled, aged/dual eligible, 
aged/non-dual eligible) based on the ACO's benchmark year assigned 
population.
     Compute the average growth rates from BY1 to BY3, and from 
BY2 to BY3, using the weighted average of risk-adjusted county level 
FFS expenditures for the respective benchmark years, for each Medicare 
enrollment type.
    We explained that we would apply these regional trend factors to 
the ACO's historical benchmark expenditures, which are also adjusted 
based on the CMS-HCC model, to account for the severity and case mix of 
the ACO's assigned beneficiaries in each benchmark year.
    We discussed that using regional trend factors, instead of national 
trend factors to trend forward expenditures in the benchmark period, 
would further incorporate regional FFS spending and population dynamics 
specific to the ACO's regional service area in the ACO's rebased 
benchmark. We explained our belief that there are number of relevant 
considerations for moving to use of regional trend factors, including 
the following:
     Regional trend factors would more accurately reflect the 
cost growth experience in an ACO's regional service area compared to 
use of national trend factors.
     Regional trend factors would reflect the change in the 
health status of the FFS population that makes up the ACO's regional 
service area, the region's geographic composition (such as rural versus 
urban areas), and socio-economic differences that may be regionally 
related.
     Regional trend factors could better capture location-
specific changes in Medicare payments (for example, the area wage 
index) compared to use of national trend factors.
    We also considered how use of regional trend factors in resetting 
ACO benchmarks could affect participation by relatively high- and low-
growth ACOs operating in regions with high and low growth in Medicare 
FFS expenditures. We anticipated the following:
     Using regional trend factors would result in relatively 
higher benchmarks for ACOs that are low growth in relation to their 
region compared to benchmarks for ACOs that are high growth relative to 
their region. Therefore, use of regional FFS trends could 
disproportionately encourage the development of and continued 
participation by ACOs with rates of growth below that of their region. 
These ACOs would benefit from having a relatively higher benchmark, 
which would increase their chances for shared savings. On the other 
hand, ACOs with historically higher rates of growth above the regional 
average would have a relatively lower benchmark and may be discouraged 
from participating if they are not confident of their ability to bring 
their costs in line with costs in their region.
     In using regional growth rates specific to an ACO's 
regional service area and composition (by Medicare enrollment type), 
there would likely be significant variation in the growth rates between 
health care markets in different regions of the country and even 
between ACOs operating in the same markets. This approach would be a 
departure from the current methodology, which applies a single set of 
national growth factors calculated for each benchmark year by Medicare 
enrollment type (ESRD, disabled, aged/dual eligible, aged/non-dual 
eligible). However, ACOs familiar with the composition of their 
assigned population and cost trends in their regional service area may 
find they can more readily anticipate what these trend factors may be. 
We indicated that stakeholders may find it helpful to observe 
differences in county FFS expenditures using the data files made 
publicly available in conjunction with the 2016 proposed rule.
    We sought comment on the proposed change to the rebased historical 
benchmark trend factor. We also considered and sought comment on 
several alternative approaches, including:
     Using regional trend factors for trending forward an ACO's 
BY1 and BY2 expenditures to BY3 in establishing and resetting 
historical benchmarks under the approach to resetting ACO benchmarks 
established with the June 2015 final rule (under which we equally 
weight the benchmark years, and account for savings generated under the 
ACO's prior agreement period), as an alternative to adopting the 
approach to adjusting rebased benchmarks to reflect FFS expenditures in 
the ACO's regional service area, as discussed in the 2016 proposed 
rule.
     Applying regional trend factors for trending forward BY1 
and BY2 expenditures to BY3 in establishing the benchmark for an ACO's 
first agreement period under Sec.  425.602(a), allowing this policy to 
be applied consistently program-wide beginning with an ACO's first 
agreement period.
    Comment: Some commenters discussed issues relevant both to the 
proposal to replace national growth rates with regional growth rates 
for trending the rebased benchmark (BY1 and BY2 expenditures to BY3) 
and the proposed use of regional growth rates instead of a national 
flat dollar amount to update the benchmark each performance year. The 
following

[[Page 37976]]

summary reflects these more general considerations, while later in this 
section of this final rule we discuss comments specific to each of 
these proposals. Comments were somewhat divided between support for and 
concerns about the proposals on using regional FFS expenditures instead 
of national FFS expenditures in calculating trend and update factors. 
Broader considerations reflected in the comments, relevant to both 
proposals include the following:
     Among commenters supporting the proposed use of regional 
growth rates instead of factors based on national FFS expenditures in 
benchmark calculations, some believed this approach generally would 
result in benchmarks that better reflect the regional patterns in 
spending and costs. Additionally, several commenters explained that the 
use of national FFS expenditures as a component of the benchmark does 
not accurately reflect what is possible for ACOs to achieve, in terms 
of controlling growth in Medicare spending, within their geographic 
area or with respect to their assigned patient population.
     Some commenters disagreed with the proposed use of 
regional growth rates in benchmark calculations, perceiving that these 
modifications could negatively impact benchmarks by, for example: (1) 
Allowing individual provider anomalies to have a material impact on an 
ACO's benchmark; (2) lowering benchmarks (compared to the current 
methodology) for ACOs in low growth regions, with a commenter noting 
that ACOs in higher-growth areas would be rewarded with higher 
benchmarks; (3) lowering benchmarks in regions where ACOs have been 
successful in reducing growth in expenditures (particularly for 
successful ACOs that are dominant in a region, or ACO-heavy regions).
     Some commenters were concerned about the discussion in the 
proposed rule indicating that the proposed changes could have mixed 
effects, increasing and decreasing benchmarks for ACOs depending on 
their circumstances.
     Several commenters expressed support for adopting the use 
of regional trend and update factors across all ACOs, including ACOs 
within their first agreement period. A commenter explained that 
applying different methodologies in the first and subsequent agreement 
periods adds complexity and reduces predictability of the benchmark 
values.
    A few commenters noted CMS' larger goal of reducing regional 
variation in health care utilization and costs. A commenter expressed 
concern that using regional factors to formulate benchmarks for Shared 
Savings Program ACOs may exacerbate geographic variation and is 
antithetical to CMS' broader goal of reducing this variation. However, 
another commenter stated that use of regional expenditure growth rates 
rather than national expenditure growth rates in benchmark calculations 
will better facilitate CMS' goal of encouraging Shared Savings Program 
ACOs to transition to risk bearing arrangements.
    Response: We appreciate commenters' support of the proposed use of 
growth rates based on regional FFS expenditures to trend forward BY1 
and BY2 expenditures to BY3 when establishing the ACO's rebased 
historical benchmark and to annually update the ACO's rebased 
historical benchmark, as well as comments describing concerns with use 
of regional growth rates in these calculations. We agree with comments 
indicating the use of regional growth rates for the trend and update 
factors will have mixed effects on ACOs' rebased benchmarks, increasing 
or decreasing the benchmark values depending on the growth rates 
determined for the ACO's regional service area as we described in the 
2016 proposed rule and reiterate in this final rule. As discussed in 
greater detail in section II.A.2.d.3 of this final rule, we plan to 
explore through future rulemaking alternative approaches to calculating 
the trend and update factors that may help mitigate concerns raised by 
some commenters about the potential disadvantages for some ACOs of 
transitioning from national to regional trend and update factors. We 
also plan to explore through future rulemaking suggestions by some 
commenters to begin to incorporate regional factors in the ACO's first 
agreement period.
    On the whole, for the reasons described in the 2016 proposed rule 
and echoed in some comments, we believe these policy changes are an 
important step towards making an ACO's rebased historical benchmark 
more reflective of the ACO's regional service area including better 
reflecting the region's cost experience, location-specific Medicare 
payment changes, as well as the health status of the region's FFS 
population. We believe these changes to the methodology are responsive 
to stakeholders' requests that we incorporate regional FFS expenditures 
into the ACO's rebased historical benchmark, and therefore are critical 
to ensuring the sustainability of the program.
    Comment: Commenters also offered suggestions specific to the 
proposed use of regional growth rates for trending the rebased 
benchmark. Although some commenters were supportive of the proposed 
methodology for calculating the growth rates to be used as trend 
factors in establishing an ACO's rebased historical benchmark, a 
commenter conditioned support for use of regional trend factors on the 
ACO's spending being compared to spending for the regional Medicare FFS 
population excluding beneficiaries assigned to the ACO or any other ACO 
in the region. Some commenters disagreed with the proposed change from 
using national FFS expenditures to using regional FFS expenditures to 
calculate the trend factors used to establish an ACO's rebased 
historical benchmark, for reasons previously described in this section 
of this final rule.
    Response: We are finalizing as proposed the use of regional growth 
rates to calculate the trend factor for establishing an ACO's rebased 
historical benchmark. We appreciate commenters' support for this 
approach, which we believe will more quickly transition the program to 
benchmark calculations reflecting spending, and spending growth, in the 
ACO's regional service area and is consistent with the approach we are 
finalizing for calculating the annual update to the ACO's rebased 
historical benchmark. For these reasons, we decline the suggestion by 
some commenters to continue using trend factors based on national FFS 
expenditures in establishing an ACO's rebased historical benchmark.
    In section II.A.2.b of this final rule, we discuss comments 
suggesting exclusion of ACO assigned beneficiaries from the population 
used to determine expenditures for the ACO's regional service area, and 
the reasons why we believe it is appropriate to include ACO assigned 
beneficiaries when calculating regional FFS expenditures. For the same 
reasons, we believe it is appropriate to include expenditures for these 
ACO assigned beneficiaries when determining regional trend and update 
factors.
    Comment: A few commenters recommended alternative approaches to 
using regional growth rates for trending benchmark expenditures to 
establish an ACO's rebased historical benchmark not discussed in the 
proposed rule. For example, a commenter suggested a methodology that 
would account for both national and regional FFS expenditure trends, 
expressing concern that replacing the national trend factor with only a 
regional trend factor would pose additional challenges for ACOs in low-
cost regions to meet the benchmark. Another commenter suggested 
allowing

[[Page 37977]]

ACOs a choice of regional or national trend factors, explaining that 
this choice would allow each ACO to take into consideration the many 
competitive factors driving change within its local market.
    Response: We decline to adopt any of the alternative approaches 
recommended by commenters for calculating the trend factors. Elsewhere 
in this section of this final rule we discuss concerns that use of 
regional growth rates in benchmark calculations for the trend factors 
and the annual update will result in relatively lower benchmarks for 
ACOs in regions where spending growth is limited compared to areas with 
higher spending growth. In section II.A.2.d.3 of this final rule, we 
discuss our plan to explore an alternative approach to calculating the 
annual update, and also the benchmark trend factors, using standardized 
national FFS expenditures. We believe this approach has the potential 
to address the concerns raised by the commenter that suggested using an 
approach to determining trend factors that accounts for both national 
and regional FFS expenditure trends. We also decline at this time to 
adopt the commenter's suggestion for an approach that (by design) would 
allow ACOs the choice between trend factors (national or regional). 
Such an approach could lead to opportunities for arbitrage and may dull 
incentives for ACOs to improve their performance under the Shared 
Savings Program, as well as create additional operational complexities 
for implementing the policy.
    Comment: Some commenters supported using a similar approach to 
calculate both the trend factors used in establishing the ACO's rebased 
historical benchmark and the annual update to the rebased benchmark, as 
described in the 2016 proposed rule. A commenter expressed concern that 
the descriptions of the calculations for the proposed regional trend 
factors and annual update were based on different parameters but 
arrived at the same outcome.
    Response: In the 2016 proposed rule (81 FR 5838 and 5839), we 
outlined the steps for calculating the regional growth rates for the 
regional trend factors used in establishing the ACO's rebased benchmark 
and for the annual update to the ACO's rebased benchmark. We appreciate 
the commenter's attention to the details in the descriptions of our 
proposed methodologies for trending and updating the benchmark. The 
methodologies used to calculate the growth rates for the trend factor 
and annual update are the same: for both the trend factor and the 
annual update, we will determine risk-adjusted county FFS expenditures 
for the ACO's regional service area, calculated by Medicare enrollment 
type (ESRD, disabled, aged/dual eligible, aged/non-dual eligible) for 
the relevant reference years, and determine the percentage change in 
regional FFS expenditures for the ACO's regional service area. However, 
there are certain necessary differences in the reference years used for 
purposes of trending and updating the benchmark. Specifically, the 
trend factors represent the growth rates between the ACO's historical 
benchmark years (trend factor of BY1 and BY2 to BY3), whereas the 
annual update represents the growth rate between benchmark year 3 and 
the performance year. Therefore, both growth rates will reflect changes 
in expenditures for the ACO's regional service area (according to the 
counties of residence of the ACO's assigned beneficiaries) for each of 
the 2 reference years used in determining the applicable growth rate. 
We believe that the approaches are generally consistent and together 
they will result in a benchmark that consistently reflects the rate of 
growth in expenditures for the ACO's region.
    FINAL ACTION: We are finalizing as proposed the use of regional 
growth rates, derived from a weighted average of risk adjusted FFS 
expenditures for the ACO's regional service area, determined by the 
counties where the ACO's assigned beneficiaries reside, to trend 
forward an ACO's BY1 and BY2 expenditures to BY3 in calculating an 
ACO's rebased historical benchmark. We will calculate and apply these 
trend factors for each of the following populations of beneficiaries: 
ESRD, disabled, aged/dual eligible, aged/non-dual eligible. We are 
incorporating this methodology at Sec.  425.603(c)(5).
(3) Updating the Reset Benchmark During the Agreement Period
    Using the authority of section 1899(i)(3) of the Act, we proposed 
to include a provision in a new regulation at Sec.  425.603 to specify 
that for ACOs in their second or subsequent agreement period whose 
rebased historical benchmark incorporates an adjustment to reflect 
regional expenditures, the annual update to the benchmark will be 
calculated as a growth rate that reflects growth in risk adjusted 
regional per beneficiary FFS spending for the ACO's regional service 
area. Further, we proposed to calculate and apply separate update 
factors based on risk adjusted regional FFS expenditures for each of 
the following populations of beneficiaries: ESRD, disabled, aged/dual 
eligible, aged/non-dual eligible. We proposed that this approach would 
replace the annual update to the historical benchmark for each year of 
the agreement period based on the flat dollar equivalent of the 
projected absolute amount of growth in national per capita expenditures 
for Parts A and B services under the original Medicare FFS program 
under section 1899(d)(1)(B)(ii) of the Act. We explained our 
considerations in developing this proposal and sought comment on the 
proposed methodology.
    We considered the following issues in developing our proposed 
modification to the methodology for updating the ACO's rebased 
historical benchmark:
     Using an update factor based on the regional FFS 
expenditures for the ACO's regional service area to update an ACO's 
rebased historical benchmark during the ACO's second or subsequent 
agreement period would align with our proposal to use regional FFS 
expenditures in developing the trend factors for the rebased historical 
benchmark (to trend BY1 and BY2 expenditures to BY3) and our proposal 
to adjust the ACO's rebased historical benchmark to reflect regional 
FFS expenditures.
     Updating the benchmark based on regional FFS expenditures 
annually, during the course of the agreement period, would result in a 
benchmark used to determine shared savings and shared losses for a 
performance year that reflects trends in regional FFS growth for the 
ACO's regional service area for the corresponding year. We explained 
that calculating the update factor using regional FFS expenditures 
would better capture the cost experience in the ACO's region, the 
health status and socio-economic dynamics of the regional population, 
and location-specific Medicare payments, when compared to using 
national FFS expenditures.
     Adopting this approach would require our use of authority 
under section 1899(i)(3) of the Act as it is a departure from the 
methodology for annually updating the benchmark specified under section 
1899(d)(1)(B)(ii) of the Act.
    We considered using the following approach to calculate the 
regional update amount for each Medicare enrollment type (ESRD, 
disabled, aged/dual eligible, aged/non-dual eligible):
     For each calendar year corresponding to a performance 
year, calculate risk adjusted county FFS expenditures for the ACO's 
regional service area. As described in the 2016 proposed rule, county 
FFS expenditures would be determined using total county-level FFS Parts 
A and B

[[Page 37978]]

expenditures for assignable beneficiaries, excluding IME, DSH, and 
uncompensated care payments, but including beneficiary identifiable 
payments made under a demonstration, pilot or time limited program, 
truncated and risk adjusted for each Medicare enrollment type (ESRD, 
disabled, aged/dual eligible, aged/non-dual eligible). The ACO's 
regional service area would be defined based on the ACO's assigned 
beneficiary population used to perform financial reconciliation for the 
relevant performance year.
     Compute a weighted average of risk adjusted county-level 
FFS expenditures with weights based on the proportion of an ACO's 
assigned beneficiaries residing in each county of the ACO's regional 
service area. Calculations would be done by Medicare enrollment type 
(ESRD, disabled, aged/dual eligible, aged/non-dual eligible) based on 
the ACO's assigned population used to perform financial reconciliation 
for the relevant performance year.
     Although not specified in the 2016 proposed rule, a 
necessary step in this calculation is computing the growth rates as the 
ratio of weighted average risk-adjusted county level FFS expenditures 
for the applicable 2 years. To clarify, we would determine the regional 
growth rates by comparing expenditures determined in the previous step 
for the relevant performance year with expenditures for BY3.
    We considered whether to calculate a flat dollar equivalent of the 
projected absolute amount of growth in regional per capita expenditures 
for Parts A and B FFS services, or whether to calculate the percentage 
change in growth in regional FFS expenditures for the ACO's regional 
service area. We discussed issues related to use of a growth rate or a 
flat dollar amount in the initial rulemaking to establish the Shared 
Savings Program, including our view that a growth rate would more 
accurately reflect each ACO's historical experience, but could also 
perpetuate current regional differences in medical expenditures (see 76 
FR 19609 through 19610 and 76 FR 67924). Based on the reasons discussed 
in the earlier rulemaking, we noted our belief that using growth rates 
to determine the annual update would more effectively capture changes 
in the ACO's regional service area expenditures and changes in the 
health status of the ACO's population in comparison to the health 
status of the population of the ACO's regional service area over time. 
We explained that using a growth rate to update ACOs' benchmarks would 
also result in proportionately larger updates for higher spending ACOs 
in the region and lower updates for lower spending ACOs in the region 
and would strike a balance with the flat-dollar average regional 
expenditures used to adjust the ACOs historical benchmark.
    We further described the anticipated effects of the proposed change 
to the methodology for calculating the update to an ACO's rebased 
historical benchmark, including:
     The use of an update factor based on regional FFS spending 
offers different incentives compared to an update factor reflecting 
only growth in national FFS spending. For instance, accounting for 
national FFS spending in an ACO's benchmark update would provide a 
relatively higher expenditure benchmark for low spending ACOs in low 
growth areas and a relatively lower benchmark for high spending ACOs in 
high growth areas. In contrast, accounting for changes in regional FFS 
spending between the benchmark and the performance year by updating the 
benchmark according to changes in regional FFS expenditures would 
ensure that the benchmark continues to reflect recent trends in FFS 
spending growth in the ACO's region throughout the duration of the 
ACO's agreement period.
     The use of an update factor based on regional FFS spending 
will likely result in significant variation in annual benchmark updates 
for individual ACOs, reflecting the cost experience in each ACO's 
individualized regional service area along with changes in the health 
status of the population of patients served by the ACO as well as 
changes in the types of Medicare entitlement status in the ACO's 
assigned beneficiary population. The degree of year-to-year change in 
expenditures will likely vary in both existing low- and high-growth 
regions and could also vary significantly from expectations. We 
explained, based on our past experience with calculating the 2012 
national FFS growth factors (as used for interim reconciliation for the 
2012 starters), the potential for negative updates and corresponding 
decreases in benchmark values.
    We also considered how to apply the update to the ACO's rebased 
historical benchmark adjusted for expenditures in the ACO's regional 
service area. We specified that the update would be applied after all 
adjustments are made to the ACO's rebased benchmark. We detailed a 
sequence for these adjustments and the application of the update that 
would maintain the overall structure of the program's current 
methodology, and align with the other revisions to the methodology used 
to calculate an ACO's rebased historical benchmark described in the 
2016 proposed rule.
    We explained it would be necessary to use the discretionary 
authority in section 1899(i)(3) of the Act to adopt a policy under 
which we would calculate the benchmark update using regional FFS 
expenditures. Section 1899(i)(3) of the Act authorizes the Secretary to 
use other payment models in place of the payment 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. We explained our belief that updating an ACO's 
rebased historical benchmark based on regional FFS spending, rather 
than national FFS spending, would have positive effects for the Shared 
Savings Program and Medicare beneficiaries. As described in the 
regulatory impact analysis of the 2016 proposed rule, we noted the 
proposed changes to the payment model used in the Shared Savings 
Program, including updating the ACO's rebased historical benchmark 
based on regional FFS spending, were anticipated to increase overall 
participation in the program, improve incentives for ACOs to invest in 
effective care management efforts, and increase the accuracy of 
benchmarks in capturing the experience in an ACO's regional service 
area compared to the use of national FFS expenditures. Therefore, we 
believed these changes would result in improved quality of care 
furnished to Medicare beneficiaries, and greater efficiency of items 
and services furnished to these beneficiaries, as more ACOs enter and 
remain in the Shared Savings Program and continue to work to meet the 
program's three-part aim of better care for individuals, better health 
for populations and lower growth in expenditures.
    We noted that section 1899(i)(3)(B) of the Act provides that the 
requirement that the other payment model not result in additional 
program expenditures ``shall apply . . . in a similar manner as 
[subparagraph (b) of paragraph (2) of section 1899(i)] applies to the 
payment model under [section 1899(i)(2)].'' Section 1899(i)(2) of the 
Act provides discretion for the Secretary to use a partial capitation 
model rather than the payment model described in section 1899(d) of the 
Act. Section 1899(i)(2)(B) of the Act provides that payments to an ACO 
for items and services for beneficiaries for a year under the partial 
capitation model shall be established in a manner that does not result 
in spending more for such ACO for such

[[Page 37979]]

beneficiaries than would otherwise be expended for such ACO for such 
beneficiaries for such year if the model were not implemented, as 
estimated by the Secretary.
    We explained that we had not previously addressed this provision in 
rulemaking. We stated our belief that we could use a number of 
approaches to address this statutory requirement, for example: Through 
an initial estimation that the model does not result in additional 
expenditures that spans multiple years of implementation; by a periodic 
assessment that the model does not result in additional program 
expenditures; or by structuring the model in a way such that CMS could 
not spend more for an ACO for such beneficiaries than would otherwise 
be expended for such ACO for such beneficiaries for such year if the 
model were not implemented. However, because section 1899(i)(3)(B) of 
the Act states only that the requirement that the payment model not 
result in additional program expenditures must be applied in ``a 
similar manner'' to the requirement under section 1899(i)(2)(B) of the 
Act, we explained our belief that we have some discretion to tailor 
this requirement to the payment framework that is being adopted under 
the other payment model.
    The regulatory impact analysis of the 2016 proposed rule discussed 
our analysis of the requirement under section 1899(i)(3)(B) of the Act 
that the other payment model must not result in additional program 
expenditures, and our initial assessment of the costs associated with a 
payment model that includes changes to the manner in which we update 
the benchmark during an ACO's agreement period. We compared all current 
policies and proposed policies to policies that could be implemented 
under section 1899(d)(1)(B)(ii) of the Act, and assessed that for the 
period spanning 2017 through 2019 there would be net federal savings. 
Therefore, we believed that the proposed alternative payment model 
under section 1899(i)(3) of the Act, which includes the use of regional 
FFS expenditures to update an ACO's rebased historical benchmark and 
the use of FFS expenditures of assignable beneficiaries to calculate 
the national benchmark update for ACOs in their first agreement period 
and those ACOs that started a second agreement period on January 1, 
2016, as well as policies established using the authority of section 
1899(i)(3) of the Act in earlier rulemaking, meets the requirement 
under section 1899(i)(3)(B) of the Act. We anticipated that the costs 
of this alternative payment model would be periodically reassessed as 
part of the impact analysis for subsequent rulemaking regarding the 
payment models used under the Shared Savings Program. However, we 
explained that in the event we do not undertake additional rulemaking, 
we intend to periodically reassess whether a payment model established 
under authority of section 1899(i)(3) of the Act continues to improve 
the quality and efficiency of items and services furnished to Medicare 
beneficiaries, without resulting in additional program expenditures. If 
we determine the payment model no longer satisfies the requirements of 
section 1899(i)(3) of the Act, for example if the alternative payment 
model results in net program costs, we would undertake additional 
notice and comment rulemaking to make adjustments to our payment 
methodology to assure continued compliance with the statutory 
requirements.
    We clarified that the current methodology for calculating the 
annual update would continue to apply in updating an ACO's historical 
benchmark during its first agreement period, as well as in updating the 
rebased historical benchmark for the second agreement period for ACOs 
that started in the program in 2012 or 2013, and entered their second 
agreement period on January 1, 2016. That is, for these ACOs, we would 
continue to update the historical benchmark annually for each year of 
the agreement period based on the flat dollar equivalent of the 
projected absolute amount of growth in national per capita expenditures 
for Parts A and B services under the original Medicare FFS program. 
Consistent with the discussion in section II.A.2.e.3 of this final 
rule, these calculations will be performed based on assignable 
beneficiaries.
    We also discussed and sought comment on alternatives to the 
proposed approach, including: (1) Calculating the update factor as the 
flat dollar equivalent of the projected absolute amount of growth in 
regional per capita expenditures for Parts A and B services for the 
ACO's regional service area; and (2) using regional FFS expenditures, 
instead of national FFS expenditures, to update an ACO's historical 
benchmark beginning with its first agreement period.
    Comment: In section II.A.2.d.2 of this final rule, we describe and 
respond to comments regarding the use of regional growth rates in 
trending the ACO's rebased historical benchmark and updating the ACO's 
rebased historical benchmark annually during the agreement period. 
Commenters also offered suggestions specific to the proposed use of 
regional growth rates for updating the rebased benchmark. Some 
commenters expressed support for the proposed use of growth rates based 
on regional FFS expenditures to annually update the ACO's rebased 
historical benchmark. A commenter seemed to support this approach 
because it would yield larger update amounts for ACOs in higher growth 
regions, compared to the current use of an update factor based on 
national FFS expenditures.
    Of the few comments discussing whether the annual update should be 
calculated using regional growth rates or regional flat dollar amounts, 
commenters expressed a preference for the use of regional growth rates. 
Some commenters explained their preference for CMS to use the same 
formula to determine the regional trend and update factors. Because CMS 
proposed that regional trend factors would be calculated as growth 
rates, these commenters opposed use of regional flat dollar amounts in 
calculating the annual update in order to assure a consistent 
methodology would be used to trend and update the ACO's rebased 
historical benchmark using factors based on regional FFS expenditures.
    Some commenters opposed the proposed use of regional FFS 
expenditures, instead of national FFS expenditures, to determine the 
annual update to the ACO's rebased historical benchmark. Some 
commenters expressed concern that the proposed approach would have a 
variable impact on ACOs across the country, increasing and decreasing 
benchmarks for ACOs depending on the circumstances. A principal concern 
expressed by these commenters was that the proposed methodology would 
result in relatively lower update amounts for ACOs in low growth areas 
(including as a result of ACOs' success in lowering growth in 
expenditures) compared to the update amounts for ACOs in higher growth 
areas. A commenter further explained that the wrong incentives will 
result because for regions where there is a substantial amount of 
managed care, or a dominant, successful ACO, the rate of FFS spending 
growth per capita in the region would be limited and the update to ACO 
benchmarks would be lowered by the success of risk-based coordinated 
care. Another commenter indicated a similar concern specific to ACO-
heavy regions, pointing to a discussion of the issue in the 2016 
proposed rule regulatory impact analysis (81 FR 5859).
    Some commenters suggested CMS forgo the proposed modification, and 
some recommended alternative

[[Page 37980]]

approaches to use of regional growth rates for updating the ACO's 
rebased benchmark, including the following:
     Several commenters (including MedPAC) expressed support 
for modifying the benchmark update methodology to better account for 
changes in factors outside the ACO's control that affect regional 
spending, but expressed concern about the proposal to move to use of 
regional FFS expenditures in calculating the annual update. MedPAC 
explained that ACOs' incentives to control spending growth would be 
limited if the update to the benchmark would be reduced by their 
success in reducing spending growth, particularly in circumstances 
where an ACO is dominant in its region. MedPAC suggested CMS 
investigate continuing to use a national update amount, and excluding 
IME, DSH and uncompensated care payments as provided under our current 
regulations, but also adjusting for changes in factors outside the 
ACO's control that affect regional spending such as area wage index 
changes (for example the region's hospital wage index). Along similar 
lines, another commenter suggested CMS adopt the Next Generation ACO 
model methodology. The Next Generation ACO Model is currently testing a 
benchmarking method that includes use of a prospectively calculated 
trend-adjustment factor, applied to baseline claims, which includes a 
national projected trend adjusted for regional changes in geographic 
adjustment factors (such as area wage index (AWI) and geographic 
practice cost index (GPCI)). See Next Generation ACO Model Benchmarking 
Methods (December 15, 2015), available online at https://innovation.cms.gov/Files/x/nextgenaco-methodology.pdf).
     Allow ACOs a choice between the higher of the national or 
regional update amount, particularly in the agreement period when the 
rebasing methodology including factors based on regional FFS 
expenditures is applied to the ACO for the first time.
     Reduce the frequency of, or eliminate altogether, the 
benchmark update.
    Response: We are finalizing as proposed the use of regional growth 
rates to calculate the annual update to the ACO's rebased historical 
benchmark. We believe this approach will more quickly transition the 
program to benchmark calculations reflecting spending and spending 
growth in the ACO's regional service area.
    However, we do share commenters' concerns about creating 
significant variation in the update amount across ACOs participating in 
the Shared Savings Program. We are also concerned about the longer term 
effects on participation resulting from relatively lower benchmark 
updates for regions with lower growth rates, reflecting ACOs' success 
in lowering growth in expenditures in those regions or a more general 
pattern of lower growth in the regions. We considered the approach 
suggested by MedPAC, under which the benchmark update would be 
calculated using standardized national FFS expenditures, adjusted for 
factors including the area wage index, to be an elegant alternative to 
use of regional growth rates in calculating the benchmark update. We 
are not adopting this approach in this final rule because this option 
was not discussed in the proposed rule, and therefore ACOs and other 
stakeholders have not had an opportunity to comment on this approach. 
Further, we would need to undertake additional analysis and modeling of 
this approach before deciding whether to propose it.
    We anticipate exploring an alternative approach to calculating the 
update similar to MedPAC's recommendation, and may address the details 
of this approach in future rulemaking. Under this approach we would 
consider standardizing national FFS expenditures, for example: By 
calculating the benchmark update using a national growth rate adjusted 
for factors including IME, DSH, uncompensated care, as well as the AWI 
and GPCI; or by removing all geographic based payments and other add on 
payments similar to the approach for standardizing claims under the 
Physician Value Based Payment Modifier and Hospital Value-Based 
Purchasing programs. See for example, Basics of Payment Standardization 
(June 2015) and Detailed Payment Standardization Methods (updated May 
2015), available at https://www.qualitynet.org/dcs/ContentServer?c=Page&pagename=QnetPublic%2FPage%2FQnetTier4&cid=1228772057350. We also believe the Innovation Center's experience with the Next 
Generation ACO Model methodology will be informative when evaluating 
use of geographic adjustments within the Shared Savings Program 
benchmarking methodology.
    We would also explore, through future rulemaking, how broadly to 
apply an alternative approach, including whether to apply the same 
methodology consistently in calculating both the trend factors and the 
annual update. We would also consider whether to apply the same 
methodology consistently across the program for benchmark calculations, 
regardless of whether the ACO is participating in its first, or a 
subsequent agreement period. For example, we may consider calculating 
the trend and update factors using regional growth rates, as provided 
in this final rule, in benchmark calculations for an ACO's first 
agreement period. Alternatively, we may consider applying consistently 
across the program an alternative approach to calculating the regional 
trend and update factors, such as using standardized national FFS 
expenditures. Another consideration would be whether to apply an 
alternative approach to calculating the trend and update factors, such 
as using standardized national FFS expenditures, only in calculating an 
ACO's first agreement period benchmark, as a means of facilitating 
ACOs' transition to a benchmarking methodology in subsequent agreement 
periods that includes use of regional growth rates to trend and update 
the benchmark.
    FINAL ACTION: Under the authority of section 1899(i)(3) of the Act, 
we are finalizing our proposal that for ACOs in their second or 
subsequent agreement period whose rebased historical benchmark 
incorporates an adjustment to reflect regional expenditures, the annual 
update to the benchmark will be calculated as a growth rate that 
reflects growth in risk adjusted regional per beneficiary FFS spending 
for the ACO's regional service area, for each of the following 
populations of beneficiaries: ESRD, disabled, aged/dual eligible, aged/
non-dual eligible. We are incorporating this methodology at Sec.  
425.603(d). We note that this final provision includes some minor 
revisions to the proposed regulatory language in order to ensure that 
the final methodology for updating the rebased benchmark is described 
accurately and consistently.
    We note that section IV.E of this final rule contains an updated 
assessment of all policies that are being implemented under the 
authority of section 1899(i)(3). Specifically, we compared all current 
policies along with the policies that are being adopted in this final 
rule to policies that could be implemented under section 
1899(d)(1)(B)(ii) of the Act, and concluded that for the period from 
2017 to 2019 there would be net federal savings. As discussed in the 
proposed rule, we anticipate that the costs of this alternative payment 
model will be periodically reassessed as part of the impact analysis 
for subsequent rulemaking regarding the payment models used in the 
Shared Savings Program. However, in the event we do

[[Page 37981]]

not undertake additional rulemaking, we intend to periodically reassess 
whether the payment model established under the authority of section 
1899(i)(3) of the Act continues to improve the quality and efficiency 
of items and services furnished to Medicare beneficiaries, without 
resulting in additional program expenditures. If we determine the 
payment model no longer satisfies the requirements of section 
1899(i)(3) of the Act, for example if the alternative payment model 
results in net program costs, we will undertake additional notice and 
comment rulemaking to make adjustments to our payment methodology to 
assure continued compliance with the statutory requirements. In 
adopting this approach, we believe that the alternative payment model 
under section 1899(i)(3) of the Act that is set forth in this final 
rule, which includes using regional FFS expenditures to update an ACO's 
rebased historical benchmark, using FFS expenditures of assignable 
beneficiaries to calculate the national benchmark update for ACOs in 
their first agreement period and those that started a second agreement 
period on January 1, 2016, as well as existing policies established 
using the authority of section 1899(i)(3) of the Act, meets the 
requirement of section 1899(i)(3)(B) of the Act.
e. Parity Between Calculation of ACO, Regional and National FFS 
Expenditures
(1) Background
    In the November 2011 final rule, we established a methodology for 
determining ACO benchmark and performance year expenditures for 
Medicare FFS beneficiaries assigned to the ACO. Under that methodology, 
we take into account payments made from the Medicare Trust Funds for 
Parts A and B services for assigned Medicare FFS beneficiaries, 
including individually beneficiary identifiable payments made under a 
demonstration, pilot or time limited program, when computing average 
per capita Medicare expenditures under the ACO. We exclude IME payments 
and DSH and uncompensated care payments from both benchmark and 
performance year expenditures. This adjustment to benchmark 
expenditures falls under the Secretary's discretion established by 
section 1899(d)(1)(B)(ii) of the Act to adjust the benchmark for 
beneficiary characteristics and such other factors as the Secretary 
determines appropriate. However, section 1899(d)(1)(B)(i) of the Act 
only provides authority to adjust expenditures in the performance 
period for beneficiary characteristics and does not provide authority 
to adjust for ``other factors.'' Therefore, to remove IME and DSH 
payments from performance year expenditures, we used our authority 
under section 1899(i)(3) of the Act, which authorizes use of other 
payment models, in order to make this adjustment (see 76 FR 67920 
through 67922). We allow for a 3-month run out of claims data and apply 
a claims completion factor (percentage), to more accurately determine 
an ACO's benchmark and performance year expenditures (76 FR 67837 and 
67838). To minimize variation from catastrophically large claims we 
truncate an assigned beneficiary's total annual Parts A and B FFS per 
capita expenditures at the 99th percentile of national Medicare FFS 
expenditures as determined for each benchmark year and performance year 
(76 FR 67914 through 67916).
    We perform many of these calculations separately for each of the 
following populations of beneficiaries: ESRD, disabled, aged/dual 
eligible, aged/non-dual eligible. For example, we calculate benchmark 
and performance year expenditures, determine truncation thresholds, and 
risk adjust ACO expenditures separately for each of these four Medicare 
enrollment types. As part of this methodology, we account for 
circumstances where a beneficiary is enrolled in a Medicare enrollment 
type for only a fraction of a year, through a process that results in a 
calculation of ``person years'' for a given year. We calculate the 
number of months that each beneficiary is enrolled in Medicare in each 
Medicare enrollment type, and divide by 12. When we sum the fraction of 
the year enrolled in Medicare for all the beneficiaries in each 
Medicare enrollment type, the result is total person years for the 
beneficiaries assigned to the ACO.
    We currently apply these policies consistently across the program, 
as specified in the provisions for establishing, updating and resetting 
the benchmark under Sec.  425.602, and for determining performance year 
expenditures under Sec.  425.604 for Track 1 ACOs and under Sec.  
425.606 for Track 2 ACOs. Further, in developing Track 3, we determined 
that it would be appropriate to calculate expenditures consistently 
program-wide (see 80 FR 32776 through 32777). Accordingly, the 
provisions in Sec.  425.602 governing establishing, updating, and 
resetting the benchmark also apply to ACOs under Track 3, and we 
adopted the same approach for determining performance year expenditures 
as is used in Track 1 and Track 2 in Sec.  425.610 for Track 3 ACOs.
(2) Calculation of County FFS Expenditures
    As part of our proposal to adjust the historical benchmark to 
reflect regional FFS expenditures, we expressed our belief that it is 
important to calculate FFS expenditures for an ACO's region in a manner 
consistent with the methodology used to calculate the ACO's benchmark 
and performance year expenditures. Several sections of the 2016 
proposed rule discussed proposals related to calculating county FFS 
expenditures: one section described proposals for determining county 
FFS expenditures (see 81 FR 5831 and 5832); a separate section 
described related proposals for adjusting county FFS expenditure data 
to assure parity between regional FFS expenditure calculations and 
other program expenditure calculations (81 FR 5841 through 5843). 
Further, the discussion of the definition of the ACO's regional service 
area included a proposal to use statewide (instead of county level) 
values for the ESRD population (81 FR 5829 and 5830). We are 
consolidating our discussion of these proposals within this section of 
this final rule.
    Consistent with our proposed definition of regional service area, 
we proposed to define regional costs as county FFS expenditures for the 
counties in which the ACO's assigned beneficiaries reside. We proposed 
that the calculations of county FFS expenditures would be undertaken 
separately according to the following populations of beneficiaries 
(identified by Medicare enrollment type): ESRD, disabled, aged/dual 
eligible, aged/non-dual eligible (see 81 FR 5830). We explained that 
consistent with the use of beneficiary person years in calculating ACO 
benchmark and performance year expenditures for each Medicare 
enrollment type, we would also calculate beneficiary person years when 
determining county FFS expenditures for each Medicare enrollment type 
(see 81 FR 5841 through 5843).
    We proposed to compute per capita expenditures and average risk 
scores for the ESRD population at the state level, and to apply those 
state-level values to all counties in the state. We explained that this 
approach would address issues associated with small numbers of ESRD 
beneficiaries in certain counties that can lead to statistical 
instability in expenditures for this complex population, and is 
consistent with the approach used in MA. We explained that our concern 
about small numbers of ESRD beneficiaries was particularly acute for 
ACOs operating in rural areas

[[Page 37982]]

that tend to be more sparsely populated (see 81 FR 5830).
    To increase predictability and stability, and avoid bias, we 
proposed to apply the same approach to calculating county FFS 
expenditures for factors based on regional expenditures as is currently 
used in calculating benchmark and performance year expenditures. We 
explained consistent application of program methodology in calculating 
FFS expenditures would result in more predictable and stable 
calculations across the program over time, for example as ACOs 
transition from a benchmarking methodology that incorporates factors 
based on national FFS expenditures to one that incorporates factors 
based on regional FFS expenditures. In addition, use of an alternative 
approach to calculating regional FFS expenditures could introduce bias 
because different types of payments could be included in or excluded 
from these expenditures, as compared to historical benchmark 
expenditures and performance year expenditures.
    Therefore, we proposed to take the following steps in calculating 
county FFS expenditures used to determine expenditures for an ACO's 
regional service area:
     Determine county FFS expenditures based on the 
expenditures of the assignable population of beneficiaries in each 
county, where assignable beneficiaries are identified for the 12-month 
period corresponding to the applicable calendar year (see section 
II.A.2.e.3 of this final rule). We will make separate expenditure 
calculations according to the following populations of beneficiaries 
(identified by Medicare enrollment type): ESRD, disabled, aged/dual 
eligible, aged/non-dual eligible.
     Calculate assignable beneficiary expenditures using the 
payment amounts included in Parts A and B FFS claims with dates of 
service in the 12-month calendar year for the relevant benchmark or 
performance year, allowing for a 3-month claims run out and applying a 
completion factor. The completion factor will be calculated based on 
national FFS assignable beneficiary expenditures (see section 
II.A.2.e.3 of this final rule).
    ++ These calculations will exclude IME, DSH, and uncompensated care 
payments.
    ++ These calculations will take into consideration individually 
beneficiary identifiable payments made under a demonstration, pilot or 
time limited program.
     Truncate a beneficiary's total annual Parts A and B FFS 
per capita expenditures at the 99th percentile of national Medicare FFS 
assignable beneficiary expenditures as determined for the relevant 
year, in order to minimize variation from catastrophically large claims 
(see section II.A.2.e.3 of this final rule). We would determine 
truncation thresholds separately for each of the four Medicare 
enrollment types (ESRD, disabled, aged/dual eligible, aged/non-dual 
eligible).
     Adjust county FFS expenditures for severity and case mix 
of assignable beneficiaries in the county using prospective CMS- 
Hierarchical Condition Category (HCC) risk scores. We would determine 
average risk scores separately for each of the four Medicare enrollment 
types (ESRD, disabled, aged/dual eligible, aged/non-dual eligible).
    We explained our plan to make county level data used in Shared 
Savings Program calculations publicly available annually. For example, 
a publicly available data file would indicate for each county: Average 
per capita FFS assignable beneficiary expenditures and average risk 
scores for all assignable beneficiaries by Medicare enrollment type 
(ESRD, disabled, aged/dual eligible, aged/non-dual eligible). In 
response to requests from ACOs and other stakeholders for data to allow 
for modeling of the proposed changes to the benchmark rebasing 
methodology, CMS made new data files available through the Shared 
Savings Program Web site, to coincide with the issuance of the 2016 
proposed rule (https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/sharedsavingsprogram/Statutes-Regulations-Guidance.html). These 
files included: average per capita county-level FFS spending and risk 
scores for three historical years; and ACO-specific data on the total 
number of assigned beneficiaries residing in each county where at least 
1 percent of the ACO's assigned beneficiaries reside, for three 
historical years. We described these data files and considerations for 
their use, including comparability of ACO-specific data across 
programmatic datasets in the proposed rule (81 FR 5867 through 5868).
    We proposed to incorporate this methodology for calculating county 
FFS expenditures in a new regulation at Sec.  425.603. We sought 
comment on this proposed methodology as well as any additional factors 
we would need to consider in calculating risk adjusted county FFS 
expenditures for an ACO's regional service area.
    Comment: The few commenters addressing the sections of the rule 
containing proposals for determining county FFS expenditures, as well 
as the related section describing parity between regional FFS 
expenditure calculations and other program expenditure calculations, 
were generally supportive of the proposed approach. However, a 
commenter expressed concerns that the proposed approach to calculating 
regional expenditures will incorporate historical geographic payment 
disparities that have never been adequately addressed in fee schedule 
and wage index rulemaking. Commenters offered specific suggestions 
regarding the proposals, as described in the remaining comment and 
response summaries within this section of this final rule.
    Several commenters expressed support for the proposal to calculate 
expenditures by Medicare enrollment type (ESRD, disabled, aged/dual 
eligible, aged/non-dual eligible). Commenters generally shared CMS' 
concern about small numbers of ESRD beneficiaries at the county-level. 
While a few commenters believed that the proposed use of state level 
data would adequately address this concern as well as align with the 
methodology used in MA, many commenters expressed uncertainty about 
whether using state-level data for the ESRD population would be the 
best solution. These commenters urged CMS to release additional data 
and further explain how use of state-level data is the optimal 
solution, with some suggesting CMS revisit this issue in future 
rulemaking. Commenters offered a variety of alternatives, including: 
approaches similar to alternatives for ensuring a sufficiently large 
regional population, and several approaches that would rely on an ACO's 
historical costs for its assigned ESRD population. Some commenters 
preferred use of county-level data for the ESRD population. A commenter 
suggested use of statewide values only if county level values did not 
meet a threshold of sufficient statistical stability. A commenter 
explained that applying state-level data for all counties within a 
state may skew results for certain ACOs, in particular those ACOs 
operating only in certain areas of a state.
    Response: We are finalizing as proposed the use of county level 
data to determine regional FFS expenditures for the assignable 
beneficiary population in the ACO's regional service area. We will 
perform these calculations separately according to the following 
populations of beneficiaries (identified by Medicare enrollment type): 
ESRD, disabled, aged/dual eligible, aged/non-dual eligible. However, we 
are making a modification to the methodology for calculating county FFS 
expenditures.
    Based on commenters' recommendations, we carefully

[[Page 37983]]

considered alternatives to the proposed approach of aggregating the 
expenditures for the ESRD population at the state level and applying 
this value consistently to each county within the State. Specifically, 
we reconsidered the option of using county-level data for the ESRD 
population, and determined that it would be appropriate to finalize a 
policy of calculating expenditures for the ESRD population at the 
county level. We believe there are a number of advantages of 
calculating expenditures for the ESRD population at the county level, 
consistent with the approach we proposed and are finalizing for 
determining county level expenditures for the other populations of 
beneficiaries (disabled, aged/dual eligible, aged/non-dual eligible). 
We believe a consistent approach to calculating expenditures for each 
Medicare enrollment type will be less operationally burdensome compared 
to an approach that calculates expenditures for the ESRD population 
differently than the expenditures for the disabled, aged/dual eligible, 
and aged/non-dual eligible populations. We also anticipate this 
consistency will allow for greater comparability between the values for 
each Medicare enrollment type to facilitate analysis by CMS and ACOs of 
expenditure trends for these populations over time. Further, this 
approach will reflect the variation in expenditures within states and 
the regional service areas that ACOs serve, a concept supported by 
comments underscoring the importance of reflecting regional spending 
variation in the methodology for resetting the ACO's historical 
benchmark.
    We believe our concern about the small numbers of ESRD 
beneficiaries at the county level will be mitigated by certain factors. 
For one, while ESRD beneficiaries exhibit higher mean expenditures, 
they also exhibit significantly lower variation due in part to the 
stability of regular dialysis services for which payments are bundled 
in a highly standardized fashion. Second, we are finalizing an approach 
of weighting regional FFS expenditures by the proportion of assigned 
beneficiaries by Medicare enrollment in each county as discussed in 
section II.A.2.b.2 of this final rule. Specifically, for ACOs with a 
small proportion of ESRD beneficiaries within their assigned 
beneficiary population, the county-level ESRD expenditures will have a 
relatively low weight within the ACO's regional FFS expenditures. On 
the other hand, in the case of ACOs serving a large proportion of ESRD 
beneficiaries within a county, this approach could accommodate 
commenters' requests that the regional FFS expenditures more directly 
reflect the historical costs for the ACO's assigned ESRD beneficiaries. 
Additionally, we believe that the methodology for truncating the 
assignable beneficiary expenditures used to determine county FFS 
expenditures at the 99th percentile of national Medicare FFS assignable 
beneficiary expenditures will help reduce the potential for variation 
in county expenditure values with respect to the ESRD population in the 
same way as for the disabled, aged/dual eligible and aged/non-dual 
eligible populations.
    We appreciate commenters' support for a methodology for determining 
regional FFS expenditures for use in the Shared Savings Program 
benchmark rebasing methodology that aligns with the MA rate-setting 
methodology. Although the approach we are finalizing does not follow 
the MA methodology for aggregating expenditures for the ESRD population 
statewide, and applying these values to each county in the state, we 
believe our overall approach for calculating county level expenditures 
risk adjusted using CMS-HCC prospective risk scores is a substantial 
step towards aligning with the MA rate-setting approach.
    We decline at this time to adopt an alternative approach that (by 
design) only bases regional FFS expenditures for the ESRD population on 
the ACO's assigned ESRD beneficiaries, because it would systematically 
tie an ACO's rebased historical benchmark to its past performance, 
rather than allowing an ACO's benchmark to be more reflective of FFS 
spending in its region.
    With respect to the commenter's concern that the proposed 
methodology for calculating regional expenditures would incorporate 
geographic payment disparities, we recognize there are geographic 
variations in Medicare payments. However, it is beyond the scope of 
this final rule, as well as the Shared Savings Program in general, to 
address broader Medicare payment policies regarding geographic 
adjustments.
    Comment: Some commenters suggested increasing the number of years 
of data included in the calculations of county FFS expenditures, for 
example, using a 5-year rolling average for county-level spending 
estimates, along the lines of the approach used by MA.
    Response: We are finalizing without modification our proposal to 
calculate county FFS expenditures for assignable beneficiaries residing 
in a county using the payment amounts included in Parts A and B FFS 
claims with dates of service in the 12-month calendar year for the 
relevant benchmark or performance year, allowing for a 3-month claims 
run out and applying a completion factor, and adjusted for other 
factors as described elsewhere in this section of this final rule. We 
believe that use of a single year of data in calculating county FFS 
expenditures will be approximately equivalent to using multiple years 
of data that have been trended using regional growth factors developed 
using historical FFS expenditures for the county. We believe using 
growth factors to trend forward historical county data would be 
approximately equivalent to the use of county level expenditures for 
the applicable year because each growth factor would be derived from 
the same historical county data it would be tasked with inflating.
    Comment: Some commenters expressed support for the proposed 
adjustment to exclude IME, DSH and uncompensated care payments from the 
calculation of county FFS expenditures. Although a commenter suggested 
further normalizing payment methodologies to account for differences in 
payment policies for certain rural providers, for example rural health 
clinics (RHCs) and hospitals receiving the status of sole community 
hospital. A commenter also expressed support for including individually 
beneficiary identifiable payments made under a demonstration, pilot or 
time limited program in the determination of county FFS expenditures. 
This commenter underscored the importance of including these payments 
to give an accurate representation of actual FFS payments during the 
measurement period, and urged that we allow adequate time for other CMS 
payment demonstrations to complete final reconciliation to ensure that 
our calculation of county FFS expenditures accounts for actual FFS 
expenditures.
    Response: We appreciate commenters' support for adjusting county 
FFS expenditures for IME, DSH and uncompensated care payments and for 
including individually beneficiary identifiable payments made under a 
demonstration, pilot, or time limited program, to remain consistent 
with the methodology used in calculating ACO and national FFS 
expenditures. We are finalizing these policies, as proposed.
    Currently, the Shared Savings Program coordinates across 
initiatives within CMS to obtain the most recent available, final non-
claims based beneficiary-identifiable payments for use in program 
financial calculations and informational reports.

[[Page 37984]]

    We decline to adopt the commenter's recommendations to account for 
differences in cost and payment among providers and suppliers, such as 
RHCs and sole community hospitals, in calculating county FFS 
expenditures. As explained in response to related considerations in the 
November 2011 final rule, we continue to believe this approach 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 67919 and 67920).
    Comment: A commenter expressed support, in general, for an approach 
that minimizes the impact of catastrophically large claims in the 
calculation of the benchmark. Several commenters offered alternatives 
to the proposal to truncate a beneficiary's total annual Parts A and B 
FFS per capita expenditures at the 99th percentile of national Medicare 
FFS assignable beneficiary expenditures as determined for the relevant 
year. A commenter disagreed with limiting the population used to 
calculate the truncation threshold to assignable beneficiaries (instead 
of all FFS beneficiaries). Another commenter, concerned about the 
potential for year-to-year variability in threshold amounts, suggested 
CMS explore approaches that would provide greater predictability for 
these values, such as fixed absolute dollar thresholds.
    Response: We are finalizing without modification our proposal to 
truncate a beneficiary's total annual Parts A and B FFS per capita 
expenditures when determining county FFS expenditures, and to define 
the truncation threshold as the 99th percentile of national Medicare 
FFS assignable beneficiary expenditures as determined for the relevant 
year for the applicable Medicare enrollment type (ESRD, disabled, aged/
dual eligible, aged/non-dual eligible). We do not believe the concern 
raised by the commenter about the increase in the truncation thresholds 
as a result of using expenditures for assignable beneficiaries instead 
of all FFS beneficiaries is sufficient to warrant modification to the 
proposal. We estimate that the approach of using expenditures for 
assignable beneficiaries would result in approximately a 0.1 percent 
increase in the amount of the truncation thresholds. We believe this 
differential is small and therefore does not warrant either a change in 
approach or a delay in adopting a policy change that we believe will 
result in less biased calculations. We also decline at this time to 
revise the methodology for calculating the thresholds to specify a 
fixed amount that would not vary based on year-to-year changes in 
population and payment amounts, as suggested by a commenter. In the 
2016 proposed rule we did not propose or seek comment on an alternative 
basis for truncating claims such as using a flat dollar amount (that 
does not vary year to year) instead of an annually determined 
percentile, and at this time we do not believe this alternative would 
be a preferred approach. As we explained in the November 2011 final 
rule, we believe that truncating claims at the 99th percentile (as 
opposed to alternative suggestions for differing threshold amounts) 
achieves an appropriate balance between limiting catastrophic costs and 
continuing to hold ACOs accountable for those costs that are likely to 
be within their control (see 76 FR 67914 and 67915).
    Comment: A number of commenters expressed general support for CMS' 
proposed approach for calculating risk-adjusted county expenditures 
using CMS-HCC risk scores. While no commenters explicitly opposed this 
proposal, several commenters raised concerns about CMS-HCC risk 
adjustment more broadly and some offered suggestions for improving or 
refining the program's general risk adjustment methodology. For a more 
detailed description of these comments, see section II.A.2.c.2. of this 
final rule.
    Response: We are finalizing our proposal to risk adjust county FFS 
expenditures by Medicare enrollment type, using the CMS-HCC risk 
scores. We appreciate the general support received from commenters on 
our proposed approach for calculating risk-adjusted county 
expenditures. We acknowledge the concerns raised by commenters about 
the program's general risk adjustment methodology, which relies on CMS-
HCC risk scores, and appreciate the suggestions for improvement. As we 
gain more experience in the Shared Savings Program we will continue to 
evaluate the appropriateness and effectiveness of our risk adjustment 
methodology and, as necessary, will propose refinements through future 
notice and comment rulemaking.
    Comment: While commenters applauded the release of data to support 
modeling of the proposed benchmarking changes, some voiced 
dissatisfaction with the data and pointed to concerns indicating a 
``persisting lack of transparency.'' For instance, some commenters 
believed that too little time was allowed for ACOs and other 
stakeholders to model the proposed changes, and that insufficient data 
were released (for example, requesting county level instead of 
statewide ESRD data, and citing a lack of data to support modeling of 
the proposed revisions to the methodology for adjusting an ACO's 
benchmark for changes in ACO participant composition). Some comments 
included analyses based on publicly available data and other data 
sources, as described in more detail in section IV.G. of this final 
rule. Several commenters pointed to the complexity of the proposed 
changes and difficulty in accessing complete data to support modeling 
as reasons for CMS to provide resources and tools to help ACOs and 
other stakeholders understand the impact of the changes adopted in this 
final rule.
    Some commenters applauded CMS' stated intention to release annual 
data files. Some commenters underscored the need for these annual files 
to be comprehensive (for example, ACO assigned beneficiary data should 
include counties with less than 1 percent of the assigned population to 
align with the definition of the ACO's regional service area, if 
finalized as proposed) and timely (for example, data should be made 
available in time to be used to support organizations' participation 
decisions). A commenter encouraged CMS to provide comparable data, to 
the extent feasible, for beneficiaries enrolled in MA plans, as a step 
towards aligning Medicare payments across ACOs and MA. A commenter 
further urged CMS to supply data related to benchmark calculations 
directly to ACOs, including data on the performance of other providers 
in the ACO's region, change over time, and risk adjustment.
    Response: We appreciate commenters' feedback on the release of the 
data to support modeling of the proposed changes to the Shared Savings 
Program benchmark rebasing methodology. It is our goal to encourage 
transparency and understanding of program calculations. To this end we 
provided detailed descriptive information in the 2016 proposed rule on 
our proposed approach for implementing the proposed revisions to the 
rebasing methodology, and made publicly available informational data 
files as well as descriptive details on the parameters for and 
limitations in using these data.
    We anticipate releasing annual data files to support our goal of 
transparency in program calculations, as well as to allow ACOs and 
other stakeholders to model impacts. We believe it is important for 
these data to be as complete and accurate as possible and, consistent 
with our methodology for performing financial reconciliation, will 
include claims data with a 3-month claims run out. As a result, we

[[Page 37985]]

anticipate releasing county-level expenditure and risk score data 
following the conclusion of the calendar year to which the data relate. 
We believe this dataset will provide ACOs and other program 
stakeholders the inputs needed to calculate the regional adjustment to 
their historical benchmark as well as to understand the level of county 
level expenditures in their regional service area, including any 
changes to that level once multiple years of data are available.
    In addition, we plan to make public ACO-specific, aggregate data on 
counties of residence for the ACO's assigned population for each 
performance year so the public at large has a better understanding of 
the ACOs in various counties and regions across the country. We 
anticipate including these details on county of residence for ACO 
assigned beneficiaries as part of the annual Shared Savings Program 
public use files on ACO financial and quality performance.
    In response to the commenter's request for release of comparable MA 
data, we note that MA rates and statistics are publicly available 
through the CMS Web site (available at https://www.cms.gov/medicare/health-plans/medicareadvtgspecratestats/). We encourage stakeholders to 
review these data in combination with the informational data files that 
CMS plans to release related to the revised Shared Savings Program 
benchmark rebasing methodology we are finalizing in this final rule.
    We also anticipate updating the operational guidance documents 
available to the public and ACOs, to facilitate understanding by ACOs, 
other stakeholders, and the public (more generally) of the changes to 
the Shared Savings Program's benchmarking methodology resulting from 
this final rule.
    We recognize 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 
and other program stakeholders.
    FINAL ACTION: We are finalizing our proposed methodology for 
calculating county FFS expenditures in new Sec.  425.603, with one 
modification. We are finalizing as proposed the use of county level 
data to determine regional FFS expenditures for the assignable 
beneficiary population in the ACO's regional service area, and to 
perform these calculations separately according to the following 
populations of beneficiaries (identified by Medicare enrollment type): 
ESRD, disabled, aged/dual eligible, aged/non-dual eligible. However, we 
are not finalizing our proposal to aggregate the expenditures for the 
ESRD population at the state level and to apply this value consistently 
to each county within the State. Instead, we are finalizing a policy of 
calculating expenditures for the ESRD population at the county level. 
We are also finalizing our proposal to calculate county FFS 
expenditures in the same way that is currently used to calculate ACO 
expenditures in order to assure parity with the calculation of ACO 
benchmark and performance year expenditures as specified under the 
Shared Savings Program regulations.
(3) Modifying the Calculation of National FFS Expenditures, Completion 
Factors, and Truncation Thresholds Based on Assignable Beneficiaries
    In the 2016 proposed rule we explained our belief that it is timely 
to reconsider the beneficiary population that should be used in program 
calculations for the national FFS population at the same time as we are 
establishing our policies for determining regional FFS expenditures, 
including the beneficiary population that will be used in those 
calculations. Several elements of the existing Shared Savings Program 
financial calculations are based on expenditures for all Medicare FFS 
beneficiaries regardless of whether they are eligible to be assigned to 
an ACO, including: The national growth rates used to trend forward 
expenditures during the benchmark period; the projected absolute amount 
of growth in national per capita expenditures for Parts A and B 
services used to update the benchmark; the completion factors applied 
to benchmark and performance year expenditures; and the truncation 
thresholds set at the 99th percentile of national Medicare FFS 
expenditures. In calculating these factors based on national FFS 
expenditures, we take into account Parts A and B expenditures for all 
Medicare FFS beneficiaries, and exclude IME payments and DSH and 
uncompensated care payments to align with our methodology for 
calculating benchmark and performance year expenditures.
    We explained our concern that using expenditures for all Medicare 
FFS beneficiaries, including beneficiaries ineligible for assignment, 
in calculating factors that are based on the expenditures of the 
broader FFS population as opposed to using only expenditures for the 
narrower population of FFS beneficiaries eligible for assignment to an 
ACO, can bias those calculations. There may be differences in the 
health status and health care cost experience of Medicare beneficiaries 
excluded from the assignment ``pre-step'' compared to those who are 
eligible for assignment, based on their health conditions and the 
providers from whom they receive care. Thus, including the expenditures 
for non-assignable beneficiaries, such as non-utilizers of health care 
services, can result in lower overall per capita expenditures. These 
biases may have a more pronounced effect in calculations of regional 
FFS expenditures, which are based on relatively smaller populations of 
beneficiaries, as compared to calculations based on the national FFS 
population.
    We described how we identify the pool of ``assignable'' Medicare 
beneficiaries (a subset of the larger population of Medicare FFS 
beneficiaries) as a pre-step to the two-step assignment process under 
Sec.  425.402 for determining the beneficiaries who will be assigned to 
an ACO. We explained our preferred approach would be to apply a similar 
logic to identify the beneficiary population that would be used in 
program calculations for both national and regional FFS populations. As 
part of this pre-step, we determine if a beneficiary received at least 
one primary care service from a physician within the ACO whose services 
are used in assignment:
     For performance year 2016 and subsequent performance 
years, the beneficiary must have received a primary care service, as 
defined under Sec.  425.20, with a date of service during the 12-month 
assignment window, as defined under Sec.  425.20.
     The service must have been furnished by a primary care 
physician as defined under Sec.  425.20 or by a physician with one of 
the primary specialty designations included in Sec.  425.402(c). 
Therefore, beneficiaries who have not received any primary care 
service, or who have only received primary care services from 
physicians with a primary specialty code not specified in Sec.  
425.402(c) (see 80 FR 32753 through 32754, Table 5 Physician Specialty 
Codes Excluded From Assignment Step 2), or from non-physician 
practitioners are excluded from assignment to an ACO.
    This 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 
(80 FR 32756; Sec.  425.402(b)(1)).
    We discussed that one factor related to calculating expenditures 
for assignable beneficiaries is the assignment window used to identify

[[Page 37986]]

this population, with options including: The 12-month period used to 
assign beneficiaries to Track 1 and 2 ACOs based on a calendar year, 
and an off-set 12-month period used to assign beneficiaries 
prospectively to an ACO in Track 3. (See definition of assignment 
window under Sec.  425.20 and related discussion in the June 2015 final 
rule at 80 FR 32699.) We expressed our belief that it is important to 
calculate regional and national FFS expenditures consistently across 
the three tracks of the program, so as not to advantage or disadvantage 
an organization simply on this basis. This consistency would help to 
ensure a level playing field in markets where multiple ACOs are 
present, and would also simplify program operations. Accordingly, we 
proposed to calculate county FFS expenditures and average risk scores, 
as well as factors based on national FFS expenditures, using the 
assignable beneficiary population identified using the assignment 
window for the 12-month calendar year corresponding to the benchmark or 
performance year. This is the same assignment window that is currently 
used to assign beneficiaries under Track 1 and Track 2. We specified 
our plan to monitor for observable differences in the health status 
(for example, as identified by CMS-HCC risk scores) and expenditures of 
the assignable beneficiaries identified using the 12-month calendar 
year assignment window, as compared to assignable beneficiaries 
identified using an assignment window that is the off-set 12-month 
period prior to the benchmark or performance year (for example, October 
through September preceding the calendar year). In the event that we 
conclude that additional adjustments (for instance, as part of risk 
adjusting county FFS expenditures) are necessary to account for the use 
of assignable beneficiaries identified using an assignment window that 
is different from the assignment window used to assign beneficiaries to 
the ACO, we would address this issue through future rulemaking.
    We clarified that we will continue to apply an update based on 
national FFS expenditures to ACOs in their first agreement period and 
for ACOs that entered their second agreement period on January 1, 2016. 
However, to the extent that we were proposing to change our methodology 
in order to use only assignable beneficiaries instead of all Medicare 
FFS beneficiaries in calculating the benchmark update based on national 
FFS expenditures, we believed we would need to use the authority under 
section 1899(i)(3) of the Act to adopt other payment models to 
implement this change.
    Section 1899(d)(1)(B)(ii) of the Act states that the benchmark 
shall be updated by the projected absolute amount of growth in national 
per capita expenditures for Parts A and B services under the original 
Medicare FFS program, as estimated by the Secretary. The plain language 
of section 1899(d)(1)(B)(ii) of the Act demonstrates Congress' intent 
that the benchmark update be calculated based on growth in expenditures 
for the national FFS population, as opposed to a subset of this 
population. Therefore, in order to allow us to use only assignable 
beneficiaries in determining the amount of growth in per capita 
expenditures for Parts A and B services for purposes of determining the 
benchmark update for ACOs in their first agreement period and those 
ACOs that started a second agreement period on January 1, 2016, we 
believed it was necessary to rely upon our authority under section 
1899(i)(3) of the Act. Section 1899(i)(3) of the Act authorizes the 
Secretary to use other payment models in place of the payment 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.
    We explained our belief that using our authority under section 
1899(i)(3) of the Act to adopt a payment model that includes 
calculating the benchmark update for ACOs in their first agreement 
period and for ACOs that started a second agreement period on January 
1, 2016, using national FFS expenditures for assignable beneficiaries, 
rather than for all FFS beneficiaries, would improve the quality and 
efficiency of items and services furnished to Medicare beneficiaries. 
We believed this approach would increase the accuracy of benchmarks, by 
determining the national update using a population that more closely 
resembles the population that could be assigned to ACOs. Further, we 
believed using assignable beneficiaries across all program calculations 
based on national and regional FFS expenditures would result in factors 
that are generally more comparable. As a result, these calculations 
will be more predictable and stable across the program over time, for 
example as ACOs transition from a benchmarking methodology that 
incorporates national FFS expenditures to one that incorporates factors 
based on regional FFS expenditures. Ultimately, we believed this policy 
could increase overall participation in the program, thereby resulting 
in more organizations working to meet the program's three-part aim of 
better care for individuals, better health for populations and lower 
growth in expenditures.
    As explained in section II.A.2.d.3 of this final rule, section 
1899(i)(3)(B) of the Act also specifies that the other payment model 
must not result in additional program expenditures. We discussed our 
analysis of this requirement, and our initial assessment that for the 
period spanning 2017 through 2019 there would be net federal savings 
associated with a payment model under section 1899(i)(3) of the Act 
that includes the proposed changes to the manner in which we update the 
benchmark during an ACO's agreement period as part of the regulatory 
impact analysis for the proposed rule.
    Taking these considerations into account, we believed applying a 
payment methodology that includes calculating the benchmark update 
consistently based on assignable FFS beneficiaries, instead of all FFS 
beneficiaries, would meet the requirements under section 1899(i)(3) of 
the Act that the payment model improve the quality and efficiency of 
items and services furnished to Medicare beneficiaries, without 
additional program expenditures. However, we also discussed our 
intention to revisit this determination periodically. If we determine 
the payment model no longer satisfies the requirements of section 
1899(i)(3) of the Act, for example if the model results in net program 
costs, we would undertake additional notice and comment rulemaking to 
make adjustments to the model to assure continued compliance with the 
statutory requirements.
    Accordingly, we proposed to use the authority under section 
1899(i)(3) of the Act to revise the regulation at Sec.  425.602(b)(1) 
to specify that the annual update to the benchmark will be based on the 
projected absolute amount of growth in national per capita expenditures 
for Parts A and B services under the original Medicare FFS program for 
assignable beneficiaries. We further proposed to specify in this 
provision of the regulations that we would identify assignable 
beneficiaries for the purpose of calculating the update based on 
national FFS expenditures using the 12-month calendar year 
corresponding to the year for which the update is being calculated. We 
sought comment on these proposed provisions.
    We also proposed to make conforming changes to the regulations to 
specify that assignable Medicare FFS beneficiaries, identified based on 
the 12-

[[Page 37987]]

month period corresponding to the calendar year for which the 
calculations are being made, will be used to perform the following 
calculations: (1) Truncation thresholds for limiting the impact of 
catastrophically large claims on ACO expenditures under Sec.  
425.602(a)(4), Sec.  425.604(a)(4), Sec.  425.606(a)(4), Sec.  
425.610(a)(4); and (2) national growth rates used to trend forward 
expenditures during the benchmark period under Sec.  425.602(a)(5). We 
specified that we would provide additional information through 
subregulatory guidance regarding the process for using assignable 
beneficiaries to perform these calculations, as well as the calculation 
of the claims completion factor applied under Sec.  425.602(a)(1), 
Sec.  425.604(a)(5), Sec.  425.606(a)(5), Sec.  425.610(a)(5).
    Similarly, as discussed in sections II.A.2.b. and II.A.2.e.2 of 
this final rule, we proposed to specify in a new provision of the 
Shared Savings Program regulations at Sec.  425.603 that would govern 
the methodology for resetting, adjusting, and updating an ACO's 
benchmark for a second or subsequent agreement period starting on or 
after January 1, 2017, that county FFS expenditures would be based on 
assignable Medicare FFS beneficiaries determined using the 12-month 
period corresponding to the calendar year for which the calculations 
are being made.
    We proposed that regulatory changes regarding use of assignable 
beneficiaries in calculations based on national FFS expenditures would 
apply for the 2017 performance year and all subsequent performance 
years. Under this proposed provision, these changes would apply to ACOs 
that are in the middle of an agreement period, specifically ACOs that 
started their first agreement period in 2015 or 2016 and ACOs that 
started their second agreement period on January 1, 2016. We would 
adjust the benchmarks for these ACOs at the start of the first 
performance year in which these changes apply so that the benchmark for 
the ACO reflects the use of the same methodology that would apply in 
expenditure calculations for the corresponding performance year.
    We sought comment on these proposals. We also sought comment on 
whether expenditures for all Medicare FFS beneficiaries should be used 
to calculate these elements for ACOs in their first agreement period or 
a second agreement period that started on January 1, 2016, while 
expenditures for assignable Medicare FFS beneficiaries are used to 
calculate these elements for an ACO's second and subsequent agreement 
period starting on or after January 1, 2017, in combination with the 
use of the assignable beneficiary population to determine expenditures 
for the ACO's regional service area.
    Comment: Among the comments addressing this aspect of our proposed 
methodology, almost all commenters were supportive of the proposal to 
use assignable beneficiaries, rather than all FFS beneficiaries, when 
calculating both national and regional expenditures. A commenter 
generally agreed with all proposed modifications described in the 
relevant section of the proposed rule (81 FR 5843 through 5845). As 
discussed in section II.A.2.b.2 of this final rule, some commenters 
disfavored including ACO assigned beneficiaries within the population 
of assignable beneficiaries that would be the basis for calculating 
these factors. As discussed in section II.A.2.e.2 of this final rule, a 
commenter disagreed with limiting the population to assignable 
beneficiaries (instead of all FFS beneficiaries) when calculating the 
truncation thresholds.
    Response: We appreciate the commenters' support for our proposed 
approach. We are finalizing, with one modification, our proposal to 
calculate factors based on national and regional FFS expenditures using 
the population of assignable Medicare FFS beneficiaries, identified 
based on the 12-month period corresponding to the calendar year for 
which the calculations are being made. See previous discussion in this 
final rule of related comments and responses, specifically: Section 
II.A.2.b.2 for comments concerning the inclusion of ACO assigned 
beneficiaries within the assignable population; and section II.A.2.e.2 
for discussion of the comment concerning calculation of truncation 
thresholds based on expenditures for assignable beneficiaries instead 
of the broader FFS population.
    As specified in the 2016 proposed rule, we plan to monitor for 
observable differences in the health status (for example, as identified 
by CMS-HCC risk scores) and expenditures of the assignable 
beneficiaries identified using the 12-month calendar year assignment 
window, as compared to assignable beneficiaries identified using an 
assignment window that is the off-set 12-month period prior to the 
benchmark or performance year (for example, October through September 
preceding the calendar year). In the event that we conclude that 
additional adjustments (for instance, as part of risk adjusting county 
FFS expenditures) are necessary to account for the use of assignable 
beneficiaries identified using an assignment window that is different 
from the assignment window used to assign beneficiaries to the ACO, we 
would address this issue through future rulemaking.
    Although commenters did not discuss in detail their consideration 
of our proposal to determine completion factors based on assignable 
Medicare FFS beneficiaries instead of all Medicare FFS beneficiaries, 
we have reconsidered the need for this proposed change. The completion 
factors are determined based on multiple years of Medicare FFS claims 
submission data, and reflect claim submission patterns across the 
Medicare program. The concern about potential bias resulting from 
calculations based on beneficiaries that are not eligible for 
assignment, such as non-utilizers, is not prominent in the calculation 
of a claims completion factor. For instance, in the case of non-
utilizers, there would be no relevant data to consider on the timing of 
receipt of claims data, because there would be no claims with dates of 
service for these beneficiaries in the relevant period examined for the 
purpose of calculating the completion factor. Further, in calculating 
the completion factors, the use of more comprehensive data based on the 
timing of submission of claims across the entire Medicare FFS 
population, as is reflected in our current approach, would result in 
the most accurate factors as compared to use of a subset of Medicare 
FFS beneficiaries (such as assignable beneficiaries under the Shared 
Savings Program) for these calculations. For these reasons, we are not 
finalizing our proposal to replace the current approach for calculating 
the claims completion factors using all Medicare FFS beneficiaries with 
an approach to calculating these factors based on assignable Medicare 
FFS beneficiaries at this time.
    Comment: A commenter noted that beneficiaries receiving only 
services provided by allied providers (non-physician practitioners) are 
excluded from the proposed definition of assignable beneficiary. This 
commenter suggested that these providers be included in determining 
assignable beneficiaries because of the increasing role of non-
physician practitioners in efforts to lower the cost of care for 
patients with low acuity healthcare needs.
    Response: We continue to believe it is important to align the 
definition of assignable beneficiary with the statutory requirement 
that beneficiaries be assigned to an ACO based on their use of primary 
care services furnished by physicians and with the methodology for 
identifying assignable beneficiaries described in the 2016 proposed 
rule and also discussed earlier in this section of the final rule. 
Applying the same

[[Page 37988]]

definition of assignable beneficiary as is used in the assignment 
process will help to ensure that program calculations based on national 
and regional FFS expenditures reflect the expenditures and acuity of 
patients that could be assigned to ACOs. Therefore we decline at this 
time to adopt the commenter's suggestion to also use services furnished 
by non-physician providers as a basis for identifying assignable 
beneficiaries.
    Comment: Several commenters addressed the timing of applicability 
of the revised methodology for determining factors based on national 
FFS expenditures using the assignable beneficiary population instead of 
all FFS beneficiaries. A commenter noted support for the proposal that 
this methodology would apply for the 2017 performance year and all 
subsequent performance years and would apply to ACOs that are in the 
middle of an agreement period. One comment, which seemed to reflect the 
commenter's misunderstanding of the proposed policy, interpreted the 
proposal as failing to address the applicability of the proposed 
changes to ACOs with 2014 agreement start dates.
    Response: We are finalizing with modifications our proposal that 
regulatory changes regarding the use of assignable beneficiaries in 
calculations based on national FFS expenditures would apply for the 
2017 performance year and all subsequent performance years. The 
proposed rule specified revisions to the provisions at Sec.  
425.602(b), Sec.  425.604(a)(1) through (3), Sec.  425.606(a)(1) 
through (3), and Sec.  425.610(a)(1) through (3) in order to 
differentiate between the methodology that applied for performance 
years before 2017 and the methodology that would apply for the 2017 
performance year and all subsequent performance years. We believe it is 
important to clarify the timing of applicability of these changes, 
which will be reflected in the regulations finalized with this final 
rule:
     In establishing or resetting an ACO's historical benchmark 
for agreement periods beginning in 2017 and subsequent years, we will 
apply the methodology for use of assignable beneficiaries in 
determining factors based on national FFS expenditures and regional FFS 
expenditures.
     In calculations made during a performance year, including 
updating an ACO's historical benchmark and determining an ACO's 
performance year expenditures, for performance year 2017 and subsequent 
years, we will apply the methodology for use of assignable 
beneficiaries in determining factors based on national FFS expenditures 
and regional FFS expenditures.
     To ensure consistency in the way in which expenditure 
calculations are performed across the program, we will apply the 
revised methodology to ACOs that are in the middle of an agreement 
period, including: ACOs that started their first agreement period in 
2015 or 2016; ACOs that entered the program in 2014 and elect the 
participation option established with this final rule to defer by 1 
year entrance into a second agreement period under a two-sided model; 
and ACOs that started their second agreement period on January 1, 2016. 
We will adjust the benchmarks for these ACOs at the start of the 2017 
performance year, the first performance year in which these changes 
apply, and in any subsequent years in the agreement period, so that the 
benchmarks established for these ACOs will reflect the use of the same 
methodology that will apply in expenditure calculations for the 
corresponding performance year, including determining the benchmark 
update and the ACO's expenditures for the performance year.
    We wish to clarify that for any performance year prior to the 
applicability date for the regulatory change, we will continue to apply 
the current methodology under which factors based on national FFS 
expenditures are calculated using all FFS beneficiaries.
    FINAL ACTION: We are finalizing our proposal to use assignable 
beneficiaries in all national and regional FFS calculations with one 
modification. We are not finalizing our proposal to determine 
completion factors based on assignable Medicare FFS beneficiaries, and 
will continue to determine these completion factors based on the timing 
of submission of claims across the entire Medicare FFS population. 
However, as proposed, we will limit the Medicare FFS population used in 
all other program calculations to ``assignable'' Medicare beneficiaries 
who meet the following requirements: (1) Received at least one primary 
care service, as defined under Sec.  425.20, with a date of service 
during the 12-month assignment window; and (2) this primary care 
service was provided by a primary care physician, as defined under 
Sec.  425.20, or by a physician with one of the primary specialty 
designations included in Sec.  425.402(c). The assignable beneficiary 
population will be identified consistently across program tracks using 
the assignment window for the 12-month calendar year corresponding to 
the benchmark or performance year. This revised methodology will apply 
to all ACOs, including those ACOs with 2015 and 2016 agreement start 
dates that are in the middle of an agreement period, as well as ACOs 
that entered the program in 2014 and elect the participation option 
established with this final rule to defer by 1 year entrance into a 
second agreement period under a two-sided model. We will adjust the 
benchmarks for these ACOs at the start of the 2017 performance year and 
in any subsequent years in the agreement period so that the benchmarks 
established for these ACOs will reflect the methodology used in 
expenditure calculations for the performance year. We will provide 
additional information through subregulatory guidance regarding the 
process for using assignable beneficiaries to perform these 
calculations. We will revise the regulations to reflect these changes 
as follows:
     Revise the regulation at Sec.  425.602(b)(1) using the 
authority under section 1899(i)(3) of the Act to provide that the 
historical benchmark will be updated annually for each year of the 
agreement period based on the flat dollar equivalent of the projected 
absolute amount of growth in national per capita expenditures for Parts 
A and B services under the original Medicare FFS program for assignable 
beneficiaries identified for the 12-month calendar year corresponding 
to the year for which the update is calculated. As discussed in section 
II.A.2.d.3 of this final rule, section IV.E of this final rule contains 
an updated assessment of all policies that are being implemented under 
the authority of section 1899(i)(3) of the Act. We anticipate that the 
costs of this alternative payment model will be periodically reassessed 
as part of the impact analysis for subsequent rulemaking regarding the 
payment models used in the Shared Savings Program. However, in the 
event we do not undertake additional rulemaking, we intend to 
periodically reassess whether the payment model established under the 
authority of section 1899(i)(3) of the Act continues to improve the 
quality and efficiency of items and services furnished to Medicare 
beneficiaries, without resulting in additional program expenditures. If 
we determine the payment model no longer satisfies the requirements of 
section 1899(i)(3) of the Act, for example if the alternative payment 
model results in net program costs, we will undertake additional notice 
and comment rulemaking to make adjustments to our payment methodology 
to assure continued compliance with the statutory requirements.

[[Page 37989]]

     Make conforming changes to the regulations on: (1) 
Truncation thresholds for limiting the impact of catastrophically large 
claims on ACO expenditures under Sec.  425.602(a)(4), Sec.  
425.604(a)(4), Sec.  425.606(a)(4), Sec.  425.610(a)(4); and (2) growth 
rates used to trend forward expenditures during the benchmark period 
under Sec.  425.602(a)(5) to specify that assignable Medicare FFS 
beneficiaries identified based on the 12-month period corresponding the 
calendar year for which the calculation is being made will be used to 
perform these calculations.
     Specify in a new provision of the Shared Savings Program 
regulations at Sec.  425.603 that county FFS expenditures that are used 
in the methodology for resetting, adjusting, and updating an ACO's 
benchmark will be based on assignable Medicare FFS beneficiaries 
determined using the 12-month period corresponding to the calendar year 
for which the calculations are being made.
f. Timing of Applicability of Revised Rebasing and Updating Methodology
    In the 2016 proposed rule, we discussed an approach under which the 
revised rebasing methodology could be applied to new agreement periods 
beginning on or after January 1, 2017, in a manner that allows for a 
phase-in to a greater percentage in calculating the regional adjustment 
for all ACOs:
     All ACOs would have the benchmark for their first 
agreement period set and updated under the methodology under Sec.  
425.602(a) and (b).
     The 2014, 2015, and 2016 starters and subsequent cohorts 
entering their second agreement periods on or after January 1, 2017, 
would be rebased under the new methodology for adjusting an ACO's 
rebased historical benchmark to reflect expenditures in the ACO's 
regional service area, and the ACO's rebased benchmark would be updated 
during the agreement period by growth in regional FFS expenditures. In 
calculating the regional adjustment to the rebased historical benchmark 
for an ACO's second agreement period, the percentage applied to the 
difference between the ACO's regional service area expenditures and the 
ACO's rebased historical benchmark expenditures would be set at 35 
percent. In an ACO's third or subsequent agreement period this 
percentage would be set at 70 percent unless the Secretary determines a 
lower weight should be applied, as specified through future rulemaking.
     With respect to the ACOs that started in the program in 
2012 and 2013 and entered a second agreement period beginning in 2016, 
we applied the current rebasing methodology, under which we equally 
weight the benchmark years and account for savings generated during the 
ACO's prior agreement period, in rebasing their historical benchmark 
for their second agreement period. We would apply the methodology 
specified under Sec.  425.602(b) for updating the benchmark annually 
for each year of their second agreement period. We would apply the new 
rebasing policies, including the phase in of the percentage used in 
calculating the regional adjustment, to these ACOs for the first time 
in calculating their rebased historical benchmark for their third 
agreement period (beginning in 2019), as if the ACOs were entering 
their second agreement period. Accordingly, the 2012 and 2013 starters 
would have the same transition to the use of a higher percentage in 
calculating the regional adjustment as all other ACOs.
    We explained that this approach to phasing in the application of 
the new methodology for adjusting an ACO's rebased historical benchmark 
to reflect regional FFS expenditures would give ACOs and other 
stakeholders greater opportunity to prepare for, understand the effects 
of, and adjust to the application of benchmarks that incorporate 
regional expenditures.
    Therefore, we proposed to make these changes applicable to ACOs 
starting a second or subsequent agreement period on or after January 1, 
2017. These changes would initially apply in resetting benchmarks for 
the second agreement period for all ACOs other than those ACOs that 
started in the program in 2012 and 2013 (who entered their second 
agreement period on January 1, 2016). Furthermore, we proposed that 
2012 and 2013 starters would have the same transition to regional 
adjustments to their rebased historical benchmarks as all other ACOs: 
In calculating the regional adjustment to the ACO's rebased historical 
benchmark for its third agreement period (in 2019), the percentage 
applied to the difference between the ACO's regional service area 
expenditures and ACO's rebased historical benchmark expenditures would 
be set at 35 percent; in its fourth or subsequent agreement period this 
percentage would be set at 70 percent unless the Secretary determines a 
lower weight should be applied, as specified through future rulemaking. 
We requested comment on this proposed approach to phasing in the 
application of the revised rebasing and updating methodology.
    Comment: A commenter expressed support for the proposed phase-in of 
the new benchmark rebasing methodology based on an ACO's individual 
agreement renewal schedule rather than moving all ACOs to the new 
standard at one time. Many commenters opposed the proposal to phase-in 
the revised methodology to 2012 and 2013 starters beginning in their 
third agreement periods (starting January 1, 2019). Instead, commenters 
suggested options that would allow 2012 and 2013 starters the choice of 
the proposed approach or having the revised methodology apply during 
their second agreement period (for example, applying the methodology 
for performance year 2017 and onward, or allowing eligible ACOs to 
enter a new agreement period under the revised methodology that would 
begin in 2017). A commenter, in favor of applying the revised rebasing 
methodology to all ACOs in their second agreement period, suggested 
retroactively applying the changes to the first performance year (2016) 
of the 2012 and 2013 starters' second agreement period. Another 
commenter suggested allowing 2012 and 2013 starters that meet certain 
eligibility criteria (such as a quality performance threshold) to enter 
a new agreement period under the revised methodology beginning 2017, 
and permitting those ACOs participating under a performance-based risk 
model to have a weight greater than 35 percent applied in the 
calculation of the regional FFS adjustment. Alternatively, a commenter 
suggested applying the 70 percent weight (instead of 35 percent, as 
proposed) in calculating the regional adjustment for 2012 and 2013 
starters beginning with their third agreement period.
    Many commenters seemed to view the delay in applying the revised 
rebasing methodology to 2012 and 2013 starters until their third 
agreement period as a misfortune of timing. Commenters who perceived 
the proposed adjustment as beneficial explained that delaying 
application of the revised methodology would penalize 2012 and 2013 
starters (or stated another way, unfairly advantage later entrants into 
the program) and perpetuate differences in benchmarks between ACOs in 
the same region. These commenters believed that this delay may cause 
attrition of these ACOs from the program. A commenter pointed out that 
applying the revised methodology to 2014 starters who begin a new 
agreement period in 2017, but delaying its application to 2012 and 2013 
starters until 2019, could inadvertently lead to provider movement 
between ACOs depending on which benchmarking approach applies and is 
more financially favorable to the

[[Page 37990]]

ACO. A commenter suggested giving 2014 starters the option of delaying 
application of the revised methodology until their third agreement 
period, citing uncertainty about the policies to be finalized as these 
organizations decide whether to continue in the program.\2\
---------------------------------------------------------------------------

    \2\ The application/renewal cycle for the January 1, 2017 Shared 
Savings Program start date began in spring 2016. See the Shared 
Savings Program Web site, How to Apply Web page, available at 
https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/sharedsavingsprogram/Application.html.
---------------------------------------------------------------------------

    Response: In section II.A.2.c.3 of this final rule, we discuss our 
response to comments requesting broader flexibility to allow ACOs to 
choose from a menu of options on when the revised rebasing methodology 
would apply, and the weight with which the regional adjustment would be 
calculated.
    ACOs that entered the Shared Savings Program in 2012 and 2013 
renewed their agreements beginning January 1, 2016, with the 
understanding that the benchmark rebasing methodology finalized in the 
June 2015 final rule would be applied to their second agreement period. 
Under this rebasing methodology, described elsewhere in this final 
rule, we equally weight the ACO's historical benchmark years, and apply 
an adjustment for savings generated under the ACO's prior agreement 
period. While this methodology is substantially different from the 
rebasing approach we are establishing in this final rule, we are in 
fact applying to these ACOs a rebasing methodology that is intended to 
help mitigate the effects of an ACO's past successful performance on 
its current benchmark. The adjustment for savings generated in the 
ACO's prior agreement period increases the ACO's rebased historical 
benchmark by an amount that reflects the ACO's past financial and 
quality performance, and takes into account the size of the ACO's 
assigned beneficiary population. Equally weighting the benchmark years 
(corresponding to the three performance years of the prior agreement 
period) in resetting the ACO's historical benchmark mitigates 
reductions to the benchmark that would result from placing a higher 
weight on more recent prior benchmark years (corresponding to later 
years in the ACO's prior agreement period), in which ACOs are 
anticipated to show greater expenditure reductions. This methodology 
was designed to encourage continued participation in the Shared Savings 
Program and performance improvement by ACOs entering a second or 
subsequent agreement period, and therefore improve the overall 
sustainability of the program. These goals are consistent with the 
goals for the policies adopted in this final rule that incorporate 
regional FFS expenditures into the rebasing methodology.
    Additionally, the 2016 proposed rule did not address the 
possibility of applying the revised rebasing methodology to these ACOs' 
second agreement periods spanning January 1, 2016 through December 31, 
2018. As a result, we do not believe it would be appropriate to adopt a 
policy in this final rule under which we would apply the revised 
methodology to these ACOs prior to the start of their third agreement 
period in 2019. Applying this revised methodology in the middle of an 
ACO's second agreement period could prove disruptive to ACOs that have 
structured their operations and legal arrangements (including the ACO's 
Participant Agreements with ACO participant TINs) to reflect the 
application of the current benchmarking methodology. We also believe 
that more immediate application of the revised policies to 2012 and 
2013 starters during their second agreement periods could undermine the 
ability of these ACOs to adapt to this change, possibly causing 
organizations to terminate their participation prior to the end of 
their second agreement period.
    Furthermore, we do not believe it would be possible to allow these 
ACOs to terminate their current agreement period in order to start a 
new agreement period under the revised rebasing methodology, as 
suggested by some commenters. Section 425.222 addresses the 
circumstances under which an ACO may re-apply to participate in the 
Shared Savings Program after the ACO's agreement has been terminated. 
Section 425.222(a) specifies that 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. We believe that this 
provision, without further modification, would prohibit CMS from 
allowing ACOs with 2012 and 2013 agreement start dates to terminate 
their current second agreement and re-enter the program under the 
revised benchmark rebasing methodology for a new second agreement 
period beginning January 1, 2017.
    Taking these factors into consideration, we decline at this time to 
modify the Shared Savings Program regulations to offer the flexibility 
for 2012 and 2013 starters to terminate their agreements beginning 
January 1, 2016, and to reapply for a new second agreement period 
beginning January 1, 2017, under the revised rebasing methodology that 
is being adopted in this final rule.
    Comment: Some commenters suggested alternatives not discussed in 
the proposed rule. Some commenters urged incorporating greater 
regulatory flexibility to apply the revised methodology when 
establishing the benchmarks for ACOs transitioning to the Shared 
Savings Program after completing a contract period under another CMS 
alternative payment methodology, including the Pioneer and Next 
Generation ACO Models. For example, with respect to the proposed phase-
in approach, some commenters specified that former Pioneer ACOs and 
Next Generation ACOs entering their first agreement period under the 
Shared Savings Program should be allowed the option to be considered as 
entering a second or subsequent agreement period in order to allow 
their benchmark to be established using the regional benchmarking 
approach. A commenter explained that moving back to a benchmark 
calculated using national FFS factors would be taking a step backwards 
in terms of the evolution of the ACO model and unnecessarily expose 
these ACOs to additional risk.
    Response: We greatly appreciate commenters' thoughtful suggestions 
for the transition of ACOs from other CMS ACO initiatives into the 
Shared Savings Program. We did not propose or discuss related changes 
to the Shared Savings Program regulations in the 2016 proposed rule. We 
agree with commenters that many organizations participating under other 
CMS ACO initiatives (such as the Pioneer ACO model and the Next 
Generation ACO model), which use factors based on regional FFS 
expenditures in setting ACO benchmarks, may find it disadvantageous to 
enter the Shared Savings Program under the methodology used to 
establish an ACO's benchmark for its first agreement period, and would 
prefer to be treated as if they were entering the program in a second 
or subsequent agreement period in order to receive a benchmark 
established using the rebasing methodology adopted in this final rule. 
We believe there are complexities to this issue that would need to be 
explored further, including the determination of which organizations 
would be eligible to be treated as entering the Shared Savings Program 
under a later agreement period and the applicability of other program 
requirements that relate to the agreement period in which an ACO is 
participating, including the selection of risk track and the quality 
performance

[[Page 37991]]

standard. We anticipate considering these issues further in future 
rulemaking.
    FINAL ACTION: We are finalizing our proposal to make the new 
benchmark rebasing policies described in this final rule, including the 
phase in of the percentage used in calculating the regional adjustment, 
applicable to ACOs entering into a second or subsequent agreement 
period in 2017 or subsequent years. With respect to ACOs that started 
in the program in 2012 and 2013 that have renewed their agreements for 
a second agreement period beginning in 2016:
     We applied the rebasing methodology established with the 
June 2015 final rule, under which we equally weight the benchmark years 
and account for savings generated during the ACO's prior agreement 
period, in rebasing their historical benchmark for their second 
agreement period (beginning in 2016). With the conforming changes made 
to the regulations text in this final rule, this methodology is 
incorporated in new Sec.  425.603(b). We will apply the methodology 
specified under Sec.  425.602(b) to update the benchmark annually for 
each year of the second agreement period for these ACOs.
     We will apply the new rebasing policies, including the 
revised phase in of the percentage used in calculating the regional 
adjustment that we are adopting in this final rule, to these ACOs for 
the first time in calculating their rebased historical benchmark for 
their third agreement period (beginning in 2019), as if the ACOs were 
entering their second agreement period. Accordingly, the 2012 and 2013 
starters will have the same transition to the use of a higher 
percentage in calculating the regional adjustment as all other ACOs.

                                         Table 3--Characteristics of Benchmarking Approaches by Agreement Period
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                        Adjustment to
                                                                    Adjustment to                                      the  historical
                                                                   the  historical    Adjustment to                     benchmark  for
                                                    Historical      benchmark  for   the historical    Adjustment to    health status     Update to the
                                                  benchmark trend    regional FFS     benchmark for   the  historical        and           historical
    Source of  methodology     Agreement period   factors (trend     expenditures   savings in prior   benchmark  for    demographic      benchmark for
                                                 BY1, BY2 to BY3)    (percentage        agreement     ACO participant    factors  of      growth in FFS
                                                                     applied  in         period?        list changes     performance        spending
                                                                     calculating                                        year  assigned
                                                                     adjustment)                                        beneficiaries
--------------------------------------------------------------------------------------------------------------------------------------------------------
November 2011 final rule.....  First...........  National........  No.............  No..............  Calculated       Newly assigned   National
                                                                                                       using            beneficiaries
                                                                                                       benchmark year   adjusted using
                                                                                                       assignment       CMS-HCC model;
                                                                                                       based on the     continuously
                                                                                                       ACO's            assigned
                                                                                                       certified ACO    beneficiaries
                                                                                                       Participant      adjusted using
                                                                                                       List for the     demographic
                                                                                                       performance      factors alone
                                                                                                       year.            unless CMS-HCC
                                                                                                                        risk scores
                                                                                                                        result in a
                                                                                                                        lower risk
                                                                                                                        score.
As modified by June 2015       Second            National........  No.............  Yes.............  Same as          Same as          National
 final rule.                    (beginning                                                             methodology      methodology
                                2016).                                                                 for first        for first
                                                                                                       agreement        agreement
                                                                                                       period.          period.
As modified by this final      Second (third     Regional........  Yes (35          No..............  Same as          No change......  Regional
 rule: Rebasing Methodology     for 2012/2013                       percent, or 25                     methodology
 for second or subsequent       starters).                          percent if ACO                     for first
 agreement periods beginning                                        is determined                      agreement
 2017 and subsequent years.                                         to have higher                     period;
                                                                    spending                           regional
                                                                    compared to                        adjustment
                                                                    its region).                       redetermined
                                                                                                       based on ACO's
                                                                                                       certified ACO
                                                                                                       Participant
                                                                                                       List for the
                                                                                                       performance
                                                                                                       year.
                               Third (fourth     Regional........  Yes (70 percent  No..............  Same as          No change......  Regional
                                for 2012/2013                       unless the                         methodology
                                starters).                          Secretary                          for second
                                                                    determines a                       agreement
                                                                    lower weight                       period
                                                                    should be                          beginning 2017
                                                                    applied, as                        and subsequent
                                                                    specified                          years.
                                                                    through future
                                                                    rulemaking, or
                                                                    50 percent if
                                                                    ACO is
                                                                    determined to
                                                                    have higher
                                                                    spending
                                                                    compared to
                                                                    its region).
                               Fourth and        Regional........  Yes (70 percent  No..............  Same as          No change......  Regional
                                subsequent                          unless the                         methodology
                                (fifth and                          Secretary                          for second
                                subsequent for                      determines a                       agreement
                                2012/2013                           lower weight                       period
                                starters).                          should be                          beginning 2017
                                                                    applied, as                        and subsequent
                                                                    specified                          years.
                                                                    through future
                                                                    rulemaking).
--------------------------------------------------------------------------------------------------------------------------------------------------------

B. Adjusting Benchmarks for Changes in ACO Participant (TIN) 
Composition

    In the initial rulemaking establishing the Shared Savings Program, 
we acknowledged that the addition or removal of ACO participants or ACO 
providers/suppliers (identified by TINs and NPIs, respectively) during 
the term of an ACO's participation agreement could affect a number of 
different aspects of the ACO's participation in the Shared Savings 
Program. The 2016 proposed rule provided detailed background on the 
regulatory and subregulatory history of how CMS sets

[[Page 37992]]

and adjusts benchmarks to reflect ACO participant composition (see 81 
FR 5848-5850).
    We explained that under the current methodology, we set an ACO's 
historical benchmark at the start of an agreement period based on the 
assigned population in each of the three benchmark years by using the 
ACO Participant List certified by the ACO. The ACO must submit a new 
certified ACO Participant List at the start of each new performance 
year. CMS adjusts an ACO's historical benchmark at the start of a 
performance year if the ACO Participant List that the ACO certified at 
the start of the new 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. As a result of changes to the ACO's certified ACO 
Participant List, we may adjust the historical benchmark upward or 
downward. Under this methodology, the historical benchmarks for ACOs 
with ACO Participant List changes from one performance year to the next 
continue to reflect the ACOs' historical costs in relation to the 
current composition of the ACO.
    During the program's initial performance years, we experienced a 
high volume of change requests from ACOs, both adding and removing ACO 
participants. We adjusted the historical benchmarks for 162 of 220 ACOs 
(74 percent) with 2012 and 2013 start dates for the 2014 performance 
year to reflect changes in ACO participants. For the 2015 performance 
year, we adjusted benchmarks for 245 of 313 ACOs (78 percent) with 
2012, 2013 or 2014 start dates to reflect changes in ACO participants.
    While the current methodology ensures that a benchmark that has 
been adjusted based on changes in the ACO's participant composition 
accurately reflects benchmark year assignment using the most recent 
certified ACO Participant List, a primary drawback is that this 
methodology is operationally burdensome. To adjust benchmarks to 
account for ACO Participant List changes made by ACOs for each new 
performance year, we must repeat the assignment process for all 3 
benchmark years for each starter cohort. Furthermore, with the addition 
of Track 3, we will need to perform two assignment runs for each 
benchmark year for a starter cohort, given that assignment for Track 3 
ACOs is based on an offset beneficiary assignment window of the most 
recent 12-month period preceding the relevant calendar year for which 
data are available (for example, the period spanning October-September 
prior to the start of the benchmark year) that differs from the 
calendar year beneficiary assignment window used for Track 1 and Track 
2 ACOs.
    In light of the operational burden of adjusting benchmarks to 
reflect changes in ACO participants under the current policy, and the 
considerations associated with our proposals to adopt a benchmark 
rebasing methodology that requires additional calculations, we proposed 
to replace the current approach for calculating adjusted historical 
benchmarks for ACOs that make ACO Participant List changes with a more 
streamlined approach on a program-wide basis. The proposed approach 
would start with an ACO's historical benchmark based on the ACO's 
certified ACO Participant List for the most recent prior performance 
year and make adjustments using a ratio that is based on expenditures 
during a reference year for: (1) The ACO's beneficiaries assigned using 
both the ACO Participant List for the new performance year and the ACO 
Participant List for the most recent prior performance year (stayers); 
and (2) expenditures for the ACO's beneficiaries assigned using only 
the ACO Participant List for the ACO's most recent prior performance 
year (stayers and leavers) for the same reference year, defined as 
benchmark year 3 of the ACO's current agreement period. This figure 
would then be combined with reference year expenditures for 
beneficiaries assigned using only the ACO Participant List for the new 
performance year (joiners) to obtain the overall adjusted benchmark. 
Calculations of the adjustment would be made, and applied to the 
historical benchmark, for each of the following populations of 
beneficiaries, according to Medicare enrollment type: ESRD, disabled, 
aged/dual eligible, aged/non-dual eligible. In the event an ACO's new 
ACO Participant List resulted in zero stayers, we proposed to continue 
to apply the current methodology for adjusting the ACO's historical 
benchmark for ACO Participant List changes.
    We proposed to incorporate this adjustment to the historical 
benchmark for ACOs in their first agreement period and those ACOs that 
started a second agreement period on January 1, 2016, by adding a 
paragraph to Sec.  425.602. In addition, we proposed to specify that 
the adjustment would apply to an ACO's rebased historical benchmark 
under the revised rebasing methodology in a new provision of the Shared 
Savings Program regulations at Sec.  425.603. We also proposed to add 
definitions for ``stayers,'' ``joiners,'' and ``leavers'' to Sec.  
425.20.
    We stated in the proposed rule that we believe that this approach 
would offer the right balance between approximating the accuracy of the 
current methodology for adjusting historical benchmarks (which requires 
performing beneficiary assignment for all 3 of an ACO's historical 
benchmark years with the new ACO Participant List) and operational 
ease. Initial modeling suggested that benchmarks calculated using this 
alternative methodology are highly correlated with those calculated 
using the current methodology.
    We also examined and sought comment on a second alternative under 
which we would calculate the average per capita expenditures for 
leavers in the reference year and use this value, along with the 
relative person years for leavers and stayers, to impute average per 
capita reference year expenditures for stayers from the historical 
benchmark. The imputed expenditures for stayers would then be combined 
with average per capita reference year expenditures for joiners to 
obtain the overall adjusted benchmark.
    Comment: While a few commenters expressed support for the proposed 
methodology to streamline adjustments for ACO Participant List changes, 
many commenters felt that CMS did not provide adequate information for 
stakeholders to properly evaluate the proposal, noting that the agency 
did not provide detailed results of its own modeling or sufficient data 
to allow others to perform their own analyses. A number of commenters 
urged the agency to make additional information available and to 
postpone finalization of the proposal at this time.
    Response: In light of commenters' suggestions that we allow 
additional time to analyze the proposal, we are not finalizing the 
proposed new streamlined methodology at this time. We continue to 
believe the proposed approach has the potential to reduce operational 
burden without sacrificing accuracy. Therefore, we anticipate 
revisiting this issue in future notice and comment rulemaking. We 
believe that delaying adoption of a new approach to adjust historical 
benchmarks for ACO Participant List changes will allow CMS to gain more 
experience in the program and will allow more opportunity for the 
agency and stakeholders to evaluate the merits and tradeoffs associated 
with the proposed methodology or other alternatives. To that end, we 
anticipate

[[Page 37993]]

making more information available to aid stakeholder evaluation of this 
approach through future notice and comment rulemaking.
    Comment: Some commenters expressed concerns about the accuracy of a 
``proxy'' measure for adjusting benchmarks, or the potential for some 
ACOs to see large differences between the proposed and current 
methodologies for adjusting an ACO's benchmark for ACO Participant List 
changes, even if the two approaches produce similar results on average. 
Several commenters noted that differences of even one or two percentage 
points between the proposed and existing methodology could be quite 
substantial for an individual ACO. Some commenters also warned that 
using an expenditure ratio based on a single year of data could be less 
accurate or equitable than the current methodology that redetermines 
beneficiary assignment for each of an ACO's three benchmark years. A 
commenter stated CMS should not use a proxy method for adjusting the 
benchmark and that the agency should not let expediency threaten the 
accuracy of the program.
    Response: We appreciate the concerns raised by commenters regarding 
the accuracy of the proposed streamlined approach for adjusting 
historical benchmarks for ACO Participant List changes and the 
potential for the proposed approach to have varied effects across ACOs. 
We believe that delaying finalization of this proposal will allow 
stakeholders further opportunity to study the implications of this or 
other alternatives, which may assuage some of the concerns initially 
raised about this proposal.
    We want to take this occasion to clarify a statement in the 
proposed rule that referred to a magnitude of change for most ACOs of 
between -2 percent and +2 percent. Some commenters seemed to interpret 
this statement as referring to differences between the current 
methodology for computing adjusted benchmarks and the proposed 
streamlined methodology. In fact, the statement referred to differences 
between benchmarks calculated using the current methodology but based 
on different ACO Participant Lists (previous performance year and 
updated). In our modeling, comparing adjusted benchmarks computed under 
the proposed and current methodologies for 88 ACOs that began the 
program in 2014 and made ACO Participant List Changes for performance 
year 2015, we found that for close to two-thirds of these ACOs, the 
difference between the two methods was within half of a percentage 
point in either direction. For over 80 percent of these ACOs, the 
difference was within 1 percentage point. Only one ACO among the 88 saw 
a difference greater than two percentage points, with the proposed 
approach producing a benchmark that was 2.3 percent lower than the 
benchmark calculated under the current methodology. The mean difference 
between the two methods (proposed minus current) was -0.2 percent and 
the median was -0.1 percent.
    Comment: Some commenters suggested other alternatives for CMS' 
consideration in conjunction with the proposed approach. A few 
commenters indicated that if CMS did decide to finalize the proposal to 
streamline the calculation of adjusted benchmarks, the agency should 
broaden the set of circumstances under which the current methodology 
would apply. Some commenters suggested that, rather than reverting to 
the current methodology only in the unlikely instance of zero 
``stayers,'' the agency should adopt a low-volume threshold for 
stayers, below which the current methodology would be used to adjust 
for ACO Participant List changes. Another commenter called for 
adjusting benchmarks for ACO Participant List changes more frequently, 
such as within 30 days of an ACO notifying CMS of an ACO participant's 
resignation or removal from the list. Another commenter wanted to see 
the proposed methodology coupled with efforts by CMS to promote better 
data collection and information sharing.
    Several commenters acknowledged that they understood CMS' desire to 
reduce operational complexity, but they expressed concern that CMS 
proposed a proxy method for adjusting benchmarks for ACO Participant 
List changes without first addressing other aspects of the existing 
methodology that commenters perceived to be flawed. Some commenters 
detailed alternative approaches. For example, some commenters suggested 
that adjustments to the ACO's benchmark for composition changes should 
be made for changes in ACO providers/suppliers, identified by National 
Provider Identifiers (NPIs), rather than for changes in ACO 
participants identified by TINs, or should account for changes in both 
NPIs and TINs. Their rationale was that only ACOs themselves can 
determine which physicians and non-physician practitioners are 
functioning as primary care providers and should be used in determining 
beneficiary assignment. Another commenter suggested that using NPIs 
instead of TINs could better account for changes in ACO composition 
over time. Some commenters also felt that CMS should address 
instability and inaccuracies introduced into benchmarks by ACO 
Participant List changes when such changes result in a difference in 
the acuity of patients assigned to the ACO in the benchmark period 
versus those assigned to the ACO for the performance year. A few 
commenters noted that some ACOs have had artificially low benchmarks 
due to innocuous changes in TINs, such as restructurings, where CMS did 
not make a correction or accommodation. These commenters further 
explained, for example, that when an ACO introduces a new service line 
for complex patients within an existing TIN during an agreement period, 
there would be no history of treating such patients in the baseline 
period and the benchmark would be understated. Another commenter opined 
that CMS should perform additional analysis and policy development on 
the fundamentals of benchmarking before developing a proxy process for 
making adjustments to benchmarks.
    Response: We appreciate the suggestions raised by commenters and 
will take them into consideration when revisiting this issue in future 
rulemaking. However, we note that some of the suggestions offered, for 
example adjusting benchmarks for ACO Participant List changes more 
frequently, would likely offset, if not negate, the expected reduction 
in operational burden associated with the streamlined approach, which 
was the primary rationale behind its development. Thus it will be 
important to weigh the tradeoffs posed by any suggested modifications.
    Further, in the 2016 proposed rule, CMS did not contemplate changes 
to the underlying methodology used to assign beneficiaries to ACOs, 
including how ACO participants are defined for purposes of assignment, 
or to policies surrounding when or under what circumstances CMS will 
make adjustments or corrections to an ACO's benchmark. We appreciate 
the concerns raised by commenters and will continue to review existing 
policies as we gain additional experience in the program. That being 
said, we do not believe that we should necessarily forgo opportunities 
to reduce administrative complexity in the near term if alternative 
methodologies have the potential to lower operational burden without 
sacrificing accuracy when calculating the adjustment for changes in the 
ACO's certified ACO Participant List.
    FINAL ACTION: After consideration of the public comments received 
and

[[Page 37994]]

the concerns raised by many commenters, at this time, we are not 
finalizing our proposal to replace the current approach for calculating 
adjusted historical benchmarks for ACOs that make ACO Participant List 
changes with a new program-wide approach that would adjust an ACO's 
historical benchmark using an expenditure ratio based on single 
reference year. Relatedly, we are not finalizing the proposed 
definitions of ``stayers,'' ``leavers,'' and ``joiners'' in Sec.  
425.20 at this time. Although we are not finalizing the proposal to 
adopt a more streamlined approach for adjusting historical benchmarks 
for ACO Participant List changes in this rule, we continue to believe 
this alternative approach has merit as a means for reducing operational 
burden without sacrificing accuracy in ACO benchmarks. As such, we 
anticipate revisiting this proposal in future notice and comment 
rulemaking, and making more information available at that time to aid 
stakeholder evaluation. However, we are finalizing as proposed 
clarifying revisions to the description of the current approach to 
calculating adjusted historical benchmarks for ACOs that make ACO 
Participant List changes at Sec.  425.602(a)(8), to specify that the 
benchmark is adjusted to take into account the expenditures for 
beneficiaries who would have been assigned to the ACO in any of the 3 
most recent years prior to the agreement period using the most recent 
certified ACO Participant List for the relevant performance year. In 
addition, we will include a similar provision in new Sec.  425.603 to 
provide that the same adjustment for ACO Participant List changes will 
be made to an ACO's rebased historical benchmark.

C. Facilitating Transition to Performance-Based Risk

1. Overview
    As discussed in detail in the proposed rule (81 FR 5851 through 
5853), we continue to believe that in order for the Shared Savings 
Program to be effective and sustainable over the long term, we need to 
further strengthen our efforts to transition the Shared Savings Program 
to a two-sided performance-based risk program in which ACOs share in 
both savings and losses. Currently, for its initial agreement period, 
an ACO applies to participate in a particular financial model or track 
of the program as specified under Sec.  425.600(a). If the ACO's 
application is accepted, the ACO must remain under that financial model 
for the duration of its 3-year agreement. ACOs entering the program 
under the one-sided shared savings model (Track 1) that meet 
eligibility criteria may continue their participation under this model 
for a second 3-year agreement period as specified under Sec.  
425.600(b). In response to suggestions from ACOs and other 
stakeholders, and based on our experience with the first group of ACOs 
eligible for renewal for a second agreement period starting in 2016 in 
which nearly all such ACOs applied to remain in Track 1 for an 
additional agreement period, we further considered whether it would be 
appropriate to offer an additional participation option to encourage 
ACOs to move more quickly from the one-sided shared savings model to a 
performance-based risk model when renewing their agreements.
2. Additional Option for ACOs Participating Under Track 1 to Apply to 
Renew for a Second Agreement Period Under a Two-Sided Track
    To respond to stakeholder concerns and to provide additional 
flexibility for ACOs that are willing to accept performance-based risk 
arrangements, we proposed to add a participation option that would 
allow eligible Track 1 ACOs to defer by 1 year their entrance into a 
performance-based risk model (Track 2 or 3) by extending their first 
agreement period under Track 1 for a fourth performance year. ACOs that 
would be eligible to elect this proposed new participation option would 
be those ACOs eligible to renew for a second agreement period under 
Track 1 but instead are willing to move to a performance-based risk 
track 2 years earlier, after continuing under Track 1 for 1 additional 
year. This option would assist ACOs in transitioning to a two-sided 
risk track when they need only one additional year in Track 1 rather 
than a full 3-year agreement period in order to prepare to accept 
performance-based risk. The additional year could allow such ACOs to 
further develop necessary infrastructure to meet the program's goals, 
such as further developing their care management services, adopting 
additional mechanisms for measuring and improving quality performance, 
finalizing implementation and testing of electronic medical records, 
and performing data analytics. We proposed to make this option 
available to Track 1 ACOs whose first agreement period is scheduled to 
end on or after December 31, 2016. Under this proposal, ACOs that elect 
this new participation option would continue under their first 
agreement period for a fourth year, deferring benchmark rebasing as 
well as deferring entrance to a two-sided risk track if they are 
approved for renewal.
    More specifically, we proposed to provide an additional option for 
ACOs participating under Track 1 to apply to renew for a second 
agreement period under a two-sided track (Track 2 or Track 3) under the 
renewal process specified at Sec.  425.224. If the ACO's renewal 
request is approved, the ACO would be able to defer entering the new 
agreement period under a performance-based risk track for 1 year. 
Further, as a result of this deferral, we would also defer rebasing the 
ACO's benchmark for 1 year. At the end of this fourth performance year 
under Track 1, the ACO would transition to the selected performance-
based risk track for a 3-year agreement period. Accordingly, we 
proposed to amend the participation agreement requirements at Sec.  
425.200 to provide that an ACO that defers entering its new agreement 
period will be able to continue participating under its first agreement 
for an additional year (for an agreement period that would total 4 
years).
    An ACO electing this option would still be required to undergo the 
renewal process specified at Sec.  425.224 prior to the end of its 
initial agreement (PY 3) and meet all other renewal requirements 
including the requirement that the ACO demonstrate that it is capable 
of repaying shared losses as required to enter a performance-based risk 
track. Because the ACO would be committing under the renewal 
application to transition to a performance-based risk track following 
completion of PY 4 under Track 1, the ACO would be required to 
demonstrate as part of its renewal application that it has established 
an adequate repayment mechanism as specified at Sec.  425.204(f) to 
assure CMS of its ability to repay losses for which it may be liable 
during the new agreement period. We proposed to make this option 
available to Track 1 ACOs whose first agreement period is scheduled to 
end on or after December 31, 2016. Therefore, this proposed option 
would be available to ACOs with 2014 start dates seeking to renew their 
participation agreements in order to enter their second agreement 
period beginning in 2017. Under this proposal, we would update the 
ACO's benchmark as specified at Sec.  425.602(b) for performance year 4 
of the initial participation agreement. However, we would defer 
resetting the benchmark as specified at proposed Sec.  425.603 until 
the beginning of the ACO's second agreement period (that is, the ACO's 
first agreement period under the selected performance-based risk 
track). The benchmark would be reset under the policies in place for 
that time

[[Page 37995]]

period, including the regional adjustment we are finalizing in this 
rule. Also, we proposed that the quality performance standard that 
would apply for performance year 4 of the initial participation 
agreement would be the same as for the ACO's performance year 3, 
consistent with Sec.  425.502(a)(2). Specifically, we proposed that 
during the fourth performance year of the ACO's first agreement period, 
the ACO must continue to report all measures and the ACO will be 
assessed on performance based on the quality performance standard in 
place for the third performance year of the ACO's first agreement 
period.
    In addition, we proposed that if a Track 1 ACO finishing its 
initial agreement period chooses to elect this option during the 
renewal of its participation in the Shared Savings Program, the ACO 
would be required to transition to the selected performance-based risk 
track at the end of the fourth performance year under Track 1. The term 
of the second agreement period would be 3 performance years.
    If such an ACO subsequently decides during the fourth performance 
year that it no longer wants to transition to the performance-based 
risk track it selected in its application for a second agreement 
period, then the currently established close-out procedures and payment 
consequences of early termination under Sec.  425.221 would apply. For 
example, if the ACO voluntarily terminates its agreement under Sec.  
425.221(a), effective December 31 of its fourth performance year, and 
completes all required close-out procedures, then as specified by Sec.  
425.221(b), the ACO would be eligible to share in any shared savings 
for its fourth performance year.
    In addition, to provide some incentive for ACOs to honor their 
commitment to participate early in a performance-based risk track, we 
proposed that if an ACO that has been approved for an extension of its 
initial agreement period terminates its participation agreement prior 
to the start of the first performance year of the second agreement 
period, then the ACO would be considered to have terminated its 
participation agreement for the second agreement period under Sec.  
425.220. Such an ACO would not be eligible to participate in the Shared 
Savings Program again until after the date on which the term of that 
second agreement period would have expired if the ACO had not 
terminated its participation, consistent with Sec.  425.222.
    In the proposed rule, we also noted that if an ACO that goes on to 
participate under a two-sided track under this proposed option 
voluntarily terminates its agreement during its second agreement 
period, then the currently established close-out procedures and payment 
consequences of early termination under Sec.  425.221 would apply. If 
an ACO terminates its agreement under its selected performance-based 
risk track and subsequently decides to reapply to participate in the 
Shared Savings Program, then the requirements under Sec.  425.222 for 
re-application after termination would apply. For example, consistent 
with our current policy, such an organization would be required to 
apply to participate under a two-sided model and would have to wait the 
remaining duration of the agreement period before reapplying.
    In developing this proposal to support our policy goal of providing 
additional flexibility to ACOs that are considering transitioning to 
two-sided risk, we also considered an alternative option that would 
permit the ACO to transition to a two-sided risk track during a 
subsequent 3-year agreement period under Track 1, instead of extending 
the first agreement period for an additional year. Under this 
alternative approach, we indicated that we would allow the ACO to 
remain in Track 1 for the first performance year of the second 3-year 
agreement period. The ACO would then be required to transition to Track 
2 or 3 for the final 2 performance years of the agreement period. An 
ACO choosing this option would be required to satisfy all the 
requirements for a performance-based risk track at the time of renewal, 
including the requirement that the ACO demonstrate that it is capable 
of repaying shared losses as required to enter a performance-based risk 
track. Under this approach, we would rebase the ACO's benchmark as 
provided under proposed Sec.  425.603, effective for the first year of 
the second 3-year agreement period. Further, we would calculate shared 
savings for the first year of the second 3-year agreement period under 
the one-sided model as specified at Sec.  425.604. During the second 
and third performance years of the second agreement period, we would 
calculate shared savings and shared losses, as applicable, under either 
Track 2 (as determined at Sec.  425.606) or Track 3 (as determined at 
Sec.  425.610). We did not elect to propose this alternative option 
because we believed there could be a stronger incentive for some ACOs 
to transition to two-sided performance-based risk if we were to defer 
resetting the ACO's benchmark until the beginning of the ACO's second 
agreement period. Additionally, we noted that the alternative approach 
could raise concerns about risk selection since an ACO could 
participate for the first performance year of the second agreement 
period under this alternative, learn midway through the second 
performance year that its expenditures for the first performance year 
were below the negative MSR, and withdraw from the program before being 
subjected to reconciliation under performance-based risk.
    We welcomed comments on our proposal and the alternative approach, 
as well as on other possible alternatives to provide flexibility and 
encourage ACOs to enter into and honor their participation agreements 
under performance-based risk tracks, and any related issues.
    Comment: Commenters generally supported the proposed new 
participation option, believing that this additional participation 
option could assist some ACOs with transitioning to a two-sided risk 
track more quickly by giving eligible ACOs an additional year to 
further develop the infrastructure needed to achieve success under a 
performance-based risk track. Some commenters thought the alternative 
approach, in which we would allow the ACO to remain in Track 1 for the 
first performance year of its second 3 year agreement period before 
transitioning to a performance-based risk track in year 2, should also 
be offered, and might even be advantageous for ACOs in some situations. 
For example, some commenters suggested that this alternative 
participation option could be advantageous if it were integrated with 
the APM requirements under MACRA; that is, if the first year of a new 
two-sided risk contract under the alternative option could qualify as 
being ``more than nominal financial risk'' and therefore enable the 
ACO's physicians and other eligible clinicians to receive bonus 
payments equal to 5 percent of their covered Medicare professional 
services. A number of commenters also indicated that it was difficult 
for them to fully evaluate the proposed option and the alternative 
approach without first having policies in place for implementing MACRA, 
so that it would be clearer whether these new participation options 
might qualify as an APM under MACRA.
    To provide yet even more flexibility for ACOs prepared to accept 
performance-based risk, some commenters recommended that CMS allow ACOs 
to ``move up'' the risk tracks (that is, to move from Track 1 to Track 
2 or 3, or move from Track 2 to Track 3) between performance years 
without being required to wait for the

[[Page 37996]]

start of a new agreement period. These commenters suggested that 
allowing an ACO to accept varying degrees of risk within an agreement 
period would position the ACO to best balance its exposure to and 
tolerance for financial risk and would create a true glide path for 
providers.
    However, many commenters indicated that while they supported adding 
one or more additional participation options, they also cautioned that 
adding such participation options might not have much impact on ACOs' 
willingness to participate under a performance-based risk track. These 
commenters suggested that if a Track 1 ACO is uncertain about its 
ability to successfully manage financial risk, the ACO would more 
likely simply choose to continue under Track 1 for a second agreement 
period. Another commenter stated that the anticipated impact of the 
proposed regional benchmark rebasing methodology is not as significant 
as hoped for and therefore the proposal to facilitate transition to 
performance-based risk by extending an ACO's agreement period into a 
fourth year without rebasing is not a meaningful incentive. This 
commenter recommended that CMS consider lowering the minimum savings 
rate of two percent under Sec.  425.604(b) as a way to support ACOs by 
improving the probability that they will be eligible to share in any 
savings they achieve as they transition to performance-based risk, 
particularly for ACOs that demonstrate a commitment to the Shared 
Savings Program through their years of participation and meet 
sufficient size requirements for statistical reliability.
    A commenter expressed concern that adding the proposed additional 
participation option could slow the move away from FFS payment 
arrangements. This commenter believes that the ultimate goal is for 
providers to take on full financial responsibility for caring for a 
population of patients for a fixed payment. On balance, however, the 
commenter preferred the proposed alternative for transition to 
participation under Track 2 or Track 3, over the option to renew for an 
additional 3-year agreement period under Track 1, as previously 
finalized in the June 2015 rule.
    Response: We appreciate the general support received from 
commenters on our proposal to provide an additional option for ACOs 
participating under Track 1 to apply to renew for a second agreement 
period under a two sided track (Track 2 or Track 3), under which the 
ACO, if approved by CMS, may defer entering the new agreement period 
under a performance-based risk track, and extend participation under 
the initial participation agreement, for 1 year (that is, the initial 
agreement period would total 4 years). We acknowledge the concerns 
raised by commenters that this new participation option might not 
significantly affect ACOs' willingness to assume performance-based 
risk, but agree with commenters that such an option may influence some 
ACOs to transition to a performance-based risk track sooner than they 
otherwise might have.
    As we gain experience with this new participation option in the 
Shared Savings Program, we will continue to evaluate the 
appropriateness and effectiveness of our incentives to encourage ACOs 
to transition to a performance-based risk track and, as necessary, may 
propose refinements through future notice and comment rulemaking. 
Although we are not adopting the alternative approach that we discussed 
in the proposed rule (that would permit the ACO to transition to a two-
sided risk track during a subsequent 3-year agreement period under 
Track 1, instead of deferring entry into a new agreement period under a 
two-sided risk track and extending the first agreement period for an 
additional year), we may revisit it along with possible other 
approaches, including those suggested by commenters, in the future. As 
we gain additional experience under the Shared Savings Program, we may 
propose, if warranted, one or more additional participation options 
through future rulemaking to increase ACOs' willingness to assume 
performance-based risk. We would also note that the Department of 
Health and Human Services recently issued a Notice of Proposed 
Rulemaking that includes its proposals for implementation of the bonus 
payment for participants in eligible APMs under MACRA, 81 FR 28162 (May 
9, 2016).
    Comment: A commenter disagreed with our proposal that if an ACO 
that has been approved for an extension of its initial agreement period 
terminates its participation agreement prior to the start of the first 
performance year of the second agreement period, the ACO would be 
considered to have terminated its participation agreement for the 
second agreement period under Sec.  425.220. We included this proposal 
because we believe it will provide an incentive for ACOs to honor their 
commitment to participate early in a performance-based risk track. The 
commenter believes that the proposed approach overlooks the fact that 
unanticipated changes can have a material impact on an ACO's readiness 
to assume risk. To illustrate, this commenter suggested that a 
significant change in the ACO's Participant List could have a material 
impact on the ACO's readiness and ability to follow through on its 
prior commitment to transition to a performance-based risk track. To 
address such situations, this commenter recommended that CMS create a 
``hold harmless'' provision for ACOs that choose to renew their 
participation under the new participation option but then subsequently 
decide they are unable to assume performance-based risk due to a 
material change in their structure. Under this suggested hold harmless 
provision, an ACO that is unable to honor its commitment to participate 
in a performance-based risk track should have its benchmark rebased, so 
that it can be treated as being in PY1 of its second agreement period 
under Track 1. This commenter encouraged CMS to work with stakeholders 
to define a comprehensive list of material events that would enable an 
ACO to qualify for the hold harmless provision.
    Response: We are not persuaded that it is necessary to revise the 
proposal to include a ``hold harmless'' provision. We continue to 
believe it would be appropriate under this new participation option to 
provide an incentive for ACOs to honor their commitment to participate 
early in a performance-based risk track. We would expect that ACOs 
considering this new participation option would share their process and 
systems knowledge with potential new ACO participants to increase the 
likelihood that new ACO participants could be successfully integrated 
in to the ACO, but ultimately ACOs should make their own determination 
as to whether a TIN is ready to join it in assuming performance-based 
risk. Alternatively, if the change in the ACO's composition is due the 
loss of one or more key ACO participant TINs, we believe it would be 
appropriate for the ACO to make its own determination as to whether to 
honor its commitment to assume performance-based risk or terminate its 
participation agreement. Also, we already have an adjustment to the 
historical benchmark in place that accounts for changes in an ACO's 
certified ACO Participant List, as discussed in section II.B of this 
final rule. This policy allows for more accurate benchmarks that 
reflect the historical spending patterns of the ACO and its assigned 
beneficiaries. Therefore, we are finalizing as proposed the policy 
that, if an ACO that has been approved for an extension of its initial

[[Page 37997]]

agreement period terminates its participation agreement prior to the 
start of the first performance year of the second agreement period, the 
ACO will be considered to have terminated its participation agreement 
for the second agreement period under Sec.  425.220. Such an ACO will 
not be eligible to participate in the Shared Savings Program again 
until after the date on which the term of that second agreement period 
would have expired if the ACO had not terminated its participation, 
consistent with Sec.  425.222.
    Comment: Commenters provided a variety of other suggestions that 
they believe might also encourage ACOs to transition to a performance-
based risk track earlier. For example, a commenter preferring 
retrospective beneficiary assignment under Track 2 rather than 
prospective assignment under Track 3, suggested that Track 2 could be 
made more attractive to participants if CMS were to make enhancements 
that are currently available only under Track 3, such as the waiver of 
the SNF 3-Day Rule, available under Track 2. Similar to comments we 
received in prior rulemaking, a number of commenters requested that CMS 
allow ACOs to include partial or ``split TINs'' among their ACO 
participants to allow large organizations, such as academic medical 
centers and their faculty practice plans, to participate in the program 
under a performance-based risk track with a subset of their providers.
    Another commenter urged CMS to create stronger incentives for ACOs 
to assume downside risk in Track 2 and Track 3, such as by reducing the 
final sharing rate for eligible ACOs under Track 1 to perhaps 20 
percent for the second agreement period, to minimize the number of ACOs 
renewing under Track 1. Otherwise, the commenter suggests many Track 1 
ACOs may decide that Track 1 benefits, including having no risk of 
shared losses, exceed the marginal reduction of their shared savings 
payments during the second renewal term. This commenter also believes 
that CMS should provide a clearer and more certain path for ACOs 
willing to share in risk by, for example, also offering prospective 
beneficiary assignment for ACOs moving to Track 2 and providing more 
timely Part D expenditure data for assigned beneficiaries. The 
commenter believes that these changes would help ACOs predict the 
expected baseline Medicare spending and savings and reduce uncertainty.
    Response: Although we are not addressing these additional 
suggestions as part of this rulemaking, we will further consider these 
and other suggestions from ACOs and other stakeholders that might 
encourage ACOs to enter performance-based risk arrangements earlier. As 
we discussed in the June 2015 final rule (80 FR 32810 and 32811), we 
appreciate the flexibilities 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 risk tracks. 
Under such a model, ACOs could progressively move providers 
participating in their organizations into risk in a step-wise fashion. 
Therefore, we continue to be 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 are finalizing our proposal to provide an 
additional option for ACOs participating under Track 1 to apply to 
renew for a second agreement period under a two-sided track (Track 2 or 
Track 3) under the renewal process specified at Sec.  425.224. If the 
ACO's renewal request is approved, the ACO may defer entering the new 
agreement period under the performance-based risk track for 1 year and 
extend its first agreement period under Track 1 for a fourth 
performance year. Further, as a result of this deferral and extension, 
we will also defer rebasing the ACO's benchmark for 1 year. At the end 
of the fourth performance year under Track 1, the ACO will transition 
to the selected performance-based risk track for a 3-year agreement 
period. Accordingly, we are amending the participation agreement 
requirements at Sec.  425.200 to provide that an ACO in its first 
agreement period under Track 1 that has applied and been approved for a 
second agreement period under a performance-based risk track that 
defers entering its new agreement period under the performance-based 
risk track will be able to continue participating under its first 
agreement for an additional year (for an agreement period that would 
total 4 years).
    In addition, we are finalizing our proposal that if an ACO that has 
been approved for an extension of its initial agreement period 
terminates its participation agreement prior to the start of the first 
performance year of the second agreement period, then the ACO will be 
considered to have terminated its participation agreement for the 
second agreement period under Sec.  425.220. Such an ACO will not be 
eligible to participate in the Shared Savings Program again until after 
the date on which the term of that second agreement period would have 
expired if the ACO had not terminated its participation, consistent 
with Sec.  425.222.

D. Administrative Finality: Reopening Determinations of ACO Savings or 
Losses to Correct Financial Reconciliation Calculations, and a 
Conforming Change

1. Overview
    ACOs enter into agreements with CMS to participate in the Shared 
Savings Program, under which ACOs that meet quality performance 
requirements and reduce the Medicare Parts A and B expenditures for 
their assigned beneficiaries below their benchmark by a specified 
margin are eligible to share a percentage of savings with the Medicare 
program. Further, ACOs participating under a two-sided risk track, 
whose Medicare Parts A and B expenditures for their assigned 
beneficiaries exceed their benchmarks by a specified margin, are liable 
for sharing losses with CMS. After each performance year, CMS 
calculates whether an ACO has generated shared savings by comparing its 
actual expenditures for its assigned beneficiaries in the PY with its 
updated benchmark. Savings are generated if actual Medicare Parts A and 
B expenditures for assigned beneficiaries are less than the updated 
benchmark expenditures and shared with the ACO if they exceed the ACO's 
minimum savings rate, and the ACO meets the minimum quality performance 
standards and otherwise maintains its eligibility to participate in the 
Shared Savings Program. For an ACO under a two-sided risk track, losses 
are generated if actual Medicare Parts A and B expenditures for 
assigned beneficiaries are greater than the updated benchmark 
expenditures and the ACO is liable for shared losses if the losses 
exceed the ACO's minimum loss rate.
    To date, we have announced 2 years of financial performance results 
for ACOs participating in the Shared Savings Program, in Fall 2014 for 
220 ACOs with 2012 and 2013 start dates for PY 1 (concluding December 
31, 2013), and in August 2015 for 333 ACOs with 2012, 2013 and 2014 
start dates for PY 2014. As discussed in detail in the proposed rule 
(81 FR 5853 through 5854), several months after the release of PY 1 
financial reconciliation results and shared savings payments to 
eligible ACOs, we discovered that there was an issue with one of the 
source input data fields used in the final financial reconciliation 
calculations. As a result,

[[Page 37998]]

the PY 1 shared savings payments were overstated for some ACOs and 
shared losses were understated for some other ACOs. We ultimately 
determined this issue resulted in an estimated 5 percent overstatement 
of PY 1 shared savings payments to ACOs and an understatement of shared 
losses (81 FR 5853 and 5854). The impact on individual ACOs varied 
depending on the extent to which services provided to the ACO's 
assigned beneficiaries were furnished by providers that receive DSH 
payments. The issue did not result in understated PY 1 shared savings 
payments or overstated PY 1 shared loss recoupments for any ACO.
    The financial reconciliation calculation/methodology and the amount 
of shared savings an ACO might earn, including all underlying financial 
calculations, are not appealable. That is, the determination of whether 
an ACO is eligible for shared savings under section 1899(d) of the Act, 
and the amount of such shared savings, as well as the underlying 
financial calculations are precluded from administrative and judicial 
review under section 1899(g)(4) of the Act and Sec.  425.800(a)(4). 
However, under Sec.  425.314(a)(4), if as a result of any inspection, 
evaluation, or audit, it is determined that the amount of shared 
savings due to the ACO or the amount of shared losses owed by the ACO 
has been calculated in error, CMS reserves the right to reopen the 
initial determination and issue a revised initial determination. (See 
also the CMS Web site at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/sharedsavingsprogram/Downloads/Reconsideration-Review-Process-Guidance.pdf).
    As noted in the proposed rule, we have not previously specified the 
actions that we would take under circumstances when we identify an 
error in a prior payment determination, such as the error that occurred 
in the calculation of PY 1 shared savings and shared losses. We are 
concerned that the current uncertainty regarding the timeframes and 
other circumstances in which we would reopen a payment determination to 
correct financial calculations under the Shared Savings Program could 
introduce financial uncertainty which could seriously limit an ACO's 
ability to invest in additional improvements (such as IT solutions and 
process development, staffing, population management, care 
coordination, and patient education) to increase quality and efficiency 
of care. This uncertainty could also limit an ACO's ability to get a 
clean opinion from its financial auditors, which could, for example, 
harm the ACO's ability to obtain necessary capital for additional 
program improvements. This could be especially challenging for ACOs 
seeking to enter or continue under a two-sided performance-based risk 
track since under the requirements at Sec.  425.204(f)(2), such an ACO 
must, as part of its application for a two-sided performance-based risk 
track, demonstrate its ability to repay shared losses to the Medicare 
program, which it may do 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. These arrangements can often require that an ACO or 
its financial supporters or both make an assessment of the ACO's level 
of financial risk for possible repayments. We are particularly 
concerned that uncertainty regarding past financial results could 
discourage ACOs from moving more quickly from the one-sided shared 
savings track to a performance-based risk track when renewing their 
agreements.
    We considered an approach under which we would always reopen a 
determination of ACO shared savings or shared losses to correct any 
issue that might arise with respect to a financial calculation, 
identified within 4 years after the release of final financial 
reconciliation results. We did not propose this option because we were 
concerned that this approach of correcting even very minor errors might 
result in significant operational burdens for ACOs and CMS, including 
multiple financial reconciliation re-runs and off-cycle payment/
recoupment activities that could have the potential for significant and 
unintended operational consequences, and could jeopardize the certainty 
of performance results for both ACOs and CMS. We also considered 
whether to adopt a policy under which we would never correct for errors 
after performing the financial calculations and making initial 
determinations of ACO shared savings and shared losses. However, we did 
not propose this option because we believed it would be appropriate to 
reopen financial calculations in certain circumstances, such as in the 
case of fraud or similar fault as defined at Sec.  405.902, or for 
errors with a significant impact on the computation of ACOs' shared 
savings/shared losses. Therefore, we proposed a finality policy for 
financial calculations and shared savings payments or shared loss 
recoupments in which we would allow for corrections, under certain 
circumstances and within a defined timeframe, after financial 
calculations have been performed and the determination of ACO shared 
savings and shared losses has been made.
2. Circumstances for Reopening Initial Determinations and Final Agency 
Determinations of ACO Shared Savings or Shared Losses to Correct 
Financial Reconciliation Calculations
    In developing the proposals in this section, we considered the 
following issues: (1) The type of issue/error that we would correct; 
(2) the timeframes for reopening a payment determination; and (3) 
whether we should establish a materiality threshold as an indicator of 
a material effect on shared savings and shared losses that would 
warrant a correction, and if so, at what level.
    First, we proposed that CMS would have discretion to reopen a 
payment determination at any time in the case of fraud or ``similar 
fault,'' as defined in Sec.  405.902. It is longstanding policy in the 
Medicare program that a determination may be reopened at any time if it 
was procured by fraud or ``similar fault,'' (see, for example, Sec.  
405.980(b)(3); 74 FR 65296, 65313 (December 9, 2009)). Second, we 
proposed that in certain circumstances we would reopen a payment 
determination for good cause. For consistency and to decrease program 
complexity, we proposed to follow the same approach to reopening for 
good cause as applies to the reopening of Parts A and B claims 
determinations under Sec.  405.986. Specifically, we proposed that CMS 
would have the discretion to reopen a payment determination, within 4 
years after the date of notification to the ACO of the initial 
determination of shared savings or shared losses for the relevant 
performance year, if there is good cause. We proposed that good cause 
may be established if there is new and material evidence that was not 
available or known at the time of the payment determination, and which 
may result in a different conclusion, or if the evidence that was 
considered in making the payment determination clearly shows on its 
face that an obvious error was made at the time of the payment 
determination.
    We indicated that new and material evidence or an obvious error 
could come to CMS' attention through a variety of means, such as 
identification by CMS through CMS program integrity reviews or audits, 
or identification through audits conducted by independent federal 
oversight entities such as the Office of Inspector General (OIG) or the 
Government Accountability

[[Page 37999]]

Office (GAO). CMS program integrity reviews and audits include reviews 
and audits conducted by CMS' contractors. We proposed to establish a 4-
year time period (that is, 4 years from initial notification of the 
payment determination) for reopening Shared Savings Program payment 
determinations for good cause to provide sufficient time to initiate 
and complete CMS program integrity reviews or audits by oversight 
entities like OIG or GAO and to evaluate errors identified through 
those processes. We proposed that good cause would not be established 
by changes in substantive law or interpretative policy. A change of 
legal interpretation or policy by CMS in a regulation, CMS ruling, or 
CMS general instruction, whether made in response to judicial precedent 
or otherwise, would not be a basis for reopening a payment 
determination under the proposal. Further, we proposed CMS would have 
sole discretion to determine whether good cause exists for reopening a 
payment determination under this section. Under the proposal, the 
determination of whether an error was made, whether a correction would 
be appropriate based on these proposed criteria, and the timing and 
manner of any correction would be within the sole discretion of CMS. We 
also indicated in the proposal that we did not intend to propose an 
exhaustive list of potential issues that would or would not constitute 
good cause, but instead intended to provide additional subregulatory 
guidance on this issue. We also noted that good cause would not be 
established by a reconsideration, appeal, or other administrative or 
judicial review of any determinations precluded under Sec.  425.800.
    In addition, we indicated we would not reopen a payment 
determination to consider, or otherwise consider as part of a 
reopening, additional claims information submitted following the end of 
the 3-month claims run out and the use of the completion factor. We 
would continue to use claims submitted prior to the end of the 3-month 
claims run out with a completion factor to calculate an ACO's per 
capita expenditures for each performance year, consistent with 
Sec. Sec.  425.604(a)(5), 425.606(a)(5) and 425.610(a)(5). Also, 
consistent with established policy, under this proposed policy, we 
would not reopen a determination if an ACO's ACO participants submitted 
additional claims or submitted corrected claims after the 3-month 
claims run out period following the end of the performance year.
    In order to provide an opportunity for CMS to consider updated 
information and make other adjustments to payment determinations across 
all ACOs, and to minimize program disruptions for ACOs resulting from 
multiple reopenings, we indicated that we would, to the extent 
feasible, make corrections for a given performance year in a unified 
reopening (as opposed to multiple reopenings). In addition, we 
indicated we would consider other ways to reduce operational burdens 
for both ACOs and CMS that could result from making payment 
adjustments.
    In addition, in discussing the proposal regarding reopenings for 
good cause, we proposed that we would also consider whether the error 
is material and thus warrants a correction by reviewing the nature and 
particular circumstances of the error. We did not propose specific 
criteria for determining materiality but we indicated our intent to 
provide additional information for ACOs through subregulatory guidance, 
as appropriate. For example, in the case of technical errors by CMS 
such as CMS data source file errors and CMS computational errors, we 
stated we would consider limiting reopenings of payment determinations 
under the Shared Savings Program to issues/errors that have a material 
effect on the net amount of ACO shared savings and shared losses 
computed for the applicable performance year for all ACOs, and thus 
warrant a correction due to the magnitude of the error.
    We also initially considered applying a materiality threshold for 
each ACO, rather than evaluating materiality based on the effect on 
total net shared savings and shared losses for all ACOs, in determining 
whether to exercise our reopening discretion to correct a CMS technical 
error. However, we indicated in the proposed rule that we believed it 
would be appropriate to limit reopenings to correct CMS technical 
errors that more widely affect the program rather than reopening 
determinations for specific issues for each of the hundreds of ACOs 
participating in the Shared Savings Program absent evidence of fraud or 
similar fault, or good cause established by evidence of other errors. 
Otherwise, a relatively broad scope and extended timeframe for 
reopening could seriously limit an ACO's ability to invest in 
additional improvements to increase quality and efficiency of care. 
This uncertainty could also limit an ACO's ability to get a clean 
opinion from its financial auditors, which could, for example, harm the 
ACO's ability to obtain necessary capital for additional program 
improvements. This could be especially challenging for ACOs seeking to 
enter or continue under a two-sided performance-based risk track since 
under the requirements at Sec.  425.204(f), such an ACO must, as part 
of its application for a two-sided performance-based risk track, 
demonstrate its ability to repay shared losses to the Medicare program, 
which it may do 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. These arrangements can often require that an ACO and/
or its financial supporters make an assessment of the ACO's level of 
financial risk for possible repayments. Uncertainty over past financial 
results could significantly affect an ACO's ability to obtain and 
maintain these arrangements with financial institutions, and thus 
discourage ACOs from moving more quickly from the one-sided shared 
savings track to a performance-based risk track when renewing their 
agreements. (81FR 5854).
    Therefore, after considering these issues, we proposed to revise 
Sec.  425.314 to remove paragraph (a)(4) and add a new paragraph (e) to 
specify the circumstances under which we would reopen a payment 
determination under Sec. Sec.  425.604(f), 425.606(h), 425.610(h), 
425.804, or 425.806. Specifically, we proposed that, if CMS determines 
that the amount of shared savings due to the ACO or the amount of 
shared losses owed by the ACO has been calculated in error, CMS may 
reopen the earlier payment determination and issue a revised initial 
determination. We proposed that a payment determination may be 
reopened: (1) At any time in the case of fraud or similar fault, as 
defined in Sec.  405.902; or (2) not later than 4 years after the date 
of notification to the ACO of the initial determination of shared 
savings or shared losses for the relevant performance year under Sec.  
425.604(f), Sec.  425.606(h) or Sec.  425.610(h), for good cause. We 
proposed that good cause may be established when there is new and 
material evidence of an error or errors, that was not available or 
known at the time of the payment determination and may result in a 
different conclusion, or the evidence that was considered in making the 
payment determination clearly shows on its face that an obvious error 
was made at the time of the payment determination. Good cause would not 
be established by a change of legal

[[Page 38000]]

interpretation or policy by CMS in a regulation, CMS ruling or CMS 
general instruction, whether made in response to judicial precedent or 
otherwise. We would have sole discretion to determine whether good 
cause exists for reopening a payment determination under this section. 
Also, good cause would not be established by a reconsideration, appeal, 
or other administrative or judicial review of any determinations 
precluded under Sec.  425.800.
    Under the proposal, the determination of whether an error was made, 
whether a correction would be appropriate based on the proposed 
criteria, and the timing and manner of any correction would be within 
the sole discretion of CMS. We proposed that if CMS determines that the 
specified criteria were met and exercises its discretion to reopen, CMS 
would recompute the financial results for all ACOs affected by the 
error or errors. In light of this policy proposal, we indicated we 
would not reopen and revise the PY 1 payment determinations solely 
affected by the data source error described previously because we had 
not previously specified, either through regulations or program 
guidance, the criteria CMS would apply in determining whether to reopen 
a payment determination. However, we indicated we would reopen and 
revise these PY 1 payment determinations for other errors satisfying 
the proposed criteria for reopening for good cause or for fraud or 
similar fault (81 FR 5857). Finally, we proposed to amend Sec.  
425.800(a)(4), expressly to include a revised initial determination in 
the list of determinations that are precluded from administrative and 
judicial review.
    We invited comments on this proposal, including the proposed 
criteria for reopening, on alternative approaches for defining the time 
period for reopenings of payment determinations, on the criteria for 
establishing good cause, whether the time period for reopenings for 
good cause should be longer or shorter than 4 years, and on any other 
criteria that we should consider for the final rule to address issues 
related to financial reconciliation calculations and the determination 
of ACO shared savings and shared losses.
    Comment: Commenters generally appreciated efforts to further define 
parameters around reopening payment determinations within the Shared 
Savings Program. A few commenters concurred with the provisions as 
proposed; however, most commenters expressed concerns about one or more 
aspects of the proposal. In particular, many commenters suggested 
limiting the timeframe for good cause redeterminations to a shorter 
period such as 2 years, instead of 4, to provide ACOs with more 
financial certainty. These commenters stated that requiring ACOs to 
repay CMS for errors made potentially several years earlier would pose 
an excessive administrative burden on both ACOs and the Medicare 
program, create financial uncertainty and could discourage ACOs from 
participating in the program.
    Response: We believe a 4 year time frame for reopenings for good 
cause, which is based on the timeframe for reopening of Parts A and B 
claims determinations under Sec.  405.986, would also be appropriate 
under the Shared Savings Program. We acknowledge that a shorter 
timeframe for good cause determinations might provide more financial 
certainty for ACOs. However, based on a review of comments, we continue 
to believe the proposed approach carefully balances a desire to provide 
more financial certainty for ACOs while also addressing program 
integrity and other concerns. We are especially concerned that a 
shorter time period could make it difficult for CMS to make corrections 
based on program integrity reviews or audits by OIG or GAO. Similarly, 
a longer time period might make it feasible for CMS to make additional 
corrections based on program integrity reviews or audits by OIG or GAO, 
but could provide less financial certainty for ACOs.
    Comment: Many commenters are concerned that CMS reserves for itself 
sole discretion to determine whether good cause exists for reopening. 
These commenters requested that CMS include a specific ``appeal 
process'' or other process in which individual ACOs could submit 
information and data to CMS regarding errors and other anomalies.
    Response: As discussed earlier in this section, the financial 
reconciliation calculation/methodology and the amount of shared savings 
an ACO might earn, including all underlying financial calculations, are 
not appealable. That is, the determination of whether an ACO is 
eligible for shared savings under section 1899(d) of the Act, and the 
amount of such shared savings, as well as the underlying financial 
calculations are precluded from administrative and judicial review 
under section 1899(g)(4) of the Act and Sec.  425.800(a)(4). 
Accordingly, we are not establishing an appeal process for ACOs to 
submit information to us regarding errors they believe were made in the 
financial reconciliation calculation or in determining the amount of 
shared savings earned by the ACO. We believe it is appropriate that the 
determination of whether an error was made, whether a correction would 
be appropriate based on these proposed criteria, and the timing and 
manner of any correction that would be made would be within the sole 
discretion of CMS. However, we also did not intend to imply that there 
would be no opportunity for ACOs to bring concerns about data errors or 
other anomalies to our attention. As noted in the June 2015 final rule 
(80 FR 32699), there are numerous existing processes through which ACOs 
can submit information and data to CMS regarding alleged data errors 
and other anomalies. For example, each ACO is assigned a CMS point of 
contact, we provide ACOs with a dedicated email box for ACOs to submit 
questions for subject matter experts to address, and we hold numerous 
webinars that include opportunities for ACOs to raise questions and 
concerns. CMS will consider information about potential errors or 
anomalies provided by ACOs in conducting its own reviews of prior 
payment determinations.
    Comment: Some commenters requested that CMS propose the specific 
good cause criteria including a materiality threshold through 
rulemaking instead of through sub-regulatory guidance so that the 
criteria are transparent and available for public comment. Many 
commenters requested that CMS establish a policy for a materiality 
threshold at an individual ACO level instead of across all ACOs to 
recognize that although determinations may have an insignificant effect 
on the program as a whole, a negative impact could be financially 
devastating to an individual ACO. Many of these commenters suggested a 
lower materiality threshold for individual ACOs, such as one percent or 
two percent, although there were a few commenters that indicated five 
percent might be acceptable if the materiality threshold was applied at 
the individual ACO level. Some commenters requested that CMS consider 
adopting a tiered materiality threshold for ACOs of varying size, 
practice-mix, patient population, and overall level of sophistication. 
For example, according to this commenter, an error affecting a smaller 
or newer ACO or an ACO serving a high-need population should be subject 
to a lower materiality threshold. Some commenters believe it is 
important to maintain flexibility and that CMS should consider 
individual materiality thresholds for differing ACOs to help ACOs that 
are facing financial strain and duress.
    Response: We appreciate the suggestions that commenters provided 
regarding issues related to the

[[Page 38001]]

materiality of a payment error and when CMS should reopen a payment 
determination for good cause. Based on a review of the comments, we 
believe that it would be appropriate to address issues related to the 
materiality of an error through subregulatory guidance rather than 
through regulations. We believe that both CMS and ACOs would benefit 
from gaining additional experience with issues related to reopenings of 
payment determinations in the Shared Savings Program before further 
considering whether additional regulations would be appropriate. 
However, we are concerned that it could be very complex and burdensome 
for CMS to tailor materiality considerations to the particular 
characteristics or circumstances of a given ACO, as suggested by some 
commenters. In considering when to reopen an error for good cause, we 
intend to strike a careful balance between important Medicare program 
integrity concerns that payments be made timely and accurately under 
the Shared Savings Program with our desire to minimize unnecessary 
operational burdens for ACOs and CMS, and to support the ACOs' ability 
to invest in additional improvements to increase quality and efficiency 
of care. To achieve this careful balance in objectives for reopenings 
to address CMS technical errors, we may consider whether the error 
satisfies a materiality threshold, such as 3 percent of the total 
amount of net shared savings and shared losses for all ACOs for the 
applicable performance year. As described in the 2016 proposed rule, we 
plan to provide additional information about how we may consider the 
materiality of an error in subregulatory guidance (see 81 FR 5856 
through 5857). To illustrate, under such an approach, we could exercise 
our discretion to reopen the financial reconciliation for a performance 
year if we determined that a correction to address a CMS technical 
error would affect total net shared savings and shared losses (that is, 
the amount of shared savings after the amount of shared losses has been 
subtracted) for all ACOs for the affected performance year by 3 or more 
percent. We may consider a higher threshold, such as 5 percent, or a 
lower threshold, such as 1 or 2 percent. However, based on a review of 
guidance from the GAO for financial audits of federal entities, we 
believe that 3 percent could generally be a reasonable threshold for 
``material effect.'' The GAO guidance was developed to assist auditors 
in assessing material effect for planning the audit scope for federal 
entities to ensure that financial statement audits achieve their 
intended outcomes of providing enhanced accountability over taxpayer-
provided resources. This guidance has been used for a number of years 
by GAO financial auditors for performing financial statement audits of 
federal entities. (See the GAO Web site at https://www.gao.gov/special.pubs/01765G/vol1_complete.pdf.) Although ACOs are not federal 
entities, we believe it would be reasonable to consider the GAO 
guidance in determining when a technical error has a material effect 
across all ACOs, such that we should use our discretion to reopen for 
good cause. The Shared Savings Program is a relatively large federal 
program administered within HHS, including over 400 ACOs (as of January 
1, 2016). Accordingly, we believe that the GAO guidance on federal 
entity audits, while not directly applicable, provides a relevant and 
appropriate resource in considering when errors in certain payment 
determinations under the Shared Savings Program are material and 
whether we should exercise our discretion to reopen for good cause.
    Comment: Commenters did not directly address the PY1 payment 
determinations affected by the data source error described in the 
proposed rule. However, some commenters more broadly urged that CMS 
hold ACOs harmless for payment determination errors made by CMS. These 
commenters believe that ACOs ``should not be penalized for CMS errors'' 
because ACOs may have already used the affected funds to improve 
beneficiary care.
    Response: Except as discussed in the proposed rule for the PY 1 
data source error, we do not believe it would be appropriate to 
establish a finality policy to hold ACOs harmless for payment 
determination errors made by CMS. We acknowledge that from year to 
year, corrections could sometimes advantage individual ACOs and 
sometimes disadvantage individual ACOs. We anticipate that, over time, 
this approach would not likely have a biased effect on ACOs or Medicare 
expenditures since the impact of reopenings over time would be equally 
likely to increase/decrease net shared savings and losses. We also 
believe there would be program integrity concerns if we were to hold 
ACOs harmless for payment determination errors made by CMS.
    Comment: A few commenters recommended that payment and recoupment 
activities associated with reopenings and revised initial payment 
determinations be administered as stand-alone activities rather than 
being combined with subsequent years' savings or losses. Their 
rationale is that ACOs are still evolving and their compositions are 
changing, sometimes dramatically, from year to year; therefore, 
recalculation of the financial reconciliation should impact the ACO 
participants from the corresponding performance year, and not the ACO 
participants in a subsequent performance year.
    Response: We indicated in the proposal that we would consider ways 
to minimize program disruptions for ACOs that could result from one or 
more reopenings. Our intent is to reduce operational burdens, when 
feasible, that might result if an ACO were subject to one or more 
reopenings. The net effect on payments as a result of a reopening will 
not be different whether we perform the reopening independently or in 
conjunction with payment reconciliation for another performance year. 
In either case, we would provide ACOs with details regarding any 
necessary adjustments in their shared savings or shared losses 
resulting from reopened financial calculations for each performance 
year affected. We expect that ACOs would have sufficient information to 
be able to internally attribute any changes in shared savings/shared 
losses for a prior performance year as the ACO believes appropriate and 
consistent with the ACO's agreements with its ACO participants. 
Therefore, to the extent feasible, we will make corrections in a 
unified reopening (as opposed to multiple reopenings) to correct errors 
for a given performance year. In addition, we will consider other ways 
to reduce operational burdens for both ACOs and CMS that could result 
from making payment adjustments. For example, if we determine that a 
correction needs to be made to a prior performance year's results for 
good cause, we would seek to potentially adjust shared savings payments 
to the ACO or shared loss recoupments from the ACO for a subsequent 
performance year. To illustrate, if an ACO that generated shared 
savings for the second performance year of its agreement period owed 
CMS money based on a correction made to the payment determination for 
the prior performance year, we might be able to deduct the amount owed 
prior to making the current year shared savings payments (subject to 
the general requirement, discussed in the proposed rule, for ACOs to 
repay monies owed to CMS within 90 days of notification of the 
obligation). In either case, we expect to be able to provide ACOs with 
sufficient details regarding these corrections that they will be able 
to attribute the

[[Page 38002]]

additional payment or recoupment arising from the reopening internally 
and, as applicable, distribute additional funds to or collect amounts 
from the appropriate ACO participants from the prior PY.
    FINAL ACTION: We are finalizing the administrative finality policy 
as proposed. Specifically, we are finalizing that if CMS determines 
that the amount of shared savings due to an ACO or the amount of shared 
losses owed by an ACO has been calculated in error, CMS may reopen the 
earlier payment determination and issue a revised initial 
determination: (1) At any time in the case of fraud or similar fault, 
as defined in Sec.  405.902; or (2) not later than 4 years after the 
date of notification to the ACO of the initial determination of shared 
savings or shared losses for the relevant performance year under Sec.  
425.604(f), Sec.  425.606(h) or Sec.  425.610(h), for good cause. Good 
cause may be established when there is new and material evidence of an 
error or errors, that was not available or known at the time of the 
payment determination and may result in a different conclusion, or the 
evidence that was considered in making the payment determination 
clearly shows on its face that an obvious error was made at the time of 
the payment determination. Good cause will not be established by a 
change of legal interpretation or policy by CMS in a regulation, CMS 
ruling or CMS general instruction, whether made in response to judicial 
precedent or otherwise. We will have sole discretion to determine 
whether good cause exists for reopening a payment determination. Also, 
good cause will not be established by a reconsideration, appeal, or 
other administrative or judicial review of any determinations precluded 
under Sec.  425.800.
    If we determine that the reopening criteria are met, we will 
recompute the financial results for all ACOs affected by the error or 
errors. We will not reopen and revise PY 1 payment determinations to 
address the data source error described previously. We will address 
issues regarding when an error is material such that it would be 
appropriate to exercise our discretion to reopen for good cause through 
subregulatory guidance.
    We note that the current requirements for ACO repayment of shared 
losses after notification of the initial determination of shared losses 
will not be affected by any of the policies that we are adopting in 
this section of this final rule. As described under Sec.  425.606(h)(3) 
(Track 2) and Sec.  425.610(h)(3) (Track 3), if an ACO has shared 
losses, the ACO must make payment in full to CMS within 90 days of 
receipt of notification. These current requirements will continue to 
apply for repayment by ACOs for shared losses. For example, an ACO will 
not be able to delay recoupment of any payments required under Sec.  
425.606(h)(3) or Sec.  425.610(h)(3) by notifying CMS of a possible 
error that could merit reopening. Instead, if we later determine that a 
correction should be made, we would subsequently combine, if feasible, 
the revised calculation of shared savings or shared losses for the 
affected performance year with the financial reconciliation for the 
most recent performance year. For example, we would add any amount owed 
to the ACO as a result of the reopening, to any shared savings payments 
for which the ACO is eligible for the most recent performance year. 
Finally, we had proposed to include these administrative finality 
provisions as a revision to Sec.  425.314 (Audits and record retention) 
by removing (a)(4) and adding a new paragraph (e) to specify the 
circumstances under which we would reopen a payment determination under 
Sec. Sec.  425.604(f), 425.606(h), 425.610(h), 425.804, or 425.806. 
However, we now believe these administrative finality provisions are a 
sufficiently distinct topic from ``audits and record retention'' that 
it would be clearer to instead incorporate these administrative 
finality provisions in a new, separate section at Sec.  425.315 
(Reopening Determinations of ACO Savings or Losses to Correct Financial 
Reconciliation Calculations). Accordingly, we are revising Sec.  
425.314 by removing (a)(4) and are adding a new Sec.  425.315 to 
specify the circumstances under which we would reopen a payment 
determination under Sec. Sec.  425.604(f), 425.606(h), 425.610(h), 
425.804, or 425.806.
3. Conforming Change
    As discussed earlier in the overview for this section, the 
determination of whether an ACO is eligible for shared savings, and the 
amount of such shared savings, and the limit on the total amount of 
shared savings as well as the underlying financial calculations are 
excluded from administrative and judicial review under section 1899(g) 
of the Act. Accordingly, in the November 2011 final rule establishing 
the Shared Savings Program, we adopted the regulation at Sec.  425.800 
to preclude administrative and judicial review of the determination of 
whether an ACO is eligible for shared savings and the amount of shared 
savings under Track 1 and Track 2 (Sec.  425.800(a)(4)), and the limit 
on total amount of shared savings that may be earned under Track 1 and 
Track 2 (Sec.  425.800(a)(5)). In the June 2015 final rule, we amended 
the Shared Savings Program regulations by adding a new provision at 
Sec.  425.610 to establish a new performance-based risk option (Track 
3) that includes prospective beneficiary assignment and a higher 
sharing rate. However, in the June 2015 final rule we inadvertently did 
not also update Sec.  425.800 to include references to determinations 
under Sec.  425.610 (Track 3) in the list of determinations under this 
part for which there is no reconsideration, appeal, or other 
administrative or judicial review. Therefore, we proposed a conforming 
change to amend Sec.  425.800 to add determinations under Sec.  425.610 
(Track 3) to the list of determinations under Sec.  425.800(a)(4) and 
(a)(5) for which there is no reconsideration, appeal, or other 
administrative or judicial review.
    Comment: We did not receive comments on this proposed conforming 
change.
    Response: We will finalize this conforming change to the 
regulations to include determinations for Track 3 ACOs to the list of 
determinations for which there is no reconsideration, appeal, or other 
administrative or judicial review.
    FINAL ACTION: We are amending Sec.  425.800 to add determinations 
under Sec.  425.610 (Track 3) to the list of determinations under Sec.  
425.800(a)(4) and (a)(5) for which there is no reconsideration, appeal, 
or other administrative or judicial review.

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 certain 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 Medicare Parts A and B, and encourages 
investment in infrastructure and redesigned care processes for high 
quality and efficient service delivery. These changes are focused on 
calculations for resetting the financial benchmark for an ACO's second 
or subsequent agreement period,

[[Page 38003]]

thereby fulfilling a goal communicated in the Shared Savings Program 
June 2015 final rule (80 FR 32692), and further discussed in the 2016 
proposed rule, to take into account regional expenditures when 
resetting an ACO's financial benchmark for a second or subsequent 
agreement period.

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 
RIA, which to the best of our ability presents the costs and benefits 
of the rulemaking.
    In keeping with our standard practice, the main analysis presented 
in this RIA compares the expected outcomes of the modifications 
finalized with this rulemaking to the expected outcomes under current 
regulations. We provide our analysis of the expected costs of the 
payment model under section 1899(i)(3) of the Act compared to the costs 
that would be incurred under the statutory payment model under section 
1899(d) of the Act in section IV.E of this final rule.

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 demonstrating quality of 
care and efficiency gains within FFS Medicare. As a result, the changes 
to the Shared Savings Program adopted in this final rule could result 
in a range of possible outcomes. While evaluation of the program's 
overall impact to date is ongoing, the quality and financial results of 
the first 2 performance years are within the range originally projected 
for the program in the November 2011 final rule (see Table 8, 76 FR 
67963). Also, at this point, we have seen no evidence of selective ACO 
participation that would systematically bias overall program 
performance as measured by ACO benchmarks.
    In the June 2015 final rule, we established a policy for rebasing 
an ACO's financial benchmark for a second or subsequent agreement 
period by weighting each benchmark year equally and taking into account 
savings generated by the ACO in the previous agreement period. We also 
discussed potential future modifications to the rebasing methodology 
that would account for regional FFS expenditures and remove the policy 
of adding savings generated by the ACO in the previous agreement 
period. In the 2016 proposed rule, we proposed modifications to the 
program's regulations, focused on incorporating regional expenditures 
into ACOs' rebased historical benchmarks. In this final rule, we are 
adopting an alternative benchmarking approach for ACOs starting a 
second agreement period in 2017 and subsequent years. The rebasing 
methodology promulgated in the June 2015 rule will apply to ACOs that 
entered a second agreement period in 2016. The revised rebasing 
methodology promulgated in this final rule will apply to these ACOs 
starting in their third agreement period. Under the revised 
benchmarking methodology adopted in this final rule, an ACO's reset 
benchmark will be adjusted by a percentage of the difference between 
the average per capita expenditure amount for the ACO's regional 
service area and the ACO's rebased historical benchmark amount 
(described in section II.A.2.c of this final rule). Under the phased 
approach to using a higher percentage in calculating the adjustment for 
regional expenditures (described in section II.A.2.c.3 of this final 
rule): in the ACO's first agreement period in which the regional FFS 
adjustment is applied the percentage used in calculating the regional 
adjustment will be set as high as 35 percent; in the ACO's second 
agreement period in which the regional FFS adjustment is applied and 
subsequent agreement periods, the percentage will be set as high as 70 
percent unless the Secretary determines a lower weight should be 
applied, as specified through future rulemaking. This approach will 
further limit the link between an ACO's performance in prior agreement 
periods and its benchmark in subsequent agreement periods by making the 
benchmark more reflective of costs in the ACO's regional service area. 
These changes are intended to strengthen the incentives for ACOs to 
invest in infrastructure and care redesign necessary to improve quality 
and efficiency and meet the goals of the Shared Savings Program. In 
response to comments, we are finalizing a modification that will 
moderate the phase-in of the regional FFS adjustment for ACOs that have 
higher costs than their region and for which the regional adjustment 
will reduce the ACO's benchmark. In such cases, the weight placed on 
the regional FFS adjustment will be reduced to 25 percent (down from 35 
percent) in the first agreement period in which the regional FFS 
adjustment is applied, and 50 percent (down from 70 percent) in the 
second. By the third agreement period under the revised rebasing 
methodology, the weight placed on the regional FFS adjustment will be 
70 percent for all ACOs, unless the Secretary determines a lower weight 
should be applied, as specified through future rulemaking.
    Another key modification to the benchmark rebasing methodology 
involves refining certain calculations that currently rely on national 
FFS expenditures and corresponding trends so that they are instead 
determined according to county FFS trends observed in each ACO's unique 
assignment-weighted regional service area. Annual average per capita 
costs will be tabulated for assignable FFS beneficiaries in each 
county. For each ACO, a regional weighted average

[[Page 38004]]

expenditure will be found by applying ACO assigned-beneficiary weights 
to the average expenditures tabulated for each county. Changes in an 
ACO's regional service area average per capita expenditures (and 
relative risk reflected in associated HCC risk scores) will define a 
regional trend specific to each ACO's region. This regional trend will 
be utilized in two specific areas of the existing benchmark methodology 
to replace the: (1) National expenditure trend in calculations 
establishing the ACO's rebased historical benchmark; and (2) existing 
national ``flat dollar'' growth amount for updating the rebased 
historical benchmark for each performance year.
    By replacing the national average FFS expenditure trend and ``flat 
dollar'' update with trends observed for county level FFS assignable 
beneficiaries in each ACO's unique assignment-weighted regional service 
area, benchmark calculations will be better structured to account for 
exogenous trend factors particular to each ACO's region and the pool of 
potentially-assignable beneficiaries therein (for example, higher trend 
due to a particularly acute flu season or an unusually large area wage 
index adjustment or change).
    Although the policy will have mixed effects--increasing or 
decreasing benchmarks for ACOs in various circumstances--an overall 
increase in program savings will likely result from taking into account 
service-area trends in benchmark calculations. In some cases lower 
benchmarks will be produced, preventing shared savings payments to 
certain ACOs for whom national average trends and updates would have 
provided higher updated benchmarks. For other ACOs, such a policy will 
be more sensitive to regional circumstances outside of the ACO's 
control causing higher trends for the ACO's service area. In such 
cases, a higher benchmark could improve program cost savings in the 
long run by reducing the likelihood the ACO would choose to drop out of 
the program because a shared loss would otherwise have been assessed 
due to exogenous factors unrelated to the ACO's changes in care 
delivery.
    In addition, applying the regional trend as a percentage (rather 
than ``flat dollar'') when updating the benchmark to a performance year 
basis is anticipated to further reduce program costs by improving the 
accuracy of updated benchmarks, particularly for ACOs that have 
historical benchmarks significantly below or above average. The 
November 2011 final rule discussed the risk that large nominal ``flat 
dollar'' growth updates could compound over an agreement period to 
excessively inflate benchmarks for ACOs with relatively low historical 
benchmark cost and could lead to predictable bias and resulting cost 
for selective participation in the program (76 FR 67964). Such risk has 
not materialized in program experience to date, largely due to the 
historically low national program trend used to update ACO benchmarks 
through the first 3 years of the program. However, the per capita trend 
for the Medicare FFS program is anticipated to be higher in future 
years associated with the period governed by this final rule in 
contrast to the relatively moderate growth in cost experienced over the 
first 3 years of the program's implementation.\3\ The changes to the 
methodology for updating the benchmark included in this final rule will 
apply regional trends to update ACO benchmarks and therefore prevent 
the increased program cost the current update methodology risks by 
employing an average ``flat dollar'' update that compounds over the 3 
years of an ACO's agreement period.
---------------------------------------------------------------------------

    \3\ Traditional fee-for-service Medicare Part A and B annual per 
capita cost trend is expected to reach approximately 5 percent in 
2019, as detailed in the 2017 Medicare Advantage Early Preview 
accessible at: https://www.cms.gov/Medicare/Health-Plans/MedicareAdvtgSpecRateStats/Downloads/EarlyPreview2017GrowthRates.pdf.
---------------------------------------------------------------------------

    Program participation and ACO beneficiary assignment are not 
homogenously distributed geographically. ACOs tend to have service 
areas overlapping those of other ACOs in the same urban or suburban 
market(s). Therefore, to the extent that ACOs in these areas produce 
significant reductions in expenditures, a greater proportion of such 
savings will affect ACO-service-area trends than the average effect 
felt at the national program level, effectively reducing the average 
ACO's updated benchmark compared to what the use of a national trend 
alone would have produced. While such effect has the potential to 
reduce program costs by reducing net shared savings payments it could 
be seen as a disadvantage to participating organizations in ``ACO-heavy 
regions'' that manage to broadly increase efficiency at the overall 
regional market level.\4\ However, on the whole, we anticipate this 
effect to be a reasonable trade-off that will not prevent an overall 
improvement in the incentive for ACOs to improve efficiency in care 
delivery in the context of periodic benchmark rebasing as a result of 
the policies adopted in this final rule. As described previously in 
this rule, we acknowledge the potential advantages of alternative 
approaches to determining benchmark updates, for example utilizing the 
national growth rate adjusted for regional price variation, and we 
anticipate exploring such approaches in future rulemaking.
---------------------------------------------------------------------------

    \4\ Similarly, certain regions may be targeted for other care 
delivery reforms, for example certain Center for Medicare and 
Medicaid Innovation models. A downward bias on an ACO's benchmark 
could be felt to the extent that such activity reduces expenditures 
for beneficiaries in the ACO's region but not in a proportional way 
within the ACO's assigned population. Such scenarios are more likely 
when competing models are specifically targeted at beneficiaries not 
assigned to an ACO.
---------------------------------------------------------------------------

    Additionally, we anticipate significant program savings will result 
from ending the policy from the June 2015 rule under which savings 
generated in the previous agreement period are taken into account when 
resetting the benchmark in an ACO's second or subsequent agreement 
period. However, savings from this modification are not wholly retained 
by the program but are largely redistributed to ACOs that are measured 
to have demonstrated efficiency in a more standardized way, using a 
regional FFS adjustment to their benchmarks. As commenters on the 2016 
proposed rule noted, roughly two-thirds of ACOs in the 2014 public use 
data released in conjunction with the 2016 proposed rule showed lower 
expenditures than their county-weighted FFS averages and would 
therefore likely benefit from the regional FFS adjustment.
    Changes to the existing benchmark calculations described previously 
are expected to benefit program cost savings by producing rebased 
benchmarks with improved accuracy (for example, reflecting regional 
trends rather than national average trends and `flat dollar' updates) 
and of somewhat lower per capita cost on average (due to removing the 
effect of the savings adjustment to the rebased benchmark and because 
regional trend calculations typically reflect a higher proportion of 
ACO assigned beneficiary experience than national average trend 
calculations). However, such savings are expected to be partly offset 
by increasing shared savings payments to ACOs benefiting from the 
adjustment to the rebased historical benchmark to reflect a portion of 
the difference between the average per capita expenditure amount for 
the ACO's regional service area and the ACO's rebased historical 
benchmark amount. This trade-off reflects our intent to strengthen the 
reward for attainment of efficiency in an absolute sense, complementing 
the existing program's focus on rewarding improvement relative to an 
ACO's recent baseline.

[[Page 38005]]

    Making a regional adjustment to the ACO's rebased historical 
benchmark will strengthen an ACO's incentives to generate and maintain 
efficient care delivery over the long run by weakening the link between 
an ACO's prior performance and its future benchmark. This adjustment is 
expected to marginally increase program participation in agreement 
periods where risk (Track 2 or 3) is mandatory for an ACO since a 
significant portion of ACOs will have knowledge that a favorable 
baseline expenditure comparison to their FFS region will mitigate their 
risk of being assessed a shared loss in a subsequent agreement period. 
It is also expected to reduce the frequency with which ACOs in Track 2 
or 3 drop out of the program during an agreement period because such 
ACOs will have somewhat greater certainty regarding the extent to which 
savings achieved in the prior agreement period will continue to be 
reflected in a rebased benchmark that incorporates a regional 
adjustment.
    However, more predictable relationships, that is, an ACO's 
knowledge of its costs relative to FFS expenditures in its region, also 
create the risk of added cost to the Shared Savings Program by way of--
(1) Increasing shared savings payments to ACOs exhibiting expenditures 
significantly below their region at baseline especially in cases where 
such differences are related to factors exogenous to efficiency in the 
delivery of care (where shared savings payments could be further 
inflated by increased selection of Track 3 over Track 2); (2) 
potentially losing participation from ACOs with expenditures high above 
their region at baseline--reducing the opportunity to impact 
beneficiary populations with the greatest potential for improvements in 
the cost and quality of care; \5\ and (3) from structural shifts by 
ACOs in ways that would reduce assignment of relatively high cost 
beneficiaries and increase assignment of relatively healthy populations 
or shift the geography of their service area to similarly effect a more 
favorable benchmark adjustment. A primary uncertainty and significant 
potential concern is whether complex patients will continue to have 
their care successfully coordinated by ACO providers/suppliers under 
the revised benchmark methodology. If the regional adjustment results 
in unattainable benchmarks for ACOs serving at-risk and medically 
complex populations then the program would likely exhibit decreasing 
participation from providers serving populations where the greatest 
potential for savings through better care coordination and quality 
improvement would otherwise be present and therefore we would expect 
significantly lower savings for the program than currently anticipated.
---------------------------------------------------------------------------

    \5\ Early program results indicate that ACOs with expenditures 
significantly above their risk-adjusted FFS regional average have 
produced greater than average reductions in expenditures than ACOs 
with low baseline expenditures relative to their region; however it 
is not yet evident that such early savings achieved for such 
relatively high cost populations are likely to grow to an extent 
that their expenditures would reach parity with their region.
---------------------------------------------------------------------------

    In addition to the uncertainty with respect to the relationship of 
the potential offsetting effects noted previously, there remains 
broader uncertainty as to the number of ACOs that will participate in 
the program (especially under performance-based risk in Track 2 or 
Track 3), provider and supplier response to financial incentives 
offered by the program, interactions with other value based models and 
programs from CMS and other payers, 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. Certain ACOs that have 
achieved shared savings in their first agreement period may find that 
they receive significantly lower benchmarks under these revisions 
(especially in cases where regional expenditures are much lower than 
expenditures for the ACO's assigned beneficiary population). Other ACOs 
may seek to maximize sharing in savings by selecting Track 3 if they 
have assigned beneficiaries with significantly lower expenditures at 
baseline relative to their region. 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 included 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. A summary of assumptions and 
assumption ranges utilized in the model includes the following:
     Approximately 100, 100, and 200 ACOs will consider 
renewing in 2017, 2018, and 2019, respectively.
     ACOs will choose not to renew if--
    ++ Under the current policy: The ACO's gross loss in the prior 
performance year was 5 percent or greater; or
    ++ Under the policies included in this final rule: The ACO's gross 
loss is 3 percent or greater in the prior performance year after 
accounting for the expected effect of the revised rebasing methodology 
(for example, considering differences between the ACO's spending and 
that of its region) and adjusting for ACO participant changes that 
result in baseline cost reduction of 2 percent on average (see 
discussion elsewhere in this final rule).
    In either scenario, the thresholds are calibrated to approximate 
the level of baseline loss an ACO would correlate to an expected shared 
loss from its rebased benchmark. The magnitude of the loss is roughly 
equal to the revenue ACO participating physicians may have gained from 
the 5 percent incentive payment under MACRA \6\ that is potentially 
available to physicians and certain other practitioners in certain ACOs 
for participation in the Shared Savings Program. The policies included 
in this final rule are assumed to result in a lower tolerance for 
renewal after a prior agreement period loss because the regional 
adjustment to the rebased benchmark is expected to be more consistent 
from year to year whereas the current rebasing methodology would be 
expected to generate a higher benchmark reflecting to a greater degree 
the actual spending from the prior agreement period that led to the 
prior loss. However, ACOs that do renew under the policies included in 
this final rule are expected to be more likely to remain in the program 
for the entire agreement period because the benchmark adjustment 
improves the likelihood that favorable changes to the methodology for 
rebasing the benchmark that led the ACO to renew its agreement will 
continue to be evidenced in future performance years.
---------------------------------------------------------------------------

    \6\ The Medicare Access and CHIP Reauthorization Act of 2015 
(MACRA) established new incentives to encourage physicians and 
certain other practitioners to participate in alternative payment 
models; pending final rulemaking, such incentive payments may equate 
to approximately 5 percent of physician fee schedule revenue to 
eligible clinicians participating in certain qualifying ACOs.
---------------------------------------------------------------------------

     Renewing ACO will choose higher risk in Track 3 if--
    ++ Under the current policies: The ACO's gross savings in prior 
performance year are 4 percent or greater; or
    ++ Under the policies included in this final rule: The ACO's prior 
performance year gross savings adjusted by regional expenditures are 2 
percent or greater.
    In either scenario, similar to the renewal assumption, policies 
included in the final rule offer greater certainty that adjusted prior 
performance will correlate to future performance and therefore the 
threshold for selecting

[[Page 38006]]

Track 3 is lower than what is assumed for the baseline scenario.
     Marginal gross savings will increase by between 0.0 
percent to 1.0 percent for ACOs selecting higher performance-based risk 
in Track 3 and between 0.0 percent to 0.2 percent for all ACOs due to 
the adjusted rebasing methodology. These ranges were chosen to 
encompass a range of relative savings rates observed for performance-
based risk accepted by ACOs participating in the Pioneer ACO Model 
relative to Shared Savings Program ACOs, the vast majority of which 
have elected to participate under the one-sided shared savings model 
(Track 1).
     ACOs experiencing a loss during the rebased agreement 
period are assumed to drop out prior to the second or third performance 
year if a shared loss from the prior performance year exceeds 2 
percent. While Pioneer ACO Model experience would predict a lower 
tolerance for remaining in the program after a loss, 2 percent was 
chosen to approximate the incentive payment under MACRA that may be 
made available (pending final rulemaking) to physicians and certain 
other practitioners participating in ACOs in Track 2 and Track 3, which 
was not available to participants in Pioneer ACOs.
     ACOs will make adjustments to their ACO Participant Lists 
that reduce their cost relative to region by approximately 2 percent on 
average. This assumption is based on empirical analysis of 2015 ACO 
Participant List change requests and resulting impact on ACO baseline 
expenditures due to changes in assignment; the magnitude of bias is 
assumed to be greater for ACOs starting higher than their corresponding 
regional average expenditures and/or with a relatively small assigned 
beneficiary population and lower for ACOs starting below regional 
average expenditures and/or with a relatively large assigned 
beneficiary population.
     ACOs will achieve a mean quality score of 80 percent 
(based on analysis of Shared Savings Program ACO quality scores in 2013 
and 2014).
     ACO savings will have an impact on regional expenditures 
and trends proportional to ACO assignment saturation of the FFS 
beneficiary population in the market.
    Assumptions for ACO baseline costs, including variations in trends 
for ACOs and their relationship to their respective regions were 
determined by analyzing existing ACO expenditures and corresponding 
regional expenditures back to 2009, the first benchmark year used for 
the first wave of ACOs that entered the program in 2012. (Note, 
associated data for the 2012 through 2014 time period were released in 
conjunction with the 2016 proposed rule to assist commenters in 
modeling implications of the proposed policy changes.) The empirical 
time series data were randomly extrapolated to form baseline time 
series data through the end of the rebased agreement period by applying 
growth rates to ACOs and their regions by randomly sampling empirical 
growth rates for ACOs (and their respective regions) with similar 
characteristics in terms of size and relative cost to region.
    Using a Monte Carlo simulation approach, the model randomly draws a 
set of extrapolated ACO baseline trends and 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 1,000 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.
    Table 4 details our estimate of the 3-year net impact of the policy 
changes included in this final rule on net FFS benefit claims costs, 
net shared savings payments to ACOs, and the resulting impact on net 
Federal cost. Projected impacts are detailed for the first 3 cohorts of 
ACOs that would be renewing agreements under these changes, renewing 
respectively for agreement periods starting in 2017, 2018, and 2019. 
During these agreement periods, a 35 percent weight would be placed on 
the benchmark expenditure adjustment for regional FFS expenditures (or 
a lower 25 percent weight in cases where the ACO's rebased costs are 
higher than its regional FFS average). In such agreement periods, total 
savings from these changes to the methodology for calculating and 
trending expenditures during the benchmark period in order to establish 
and update the benchmark, as well as anticipated savings from 
marginally increased program participation and improved incentives for 
creating efficiency, are expected to be greater than the increase in 
cost of net shared savings payments due to selective participation in 
response to adjustments that are predictably significant (either 
favorable or unfavorable) upon examination of how expenditures for the 
ACO's historically assigned beneficiary population compare to the 
expenditure level for the ACO's regional service area at baseline. For 
this reason the net Federal impact is projected to be a savings (that 
is, a negative change in net Federal cost) for the first 3 years for 
each renewing cohort, and correspondingly a $110 million net Federal 
savings for the first 3 calendar years of the projection window, 2017 
through 2019. Such median impact on net Federal cost results from a 
projected increase in savings on net benefit claims costs of $410 
million partially offset by a $300 million increase in net shared 
savings payments to ACOs. The last two rows of Table 4 enumerate the 
range of potential net Federal cost impacts our modeling projected, 
specifically the 10th percentile of simulation outcomes (a $240 million 
net Federal increase in cost) and the 90th percentile ($480 million net 
Federal savings). Overall, approximately two-thirds of trials resulted 
in combined net Federal savings over 2017 to 2019.
    The estimate for this final rule reflects $10 million higher net 
Federal cost than the impact estimated for the 2016 proposed rule. As a 
result of finalizing a phase-in approach that reduces the weight for 
the regional FFS adjustment during an ACO's first and second agreement 
periods under the revised rebasing methodology in cases where it 
decreases the ACO's rebased benchmark, we estimate: (1) An increase in 
shared savings payments net of shared losses of $50 million over 2017 
through 2019 compared to the corresponding estimate in the proposed 
rule, mainly because of increases to certain ACOs' rebased benchmarks; 
(2) a decrease in gross claims costs due to increased participation of 
$40 million relative to the corresponding estimate in the 2016 proposed 
rule.

[[Page 38007]]



 Table 4--Estimated 3-Year Impact of Changes (Including a Maximum 35 Percent Weight Used in Determining Regional
  Adjustment Amount) on Net Benefit Costs, Net Payments to ACOs, and Overall Net Federal Costs CYs 2017 Through
                                                      2019
                               [Impacts are Median Results Unless Otherwise Noted]
----------------------------------------------------------------------------------------------------------------
                  Calendar year                        2017            2018            2019        3-Year total
----------------------------------------------------------------------------------------------------------------
Impact on Net Claims Costs ($Million):
    ACOs Renew 2017.............................             -70             -70             -80            -220
    ACOs Renew 2018.............................  ..............             -60             -70            -130
    ACOs Renew 2019.............................  ..............  ..............             -60             -60
                                                 ---------------------------------------------------------------
        All ACO Total...........................             -70            -130            -210            -410
                                                 ===============================================================
Impact on Net Shared Savings Pay ($Million):
    ACOs Renew 2017.............................              50              40              40             130
    ACOs Renew 2018.............................  ..............              40              40              80
    ACOs Renew 2019.............................  ..............  ..............              90              90
                                                 ---------------------------------------------------------------
        All ACO Total...........................              50              80             170             300
                                                 ===============================================================
Overall Impact on Net Federal Costs ($Million):
    ACOs Renew 2017.............................             -20             -30             -40             -90
    ACOs Renew 2018.............................  ..............             -20             -30             -50
    ACOs Renew 2019.............................  ..............  ..............              30              30
                                                 ---------------------------------------------------------------
        All ACO Total...........................             -20             -50             -40            -110
                                                 ===============================================================
Low (10th %-ile)................................              20              50             170             240
High (90th %-ile)...............................             -70            -160            -250            -480
----------------------------------------------------------------------------------------------------------------

    The stochastic model and resulting financial estimates were 
prepared by the CMS Office of the Actuary (OACT). The median result of 
$110 million increase in savings in net Federal cost is a reasonable 
``point estimate'' of the impact of the changes included in this final 
rule on the Shared Savings Program during the period between 2017 
through 2019. However, we emphasize the possibility of outcomes 
differing substantially from the median estimate, as illustrated by the 
estimate distribution. Accordingly, this RIA presents the costs and 
benefits of this final rule to the best of our ability. As further data 
emerge and are analyzed, we may 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 will 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 will result in corresponding adjustments to MA 
payment rates. Neither of these secondary impacts has been included in 
the analysis shown.
a. Effects of the Final Rule in Subsequent Agreement Periods
    For an ACO's third agreement period (that is, the second rebased 
agreement period under the revised benchmarking methodology, for 
example the 3-year period covering 2020 through 2022 for ACOs renewing 
for a second agreement period in 2017) the weight on the adjustment to 
the benchmark for regional FFS expenditures will increase to 70 percent 
(except in cases where the ACO's rebased costs are higher than costs 
for its region in which case the weight will increase to 50 percent for 
the second rebased agreement period). Increasing the weight of the 
adjustment reduces the strength of the link between an ACO's effect on 
the cost of care for its assigned beneficiaries and the benchmark 
calculated for an ensuing agreement period. Weakening this link may 
increase the incentive for ACOs to make investments in care delivery 
reforms because resulting potential savings will be more likely to be 
rewarded over multiple agreement periods rather than being `baked' back 
into the benchmark at the next rebasing. On the other hand, efficiency 
gains will need to be significantly greater than those currently 
achieved by the ACOs participating in the program to result in budget 
neutrality by sufficiently offsetting increased shared savings payments 
to ACOs favored by a regional adjustment with a 70 percent weight. As 
discussed previously, we are setting the maximum weight of the regional 
adjustment at 70 percent for ACOs with lower costs than their region in 
their second agreement period under the revised benchmarking 
methodology, and for all ACOs in their third and all subsequent 
agreement periods under this methodology, unless the Secretary 
determines a lower weight should be applied, as specified through 
future rulemaking. This determination, which could be made in advance 
of the agreement period beginning January 1, 2020, may be based on an 
assessment of the effects of the regional adjustment (and other 
modifications to the program made under this rule) on the Shared 
Savings Program such as: The effects on net program costs; the extent 
of participation in the Shared Savings Program; and the efficiency and 
quality of care received by beneficiaries.
    ACOs demonstrate a wide range of differences in expenditures 
relative to risk adjusted expenditure levels for their region (for the 
sample of roughly 200 ACOs that started in the program in 2012 or 2013 
the percentage by which ACO per capita expenditures exceed or are 
exceeded by their respective risk-adjusted regional per capita 
expenditures varies with a standard deviation of approximately 10 
percent). Transitioning to a 70 percent weight to calculate the 
regional adjustment effectively down-weights the savings generated by 
the changes we are making to the existing benchmark calculation, since 
an ACO's benchmark would have increased dependence on the regional FFS 
expenditures and correspondingly a decreasing dependence on the 
historical expenditures for the ACO. At the same

[[Page 38008]]

time, increasing the weight used to calculate the regional adjustment 
could result in selective participation and increases in shared savings 
payments to ACOs that have low beneficiary expenditures at baseline. If 
that were to happen, the overall anticipated cost of net shared savings 
payments would rise and outweigh the anticipated potential gains from 
additional care management and associated improvements in net benefit 
costs spurred by the improved incentives for efficiency generated by 
partially delinking ACO benchmarks from their own historical costs.
    An element of the regional adjustment which becomes apparent when 
reviewing the accompanying data files and the performance of ACOs in 
2013 and 2014 (for those roughly 200 ACOs that started in 2012 and 
2013) is that ACOs that are above or below the regional service area 
expenditure amount used to adjust their rebased benchmark in 1 year 
tend to have a similar bias in the following year. Placing a 100 
percent weight on the regional service area expenditure amount 
illustrates this. Of the 50 ACOs that were the furthest below their 
estimated regional service area expenditure level in 2013, all were at 
least 10 percent below and their average expenditures were roughly 15 
percent below the expenditures for the region. In the subsequent year, 
2014, none of these ACOs exceeded its regional service area expenditure 
level, and the average expenditure difference only moved by about 2 
percentage points. Similar yet less glaring results occur in those ACOs 
above their regional service area expenditure level, with the 50 ACOs 
the furthest above their regional service area expenditure level having 
costs an average of approximately 10 percent above the regional service 
area expenditure level in 2013--an average difference for the group 
that only moved by about 2 percentage points the following year.
    Of the approximately 150 ACOs that were more than 0.5 percent below 
their regional service area expenditure level, only about 10 percent 
were above their regional service area expenditure level in the 
following year. Again, ACOs above their regional service area 
expenditure level follow a similar pattern, though less drastic. Of the 
ACOs above their regional service area expenditure level by more than 
0.5 percent, approximately 25 percent performed below their regional 
service area expenditure level in the following year. Notwithstanding 
the potential for behavioral changes, this illustrates that for a 
significant portion of existing ACOs, there is evidence of a bias when 
compared to their regional service area expenditure level and that bias 
is likely to be predictable over time. We have accounted for cost 
associated with program selection for ACOs favored by such bias and 
considered attrition in participation by ACOs disfavored by such bias. 
However, for some ACOs of the latter condition, it may take multiple 
years to sufficiently redesign their care delivery processes in order 
to generate savings substantial enough to offset high expenditures 
relative to their region at baseline. We note that this analysis is 
based on data from the first 2 years of program operations, and longer 
term effects may emerge to mitigate bias for certain ACOs with high 
expenditures at baseline.
    Additionally, the passage of MACRA established new incentives to 
encourage providers to participate in alternative payment models. 
Paying for value and incentivizing better care coordination and 
integration is a top priority for us, and we have been implementing 
policies that encourage a shift towards paying for value instead of 
volume. MACRA provides additional tools to encourage care integration 
and value-based payment. Although implementation of MACRA is ongoing 
and many details are still to be finalized through rulemaking, the 
incentives created by MACRA could result in increased market pressure 
on providers to participate in ACOs. This may lower the risk of 
selective participation and potentially lead to higher expected net 
Federal savings.
    Emerging data will be monitored in order to provide additional 
information for updating projections as part of the use of a higher 
percentage (70 percent) in calculating the regional adjustment amount 
for ACOs entering a third or subsequent agreement period. For example, 
if ACOs respond by generating new efficiencies in care beyond those 
that are anticipated, and/or potential selective participation 
responses are lower than expected, then a 70 percent weight could 
potentially be associated with revised expectations regarding net costs 
or net savings. However, it is also possible that gains in efficiency 
will fail to materialize and/or selective participation and other 
behavioral responses will increase cost beyond the level that is 
currently anticipated; in such scenario, we would consider further 
rulemaking as necessary to protect the Medicare Trust Funds (for 
example, in order to apply a lower percent weight in calculating the 
regional adjustment amount).
b. Further Considerations
    This final rule introduces regional expenditure trends and a 
regional adjustment to the rebased historical benchmark that includes 
prospective HCC risk adjustment to ensure trending and the regional 
adjustment appropriately account for differences in risk between an 
ACO's assigned beneficiary population and its regional service area 
assignable beneficiary population. Current program experience supports 
the hypothesis that the current approach of applying conditional 
reliance on demographic risk ratios for a continuously-assigned subset 
of beneficiaries for purposes of adjusting the historical benchmark to 
a performance year basis provides a reasonable balance between 
accounting for changes in risk of the population and limiting the risk 
that coding intensity shifts would artificially inflate ACO benchmarks. 
This final rule retains this policy for adjusting the historical 
benchmark to a performance year basis.
    However, for the changes involving the use of regional expenditure 
trends (to trend forward the benchmark years and to update the ACO's 
rebased historical benchmark) and the adjustment to the rebased 
benchmark for expenditures in the ACO's regional service area, we are 
not implementing any additional explicit policy for limiting coding 
intensity sensitivity at this time (beyond what is described in section 
II.A of this final rule), but rely on the difference between the 
average prospective HCC scores for the ACO's assigned beneficiary 
population and its regional service area assignable beneficiary 
population. Regional trend calculations for the rebased historical base 
years are expected to mitigate the risk of sensitivity to potential 
coding intensity efforts by ACO providers/suppliers for several 
reasons. The benchmark years for the new agreement period correspond to 
performance years from a prior agreement period where incentives for 
coding intensity changes were already actively limited by the 
continuously assigned demographic alternative calculation. In addition, 
coding intensity shifts that are uniform over a prior agreement period 
would not affect the trending of historical expenditures from the first 
2 years to the third year of such period because such historical 
adjustments are only sensitive to risk score changes between the first 
2 years and the third year of such baseline period. The CMS-HCC model 
has been updated for 2016 in ways that reduce its sensitivity to 
subjective coding levels for chronic conditions that are known to have 
historically

[[Page 38009]]

accounted for differences in coding levels for MA beneficiaries 
relative to FFS Medicare. Lastly, ACOs tend to neighbor each other in 
markets where any ACO coding intensity shifts would then likely drive 
similar market-wide effects (including effects from market spillover 
affecting diagnosis codes submitted for patients receiving care from 
ACO providers/suppliers but who are not ultimately assigned to an ACO) 
that would tend to net out any coding shifts in the calculation of risk 
scores relative to the ACO's region. This final consideration also 
offers a degree of reassurance that the calculation of the adjustment 
reflecting the difference between an ACO's expenditures relative to its 
region would be less likely to be materially biased by ACO coding 
intensity shifts.
    We intend to carefully monitor emerging program data to assess 
whether the overall benchmark methodology as revised remains 
appropriately balanced between sensitivity to real changes in assigned 
population risk and protection from making shared savings payments due 
to potential coding intensity shifts. Of particular concern for close 
monitoring (and potential future rulemaking changes, if necessary) are 
the unique circumstances related to the use of a prospective 
beneficiary assignment methodology in Track 3 and the associated 
benchmark calculations for Track 3 ACOs. Prospective assignment creates 
an overlap between the claims considered for purposes of determining 
beneficiary assignment to the ACO and the period in which diagnosis 
submissions from claims are utilized for calculating a beneficiary's 
prospective HCC score for the year during which the beneficiary will be 
assigned to the ACO. A related area for monitoring is whether regional 
FFS expenditures tabulated at a county level for assignable 
beneficiaries determined using the assignment methodology used in Track 
1 and Track 2 would provide an unbiased comparison to a beneficiary 
population assigned under the prospective assignment methodology for 
Track 3. For these reasons, as part of our monitoring we will consider 
the potential necessity to undertake rulemaking in order to make 
adjustments to regional calculations for Track 3 ACOs to avoid biasing 
the results.
2. Effects on Beneficiaries
    As explained in more detail previously, we believe the changes 
included in this final rule will provide additional incentive for ACOs 
to improve care management efforts and maintain program participation. 
In addition, ACOs with low baseline expenditures relative to their 
region are more likely to transition to and sustain participation in a 
risk track (Tracks 2 or 3) in future agreement periods. Consequently, 
the changes in this final rule will also benefit beneficiaries through 
broader improvements in accountability and care coordination (such as 
through the use of the waiver of the 3-day stay SNF rule by Track 3 
ACOs) than would occur under current regulations. Also, in this final 
rule we are finalizing a modified version of our proposal in order to 
provide a more gradual phase-in of the regional adjustment for ACOs 
with higher costs than their region. It is anticipated this 
modification will improve the ability of ACOs serving at-risk and 
medially complex populations to continue to participate and succeed in 
the program over the medium to long run.
    Additionally, we intend to continue to analyze emerging program 
data to monitor for any potential unintended effect that the 
introduction of a regional adjustment to the ACO's rebased historical 
benchmark could potentially have on the incentive for ACOs to serve 
vulnerable populations (and for ACOs to maintain existing partnerships 
with providers and suppliers serving such populations). Further 
refinements that could be addressed in future rulemaking if monitoring 
ultimately revealed such problems could include reducing the percentage 
applied to the adjustment to the benchmark for regional expenditures, 
introducing additional adjustments (for example, enhancements or 
complements to the prospective CMS-HCC risk model) to control for 
exogenous factors impacting an ACO's costs relative to its region, or 
otherwise modifying the benchmark calculation to improve the balance 
between rewarding attainment and improvement in the efficiency and 
quality of care delivery for the full spectrum of beneficiaries 
enrolled in FFS Medicare.
3. Effects on Providers and Suppliers
    We anticipate that including an adjustment to an ACO's historical 
benchmark reflecting a percentage of the difference between the ACO's 
regional service area average per capita expenditure amount and the 
ACO's rebased historical benchmark amount will provide an additional 
incentive for ACOs to make investments to improve care coordination. At 
the same time, this change in methodology also shifts the benchmark 
policy focus from rewarding improvement in trend relative to an ACO's 
original baseline to an incentive that places more weight on attainment 
of efficiency--how an ACO compares in absolute expenditures to its 
region. Certain ACOs that joined the program from a high expenditure 
baseline relative to their region and that showed savings under the 
first agreement period benchmark methodology will likely expect lower 
benchmarks and greater likelihood of shared losses under a methodology 
that includes at least a 25 percent weight on the regional expenditure 
adjustment. Additionally, certain ACOs that joined the program with 
relatively low expenditures relative to their region may now expect 
significant shared savings payments even if they failed to generate 
shared savings in their first agreement period under the existing 
benchmark methodology.
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 a small business 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.
    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 developed 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. For example, 
networks of individual practices of ACO professionals are eligible to 
form an ACO. Also, the use of a MSR under Track 1, and, if elected by 
the ACO under Tracks 2 and 3, that varies by the size of the ACO's 
population that is calculated using a lower confidence

[[Page 38010]]

interval allows the MSRs (and, if applicable, MLRs) for smaller ACOs to 
be significantly lower than they would have been had CMS applied the 
higher confidence intervals used to derive MSRs (and MLRs) applicable 
to medium and large size ACOs. Further, eligible ACOs may remain under 
the one-sided model for a second agreement period to give them 
additional time to gain experience with the accountable care model 
before undertaking performance-based risk.
    Small entities are both allowed and encouraged to participate in 
the Shared Savings Program, provided the ACO has 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 believe the policies 
included in this final rule, including facilitating the transition to 
performance-based risk (see section II.C of this final rule), may 
further encourage participation by small entities. For example, smaller 
entities (among others) that are risk averse but ready to transition to 
a performance-based risk track may elect the option that would defer by 
one year their entrance into a two-sided model. Once under a two-sided 
model, ACOs will have the opportunity for greater reward compared to 
participation under the one-sided model although they will be at risk 
for shared losses.
    As detailed in this RIA, total median shared savings payments net 
of shared losses are expected to increase by $300 million over the 2017 
to 2019 period as a result of changes that will increase benchmarks for 
certain ACOs participating in the Shared Savings Program and therefore 
increase the average small entity's shared savings revenue. However, 
the impact on any single small entity may depend on its relationship to 
costs calculated for the counties comprising its regional service area.
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 are changing our regulations such that benchmark 
trend calculations and adjustments for ACOs that include rural 
hospitals as ACO participants will reflect FFS costs and trends in the 
ACO's regional service area. Overall, we expect the average ACO to 
receive greater shared savings revenue under these changes ($300 
million greater net sharing anticipated over 2017 through 2019). 
However, the impact on individual ACOs and their participating small 
rural hospitals may differ from the program average.
    Comment: A commenter acknowledged that the impact on small entities 
and rural hospitals remains to be seen and suggested that CMS monitor 
the effects of the benchmarking changes to ensure that small entities 
and hospitals, particularly in rural and underserved areas, are not 
placed at a disadvantage.
    Response: We appreciate the commenter's suggestion. This final rule 
describes a number of issues for monitoring and future consideration 
with respect to the changes being finalized to the methodology for 
resetting the ACO's benchmark, including: The approach to calculating 
regional FFS expenditures (in particular in relation to the methodology 
for defining the ACO's regional service area and use of assignable 
beneficiaries for determining county FFS expenditures), factors for 
consideration in relation to the weight applied in calculating the 
regional adjustment to the ACO's rebased historical benchmark, and the 
impact of coding initiatives on ACO benchmarks. This monitoring will 
include considerations relevant across the ACOs participating in the 
Shared Savings Program, which represent diverse interests by virtue of 
their ACO participant composition, patient populations, locations, and 
organizational structures, among other factors.
    Comment: Although not discussing the specifics of data modeling, 
comments from stakeholders representing rural ACOs supported moving to 
the use of regional comparison data when resetting ACO benchmarks, 
indicating their belief that this approach creates a more meaningful 
comparison group and better reflects the health care environment in 
which the ACO operates.
    Response: We appreciate commenters' feedback and also share 
commenters' beliefs that the revised rebasing methodology may benefit 
ACOs, including ACOs located in rural areas, by the increasing the 
weight on regional FFS expenditures in calculating the benchmark, and 
moving away from benchmarks based on the ACO's historical spending.
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 2016, that 
is approximately $146 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 $146 million in any 1 year. Furthermore, participation in this 
program is voluntary and is not mandated.

D. Alternatives Considered

    As indicated in the June 2015 final rule (see 80 FR 32795 through 
32796), and as discussed in the 2016 proposed rule (see 81 FR 5833 
through 5834), we also considered an alternative method for 
establishing benchmarks for subsequent agreement periods that would 
incorporate regional trends. Under such method we would apply the 
regional trend to inflate an ACO's historical benchmark from the prior 
(that is, first) agreement period to represent expenditures expected 
for the most recent base year preceding the ACO's subsequent agreement 
period. This approach would therefore be delinked from an ACO's 
performance over the prior agreement period (except to the extent an 
ACO's assigned population impacts its wider regional trend)--improving 
the incentive for ACOs to invest in efforts to improve efficiency. In 
contrast to the methodology for calculating a regional adjustment 
established with this rule, it would also retain sensitivity to 
baseline costs demonstrated by beneficiaries assigned to the ACO in the 
prior agreement period, potentially mitigating concerns regarding 
certain types of program selection and possibly providing a more 
incremental transition for ACOs familiar with the existing benchmark 
methodology.
    Specifically it was estimated that blending an ACO's rebased 
benchmark with its prior (first) historical benchmark inflated by a 
regional trend

[[Page 38011]]

would produce an overall budget neutral change in net program cost for 
the subsequent agreement period if the blending were accomplished via a 
70 percent weight on an ACO's trended prior benchmark and a 30 percent 
weight on its rebased benchmark. While such blend would reasonably be 
expected to result in an improvement in program incentives for ACOs to 
generate new efficiencies in care delivery despite rebasing concerns, 
other considerations impacted the decision to ultimately set forth the 
different approach detailed in this final rule.
    Primarily, program experience to date indicates that many ACOs make 
significant changes to their provider composition over the course of an 
agreement period. Attempting to lock-in a first historical benchmark 
that would be trended to form 70 percent of the historical benchmark 
for future agreement periods would invariably be complicated and in 
many cases biased by changes in provider composition made years after 
the ACO's first entry into the program. Such operational complications 
and potential biases would invariably grow in magnitude for subsequent 
agreement periods, necessitating modifications to future rebasing, for 
example by reducing the weight on the regionally-trended component of 
the benchmark or requiring the regionally trended component always to 
be sourced from the rebased benchmark from the prior agreement period--
changes that would likely dampen the incentive for ACOs to make 
significant investments in redesigning care in efficient ways. 
Furthermore, the rebasing methodology adopted in this final rule has 
the comparative advantage of linking the regional adjustment to an 
ACO's historical expenditures to its region's contemporary standardized 
cost as opposed to the level of cost (and associated efficiency) that 
happened to be exhibited in an ACO's prior historical benchmark period. 
Therefore, it was determined that the approach we are adopting in this 
final rule generally offers a less complicated and more consistent and 
equitable mechanism for adjusting ACO rebased benchmarks to reflect 
regional expenditures over the long term.

E. Compliance With Requirements of Section 1899(i)(3)(B) of the Act

    As previously discussed in this final rule, certain policies, 
including both existing policies and new policies adopted in this final 
rule, rely upon the authority granted in section 1899(i)(3) of the Act 
to use other payment models that the Secretary determines will improve 
the quality and efficiency of items and services furnished to Medicare 
FFS beneficiaries. Section 1899(i)(3)(B) requires that such other 
payment model must not result in additional program expenditures. 
Policies falling under the authority of section 1899(i)(3) of the Act 
include: Performance-based risk, refining the calculation of national 
expenditures used to update the historical benchmark to use the 
assignable subpopulation of total FFS enrollment, updating benchmarks 
with regional trends as opposed to national average absolute growth in 
per capita spending, and adjusting performance year expenditures to 
remove IME, DSH, and uncompensated care payments.
    A comparison was constructed between the projected impact of the 
payment methodology that incorporates all changes and a hypothetical 
baseline payment methodology that excludes the elements described 
previously that require section 1899(i)(3) of the Act authority--most 
importantly performance based risk in Tracks 2 and 3 and updating 
benchmarks using regional trends. The hypothetical baseline was assumed 
to include adjustments allowable under section 1899(d)(1)(B)(ii) of the 
Act including the provision from the June 2015 final rule whereby an 
ACO's rebased benchmark might include an adjustment reflecting a 
portion of savings measured during the ACO's prior agreement period and 
the 35 percent weight used in calculating the regional adjustment to 
the ACO's rebased historical benchmark in this rule (or 25 percent 
weight should such regional adjustment be negative, as specified in 
this rule). The stochastic model and associated assumptions described 
previously in this section were adapted to reflect the agreement period 
spanning 2017 through 2019 for roughly 100 ACOs expected to renew in 
2017. Such analysis estimated approximately $130 million greater 
average net program savings under the alternative payment model that 
includes all policies that require the authority of section 1899(i)(3) 
than would be expected under the hypothetical baseline in total over 
the 2017 to 2019 agreement period cycle.
    Furthermore, approximately 79 percent of stochastic trials resulted 
in greater or equal net program savings. The alternative payment model, 
as adopted in this final rule, is projected to result in both greater 
savings on benefit costs and net payments to ACOs. Participation in 
performance-based risk under Track 2 and Track 3 is assumed to improve 
the incentive for ACOs to increase the efficiency of care for 
beneficiaries (similar to as assumed in the modeling of the impacts, 
described previously). Such added savings are partly offset by lower 
participation associated with the requirement to transition to 
performance-based risk. Correspondingly, net shared savings payments 
are also expected to be greater under the alternative payment model 
under section 1899(i)(3) of the Act than under the hypothetical 
baseline, mainly driven by the higher sharing rates and potentially 
lower minimum savings requirements in Track 2 and Track 3, but partly 
offset mainly by lower benchmarks resulting from ending the policy 
adopted in the June 2015 final rule of adding a portion of savings to 
the rebased benchmark, the use of more accurate regional benchmark 
updates, and new shared loss revenue.
    Additionally, we projected a lower net federal savings of 
approximately $10 million would result from using the hypothetical 
baseline described previously, but without the adjustment to account 
for a portion of savings generated during the ACO's prior agreement 
period, which we eliminated from the hypothetical baseline's rebased 
benchmarks. We believe ending the adjustment for savings generated in 
the ACO's prior agreement period will enable us to place a greater 
weight on the amount of the regional adjustment in the future, while 
not over crediting or penalizing an ACO for its prior performance 
(discussed in section II.A.2.c of this final rule). This alternative 
hypothetical baseline more closely resembles the future hypothetical 
baseline that would be used in our analysis of the application of a 
higher weight in calculating the regional adjustment in subsequent 
agreement periods (for example, if we undertake future rulemaking 
further amending the methodology for rebasing and updating the 
benchmark, as discussed previously in this final rule).
    Relative savings projected for the ACOs starting a second agreement 
period in 2017 participation cycle are reasonably assumed to be 
proportional for ACOs starting a second agreement period in 2018 and 
2019 because the assumptions and parameters would be the same or 
similar. Accordingly, the requirement under section 1899(i)(3)(B) of 
the Act that an alternative payment model not result in additional 
program expenditures is therefore satisfied for the period 2017 through 
2019. As discussed elsewhere in this final rule, we will reexamine this 
projection in the future to ensure that the requirement under section 
1899(i)(3)(B) of the Act that an alternative payment model not result 
in additional program

[[Page 38012]]

expenditures continues to be satisfied, taking into account, for 
example, increasing the weight placed on the regional adjustment to an 
ACO's rebased historical benchmark, which will increase to 70 percent 
for an ACO's second (or third for ACOs with higher costs than their 
region) and subsequent agreement periods under the revised rebasing 
methodology (unless the Secretary determines a lower weight should be 
applied, as specified through future rulemaking). In the event that we 
conclude that the payment model established under section 1899(i)(3) of 
the Act no longer meets this requirement, we would undertake additional 
notice and comment rulemaking to make adjustments to the payment model 
to assure continued compliance with the statutory requirements.

F. Accounting Statement and Table

    As required by OMB Circular A-4 under Executive Order 12866, in 
Table 5, we have prepared an accounting statement showing the change in 
net federal monetary transfers resulting from provisions of this final 
rule as compared to baseline.

                                                     Table 5--Accounting Statement Estimated Impacts
                                                                     [CYs 2017-2019]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                Source citation (RIA,
            Category                    Primary estimate              Minimum estimate              Maximum estimate               preamble, etc.)
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                  Impact on Net Federal Cost From Finalized Changes to Medicare Shared Savings Program
--------------------------------------------------------------------------------------------------------------------------------------------------------
Annualized monetized: Discount    -36.2 million...............  76.6 million................  -155.9 million..............  Table 4.
 rate: 7%.
Annualized monetized: Discount    -36.5 million...............  78.5 million................  -158.2 million..............
 rate: 3%.
--------------------------------------------------------------------------------------------------------------------------------------------------------
Notes: Amounts are expressed in   Negative values reflect reduction in federal net cost resulting from care management by ACOs. Estimates may be a
 2016 dollars.                     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.
--------------------------------------------------------------------------------------------------------------------------------------------------------

G. Publicly Available Data

    In response to requests from ACOs and other stakeholders for data 
to allow for modeling of proposed changes to the benchmark rebasing 
methodology, CMS made new data files available through the Shared 
Savings Program's Web site, to coincide with the issuance of the 2016 
proposed rule (https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/sharedsavingsprogram/Statutes-Regulations-Guidance.html). These 
files included: Average per capita county-level FFS spending and risk 
scores for 3 historical years; and ACO-specific data, on the total 
number of assigned beneficiaries residing in each county where at least 
1 percent of the ACO's assigned beneficiaries reside, for 3 historical 
years. A listing of all publicly available Shared Savings Program ACO 
data and ACO performance data sources maintained by CMS is available 
through the Shared Savings Program Web site (see the guide titled 
``Medicare Shared Savings Program Publicly available ACO data and ACO 
performance data sources maintained by CMS'' available online at 
https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/sharedsavingsprogram/).
    Comment: Some commenters modeled the proposed benchmarking changes 
using the publicly available data files released with the 2016 proposed 
rule, and other sources of Shared Savings Program performance data, and 
included remarks about their findings within their comment letters. For 
example, several comments reflect estimates that approximately two-
fifths to two-thirds of ACOs will have their benchmarks upwardly 
adjusted as a result of the revised rebasing methodology. A commenter 
described its analysis as indicating some ACOs will experience 
significant and unexpected swings in their reset historical benchmarks 
(when comparing the benchmark values resulting from the current 
methodology versus the revised methodology). Another commenter 
explained its analysis showed relatively high-cost ACOs face increasing 
headwinds as their benchmarks converge with their region, whereas 
relatively low-cost ACOs would have more favorable benchmarks. Another 
commenter specified that the 35 percent weight used to calculate the 
regional adjustment for an ACO's first agreement period under the 
revised rebasing methodology would result in a benchmark reduction of 
about 2 percent for ACOs with spending one standard deviation above the 
regional mean, and noted this would be substantial relative to 
estimated savings.
    Response: We appreciate commenters' careful attention to the 
details of the 2016 proposed rule, modeling of the proposed policies, 
and informative comments including their analyses. We note that the 
analyses provided by commenters pertaining to the key change to the 
methodology--institution of a regional FFS adjustment to the rebased 
benchmark--are generally in harmony with CMS' calculations in 
developing the rule and this impact analysis, providing reassurance 
that the data provided were a sufficient tool to allow the public to 
analyze the general impact of the new method for rebasing. We took into 
account commenters' observations regarding ACOs with high baseline 
costs for which a positive savings adjustment under the prior 
methodology will be replaced by a negative regional FFS adjustment. By 
reducing the weight applied to the regional FFS adjustment during the 
first two agreement periods under the revised rebasing methodology in 
cases where it lowers ACOs' benchmarks, this final rule will encourage 
continued participation by certain ACOs with significant potential to 
generate additional savings despite high baseline costs. We believe 
this change in policy from the proposed rule addresses concerns raised 
by commenters and illustrated in their analyses that the regional 
adjustment could disadvantage certain ACOs that have shown cost savings 
but may require longer than one agreement period to bring costs down 
toward the regional average in order to avoid a significant negative 
adjustment to their rebased benchmarks.

H. 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

[[Page 38013]]

Shared Savings Program for CYs 2017 through 2019 is net federal savings 
of $110 million greater than what would have been saved if no changes 
were made. Although this is the best estimate of the financial impact 
of the Shared Savings Program during CYs 2017 through 2019, a 
relatively wide range of possible outcomes exists. While approximately 
two-thirds of the stochastic trials resulted in an increase in net 
program savings, the 10th and 90th percentiles of the estimated 
distribution show a net increase in costs of $240 million to net 
savings of $480 million, respectively.
    Overall, our analysis projects that improvements in the accuracy of 
benchmark calculations, including through the introduction of a 
regional adjustment to the ACO's rebased historical benchmark, are 
expected to result in increased overall participation in the program. 
These changes are also expected to improve the incentive for ACOs to 
invest in effective care management efforts, increase the 
attractiveness of participation under performance-based risk in Track 2 
or 3 for certain ACOs with lower beneficiary expenditures, and result 
in overall greater gains in savings on FFS benefit claims costs than 
the associated increase in expected shared savings payments to ACOs. We 
intend to monitor emerging results for effects on claims costs, 
changing participation (including risk for cost due to selective 
changes in participation), and unforeseen bias in benchmark adjustments 
due to diagnosis coding intensity shifts. Such monitoring will be used 
to inform future rulemaking, such as if the Secretary determines that a 
lower weight should be used in calculating the regional adjustment 
amount.
    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, the Centers for Medicare 
& Medicaid Services amends 42 CFR part 425 as set forth below:

PART 425--MEDICARE SHARED SAVINGS PROGRAM

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

    Authority:  Secs. 1102, 1106, 1871, and 1899 of the Social 
Security Act (42 U.S.C. 1302, 1306, 1395hh, and 1395jjj).


0
2. Amend Sec.  425.20 by adding in alphabetical order definitions for 
``ACO's regional service area'', ``Assignable beneficiary'', and ``BY'' 
to read as follows:


Sec.  425.20  Definitions.

* * * * *
    ACO's regional service area means all counties where one or more 
beneficiaries assigned to the ACO reside.
* * * * *
    Assignable beneficiary means a Medicare fee-for-service beneficiary 
who receives at least one primary care service with a date of service 
during a specified 12-month assignment window from a Medicare-enrolled 
physician who is a primary care physician or who has one of the 
specialty designations included in Sec.  425.402(c).
* * * * *
    BY stands for benchmark year.
* * * * *

0
3. Amend Sec.  425.200 as follows:
0
A. In paragraph (b)(2) introductory text by removing the phrase ``all 
subsequent years'' and adding in its place the phrase ``through 2016''.
0
B. By adding paragraph (b)(3).
0
C. By adding paragraph (e).
    The additions read as follows:


Sec.  425.200  Participation agreement with CMS.

* * * * *
    (b) * * *
    (3) For 2017 and all subsequent years--
    (i) The start date is January 1 of that year; and
    (ii) The term of the participation agreement is 3 years, except the 
term of an ACO's initial agreement period under Track 1 (as described 
under Sec.  425.604) may be extended, at the ACO's option, for an 
additional year for a total of 4 performance years if the conditions 
specified in paragraph (e) of this section are met.
* * * * *
    (e) Optional fourth year. (1) To qualify for a fourth performance 
year as described in paragraph (b)(3)(ii) of this section, the ACO must 
meet all of the following conditions:
    (i) Is currently participating in its first agreement period under 
Track 1.
    (ii) Has requested renewal of its participation agreement in 
accordance with Sec.  425.224.
    (iii) Has selected a two-sided model (as described under Sec.  
425.606 or Sec.  425.610 of this part) in its renewal request.
    (iv) Has requested an extension of its current agreement period and 
a 1-year deferral of the start of its second agreement period in a form 
and manner specified by CMS.
    (v) CMS approves the ACO's renewal, extension, and deferral 
requests.
    (2) An ACO that is approved for renewal, extension, and deferral 
that terminates its participation agreement before the start of the 
first performance year of the second agreement period is--
    (i) Considered to have terminated its participation agreement for 
the second agreement period under Sec.  425.220; and
    (ii) Not eligible to participate in the Shared Savings Program 
again until after the date on which the term of that second agreement 
period would have expired if the ACO had not terminated its 
participation, consistent with Sec.  425.222.


Sec.  425.314  [Amended]

0
4. Amend Sec.  425.314 by removing paragraph (a)(4).

0
5. Add Sec.  425.315 to read as follows:


Sec.  425.315  Reopening Determinations of ACO Shared Savings or Shared 
Losses to Correct Financial Reconciliation Calculations.

    (a) Reopenings. (1) If CMS determines that the amount of shared 
savings due to the ACO or the amount of shared losses owed by the ACO 
has been calculated in error, CMS may reopen the initial determination 
or a final agency determination under subpart I of this part and issue 
a revised initial determination:
    (i) At any time in the case of fraud or similar fault as defined in 
Sec.  405.902; or
    (ii) Not later than 4 years after the date of the notification to 
the ACO of the initial determination of savings or losses for the 
relevant performance year under Sec.  425.604(f), Sec.  425.606(h) or 
Sec.  425.610(h), for good cause.
    (2) Good cause may be established when--
    (i) There is new and material evidence that was not available or 
known at the time of the payment determination and may result in a 
different conclusion; or
    (ii) The evidence that was considered in making the payment 
determination clearly shows on its face that an obvious error was made 
at the time of the payment determination.
    (3) A change of legal interpretation or policy by CMS in a 
regulation, CMS ruling or CMS general instruction, whether made in 
response to judicial precedent or otherwise, is not a basis for 
reopening a payment determination under this section.
    (4) CMS has sole discretion to determine whether good cause exists 
for reopening a payment determination under this section.

[[Page 38014]]

    (b) [Reserved]

0
6. Amend Sec.  425.602 by:
0
A. Revising the section heading.
0
B. Revising paragraphs (a)(4), (5), and (8).
0
C. Adding paragraph (a)(9).
0
D. Revising paragraphs (b)(1) and (2).
0
E. Removing paragraph (c).
    The revisions and additions read as follows:


Sec.  425.602  Establishing, adjusting, and updating the benchmark for 
an ACO's first agreement period.

    (a) * * *
    (4) Truncation of expenditures:
    (i) For agreement periods beginning before 2017--
    (A) 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 
benchmark year in order to minimize variation from catastrophically 
large claims; and
    (B) For the 2017 performance year and any subsequent performance 
years in agreement periods beginning in 2014, 2015 and 2016, the 
benchmark is adjusted to reflect the use of assignable beneficiaries in 
determining the 99th percentile of Medicare fee-for-service 
expenditures for purposes of truncating expenditures for assigned 
beneficiaries during each benchmark year as specified in paragraph 
(a)(4)(ii) of this section.
    (ii) For agreement periods beginning in 2017 and subsequent years, 
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 for assignable beneficiaries 
identified for the 12-month calendar year corresponding to each 
benchmark year in order to minimize variation from catastrophically 
large claims.
    (5) Trending expenditures:
    (i) For agreement periods beginning before 2017--
    (A) Using CMS Office of the Actuary national Medicare expenditure 
data for each of the years making up the historical benchmark, 
determines national growth rates and trends expenditures for each 
benchmark year (BY1 and BY2) to the third benchmark year (BY3) dollars.
    (B) To trend forward the benchmark, CMS makes separate calculations 
for expenditure categories for each of the following populations of 
beneficiaries:
    (1) ESRD.
    (2) Disabled.
    (3) Aged/dual eligible Medicare and Medicaid beneficiaries.
    (4) Aged/non-dual eligible Medicare and Medicaid beneficiaries.
    (C) For the 2017 performance year and any subsequent performance 
years in agreement periods beginning in 2014, 2015 and 2016, the 
benchmark is adjusted to reflect the use of assignable beneficiaries to 
perform each of these calculations as specified in paragraph (a)(5)(ii) 
of this section.
    (ii) For agreement periods beginning in 2017 and subsequent years--
    (A) Using CMS Office of the Actuary national Medicare expenditure 
data for each of the years making up the historical benchmark, 
determines national growth rates for assignable beneficiaries 
identified for the 12-month calendar year corresponding to each 
benchmark year, and trends expenditures for each benchmark year (BY1 
and BY2) to the third benchmark year (BY3) dollars.
    (B) To trend forward the benchmark, CMS makes separate calculations 
for expenditure categories for each of the following populations of 
beneficiaries:
    (1) ESRD.
    (2) Disabled.
    (3) Aged/dual eligible Medicare and Medicaid beneficiaries.
    (4) Aged/non-dual eligible Medicare and Medicaid beneficiaries.
* * * * *
    (8) The benchmark is adjusted to take into account the expenditures 
for beneficiaries who would have been assigned to the ACO in any of the 
3 most recent years prior to the agreement period using the most recent 
certified ACO participant list for the relevant performance year.
    (9) The historical benchmark is further adjusted at the time of 
reconciliation for a performance year to account for changes in 
severity and case mix for newly and continuously assigned beneficiaries 
using prospective HCC risk scores and demographic factors as described 
under Sec. Sec.  425.604(a)(1) through (3), 425.606(a)(1) through (3), 
and 425.610(a)(1) through (3).
    (b) * * *
    (1) For performance years before 2017, CMS updates the historical 
benchmark annually for each year of the agreement period based on the 
flat dollar equivalent of 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.
    (i) CMS updates the fixed benchmark 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 using data 
from CMS' Office of the Actuary.
    (ii) To update the benchmark, CMS makes expenditure calculations 
for separate categories for each of the following populations of 
beneficiaries:
    (A) ESRD.
    (B) Disabled.
    (C) Aged/dual eligible Medicare and Medicaid beneficiaries.
    (D) Aged/non-dual eligible Medicare and Medicaid beneficiaries.
    (2) For the 2017 performance year and subsequent performance years, 
CMS updates the historical benchmark annually for each year of the 
agreement period based on the flat dollar equivalent of 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 
for assignable beneficiaries identified for the 12-month calendar year 
corresponding to the year for which the update is calculated.
    (i) CMS updates the fixed benchmark 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 for 
assignable beneficiaries identified for the 12-month calendar year 
corresponding to the year for which the update is being calculated 
using data from CMS' Office of the Actuary.
    (ii) To update the benchmark, CMS makes expenditure calculations 
for separate categories for each of the following populations of 
beneficiaries:
    (A) ESRD.
    (B) Disabled.
    (C) Aged/dual eligible Medicare and Medicaid beneficiaries.
    (D) Aged/non-dual eligible Medicare and Medicaid beneficiaries.

0
7. Add Sec.  425.603 to read as follows:


Sec.  425.603  Resetting, adjusting, and updating the benchmark for a 
subsequent agreement period.

    (a) An ACO's benchmark is reset at the start of each subsequent 
agreement period.
    (b) For second agreement periods beginning in 2016, CMS 
establishes, adjusts, and updates the rebased historical benchmark in 
accordance with Sec.  425.602(a) and (b) with the following 
modifications:
    (1) Rather than weighting each year of the benchmark using the 
percentages provided at Sec.  425.602(a)(7), each benchmark year is 
weighted equally.
    (2) An additional adjustment is made to account for the average per 
capita amount of savings generated during the ACO's previous agreement 
period. The adjustment is limited to the average number of assigned 
beneficiaries (expressed as person years) under the ACO's first 
agreement period.

[[Page 38015]]

    (c) For second or subsequent agreement periods beginning in 2017 
and subsequent years, CMS establishes the rebased historical benchmark 
by determining the per capita Parts A and B fee-for-service 
expenditures for beneficiaries who would have been assigned to the ACO 
in any of the 3 most recent years before the agreement period using the 
certified ACO participant list submitted before the start of the 
agreement period as required under Sec.  425.118. CMS does all of the 
following:
    (1) Calculates the payment amounts included in Parts A and B fee-
for-service claims using a 3-month claims run out with a completion 
factor. The calculation--
    (i) Excludes IME and DSH payments; and
    (ii) Considers individually beneficiary identifiable payments made 
under a demonstration, pilot or time limited program.
    (2) Makes separate expenditure calculations 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.
    (3) Adjusts expenditures for changes in severity and case mix using 
prospective HCC risk scores.
    (4) 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 for assignable 
beneficiaries identified for the 12-month calendar year corresponding 
to each benchmark year in order to minimize variation from 
catastrophically large claims.
    (5) Trends forward expenditures for each benchmark year (BY1 and 
BY2) to the third benchmark year (BY3) dollars using regional growth 
rates based on expenditures for the ACO's regional service area as 
determined under paragraphs (e) and (f) of this section, making 
separate expenditure calculations 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.
    (6) Restates BY1 and BY2 trended and risk-adjusted expenditures in 
BY3 proportions 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.
    (7) Weights each benchmark year equally.
    (8) The ACO's benchmark will be adjusted in accordance with Sec.  
425.118(b) for the addition and removal of ACO participants or ACO 
providers/suppliers during the term of the agreement period. To adjust 
the benchmark, CMS does the following:
    (i) Takes into account the expenditures for beneficiaries who would 
have been assigned to the ACO in any of the 3 most recent years prior 
to the agreement period using the most recent certified ACO participant 
list for the relevant performance year.
    (ii) Redetermines the regional adjustment amount under paragraph 
(c)(9) of this section, according to the ACO's assigned beneficiaries 
for BY3 resulting from the most recent certified ACO participant list 
for the relevant performance year.
    (9) Adjusts the historical benchmark based on the ACO's regional 
service area expenditures, making separate calculations for the 
following populations of beneficiaries: ESRD, disabled, aged/dual 
eligible Medicare and Medicaid beneficiaries, and aged/non-dual 
eligible Medicare and Medicaid beneficiaries. CMS does all of the 
following:
    (i) Calculates an average per capita amount of expenditures for the 
ACO's regional service area as follows:
    (A) Determines the counties included in the ACO's regional service 
area based on the ACO's BY3 assigned beneficiary population.
    (B) Determines the ACO's regional expenditures as specified under 
paragraphs (e) and (f) of this section for BY3.
    (C) Adjusts for differences in severity and case mix between the 
ACO's assigned beneficiary population and the assignable beneficiary 
population for the ACO's regional service area identified for the 12-
month calendar year that corresponds to BY3.
    (ii) Calculates the adjustment as follows:
    (A) Determines the difference between the average per capita amount 
of expenditures for the ACO's regional service area as specified under 
paragraph (c)(9)(i) of this section and the average per capita amount 
of the ACO's rebased historical benchmark determined under paragraphs 
(c)(1) through)(8) of this section, for each of the following 
populations of beneficiaries:
    (1) ESRD.
    (2) Disabled.
    (3) Aged/dual eligible Medicare and Medicaid beneficiaries.
    (4) Aged/non-dual eligible Medicare and Medicaid beneficiaries.
    (B) Applies a percentage, determined as follows:
    (1) The first time an ACO's benchmark is rebased using the 
methodology described under paragraph (c) of this section, CMS 
calculates the regional adjustment as follows:
    (i) Using 35 percent of the difference between the average per 
capita amount of expenditures for the ACO's regional service area and 
the average per capita amount of the ACO's rebased historical 
benchmark, if the ACO is determined to have lower spending than the 
ACO's regional service area;
    (ii) Using 25 percent of the difference between the average per 
capita amount of expenditures for the ACO's regional service area and 
the average per capita amount of the ACO's rebased historical 
benchmark, if the ACO is determined to have higher spending than the 
ACO's regional service area.
    (2) The second time that an ACO's benchmark is rebased using the 
methodology described under paragraph (c) of this section, CMS 
calculates the regional adjustment to the historical benchmark as 
follows:
    (i) Using 70 percent of the difference between the average per 
capita amount of expenditures for the ACO's regional service area and 
the average per capita amount of the ACO's rebased historical 
benchmark, unless the Secretary determines a lower weight should be 
applied, if the ACO is determined to have lower spending than the ACO's 
regional service area;
    (ii) Using 50 percent of the difference between the average per 
capita amount of expenditures for the ACO's regional service area and 
the average per capita amount of the ACO's rebased historical 
benchmark, if the ACO is determined to have higher spending than the 
ACO's regional service area.
    (3) The third or subsequent time that an ACO's benchmark is rebased 
using the methodology described under paragraph (c) of this section, 
CMS calculates the regional adjustment to the historical benchmark 
using 70 percent of the difference between the average per capita 
amount of expenditures for the ACO's regional service area and the 
average per capita amount of the ACO's rebased historical benchmark, 
unless the Secretary determines a lower weight should be applied.
    (4) To determine if an ACO has lower or higher spending compared to 
the ACO's regional service area, CMS does the following:

[[Page 38016]]

    (i) Multiplies the difference between the average per capita amount 
of expenditures for the ACO's regional service area and the average per 
capita amount of the ACO's rebased historical benchmark for each 
population of beneficiaries (ESRD, Disabled, Aged/dual eligible 
Medicare and Medicaid beneficiaries, Aged/non-dual eligible Medicare 
and Medicaid beneficiaries) as calculated under paragraph (c)(9)(ii)(A) 
of this section by the applicable proportion of the ACO's assigned 
beneficiary population (ESRD, Disabled, Aged/dual eligible Medicare and 
Medicaid beneficiaries, Aged/non-dual eligible Medicare and Medicaid 
beneficiaries) for benchmark year 3 of the rebased historical 
benchmark.
    (ii) Sums the amounts determined in paragraph (c)(9)(ii)(B)(4)(i) 
of this section across the populations of beneficiaries (ESRD, 
Disabled, Aged/dual eligible Medicare and Medicaid beneficiaries, Aged/
non-dual eligible Medicare and Medicaid beneficiaries).
    (iii) If the resulting sum is a net positive value, the ACO is 
considered to have lower spending compared to the ACO's regional 
service area. If the resulting sum is a net negative value, the ACO is 
considered to have higher spending compared to the ACO's regional 
service area.
    (iv) If CMS adjusts the ACO's benchmark for the addition or removal 
of ACO participants or ACO providers/suppliers during the term of the 
agreement period as specified in paragraph (c)(8) of this section, CMS 
redetermines whether the ACO is considered to have lower spending or 
higher spending compared to the ACO's regional service area for 
purposes of determining the percentage used in calculating the 
adjustment in paragraphs (c)(9)(ii)(B)(1) and (2) of this section.
    (10) The historical benchmark is further adjusted at the time of 
reconciliation for a performance year to account for changes in 
severity and case mix for newly and continuously assigned beneficiaries 
using prospective HCC risk scores and demographic factors as described 
under Sec. Sec.  425.604(a)(1) through (3), 425.606(a)(1) through (3), 
and 425.610(a)(1) through (3).
    (d) For second or subsequent agreement periods beginning in 2017 
and subsequent years, CMS updates the rebased historical benchmark 
under paragraph (c) of this section, annually for each year of the 
agreement period by the growth in risk adjusted regional per 
beneficiary FFS spending for the ACO's regional service area by doing 
all of the following:
    (1) Determining the counties included in the ACO's regional service 
area based on the ACO's assigned beneficiary population used to 
determine financial reconciliation for the relevant performance year.
    (2) Determining growth rates based on expenditures for counties in 
the ACO's regional service area calculated under paragraphs (e) and (f) 
of this section, for the performance year compared to BY3 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.
    (3) Updating the benchmark by making separate calculations 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.
    (e) For second or subsequent agreement periods beginning in 2017 
and subsequent years, CMS does all of the following to determine risk 
adjusted county fee-for-service expenditures for use in calculating the 
ACO's regional fee-for-service expenditures:
    (1)(i) Determines average county fee-for-service expenditures based 
on expenditures for the assignable population of beneficiaries in each 
county, where assignable beneficiaries are identified for the 12-month 
calendar year corresponding to the relevant benchmark or performance 
year.
    (ii) Makes separate expenditure calculations for each of the 
following populations of beneficiaries:
    (A) ESRD.
    (B) Disabled.
    (C) Aged/dual eligible Medicare and Medicaid beneficiaries.
    (D) Aged/non-dual eligible Medicare and Medicaid beneficiaries.
    (2) Calculates assignable beneficiary expenditures using the 
payment amounts included in Parts A and B fee-for-service claims with 
dates of service in the 12-month calendar year for the relevant 
benchmark or performance year, using a 3-month claims run out with a 
completion factor. The calculation--
    (i) Excludes IME and DSH payments; and
    (ii) Considers individually beneficiary identifiable payments made 
under a demonstration, pilot or time limited program.
    (3) Truncates a 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 for assignable beneficiaries 
identified for the 12-month calendar year that corresponds to the 
relevant benchmark or performance year, in order to minimize variation 
from catastrophically large claims.
    (4) Adjusts fee-for-service expenditures for severity and case mix 
of assignable beneficiaries in the county using prospective CMS-HCC 
risk scores. The calculation is made according to 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.
    (f) For second or subsequent agreement periods beginning in 2017 
and subsequent years, CMS calculates an ACO's risk adjusted regional 
expenditures by--
    (1) Weighting the risk-adjusted county-level fee-for-service 
expenditures determined under paragraph (e) of this section according 
to the ACO's proportion of assigned beneficiaries in the county, 
determined by the number of the ACO's assigned beneficiaries in the 
applicable population (according to Medicare enrollment type) residing 
in the county in relation to the ACO's total number of assigned 
beneficiaries in the applicable population (according to Medicare 
enrollment type) for the relevant benchmark or performance year 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.
    (2) Aggregating the values determined under paragraph (f)(1) of 
this section for each population of beneficiaries (according to 
Medicare enrollment type) across all counties within the ACO's regional 
service area; and
    (3) Weighting the aggregate expenditure values determined for each 
population of beneficiaries (according to Medicare enrollment type) 
under paragraph (f)(2) of this section by a weight reflecting the 
proportion of the ACO's overall beneficiary population in the 
applicable Medicare enrollment type for the relevant benchmark or 
performance year.

0
8. Amend Sec.  425.604 as follows:
0
A. In paragraphs (a)(1) and (a)(2)(i) and (ii) by removing the phrase 
``adjust for changes'' and adding in its place the

[[Page 38017]]

phrase ``adjust the benchmark for changes''.
0
B. In paragraph (a)(3) introductory text by removing the phrase ``In 
adjusting for health status'' and adding in its place the phrase ``In 
adjusting the benchmark for health status''.
0
C. Redesignating paragraph (a)(4) as paragraph (a)(4)(i).
0
D. In newly redesignated paragraph (a)(4)(i) by removing the phrase 
``To minimize variation'' and adding in its place the phrase ``For 
performance years before 2017 to minimize variation''.
0
E. Adding paragraph (a)(4)(ii).
    The addition reads as follows:


Sec.  425.604  Calculation of savings under the one-sided model.

    (a) * * *
    (4) * * *
    (ii) For the 2017 performance year and subsequent performance 
years, 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 the applicable 
performance year for assignable beneficiaries identified for the 12-
month calendar year corresponding to the performance year.
* * * * *

0
9. Amend Sec.  425.606 as follows:
0
A. In paragraphs (a)(1) and (a)(2)(i) and (ii) by removing the phrase 
``adjust for changes'' and adding in its place the phrase ``adjust the 
benchmark for changes''.
0
B. In paragraph (a)(3) introductory text by removing the phrase ``In 
adjusting for health status'' and adding in its place the phrase ``In 
adjusting the benchmark for health status''.
0
C. Redesignating paragraph (a)(4) as paragraph (a)(4)(i).
0
D. In newly redesignated paragraph (a)(4)(i) by removing the phrase 
``To minimize variation'' and adding in its place the phrase ``For 
performance years before 2017 to minimize variation''.
0
E. Adding paragraph (a)(4)(ii).
    The addition reads as follows:


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

    (a) * * *
    (4) * * *
    (ii) For the 2017 performance year and subsequent performance 
years, 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 the applicable 
performance year for assignable beneficiaries identified for the 12-
month calendar year corresponding to the performance year.
* * * * *

0
10. Amend Sec.  425.610 as follows:
0
A. In paragraphs (a)(1) and (a)(2)(i) and (ii) by removing the phrase 
``adjust for changes'' and adding in its place the phrase ``adjust the 
benchmark for changes''.
0
B. In paragraph (a)(3) introductory text by removing the phrase ``In 
adjusting for health status'' and adding in its place the phrase ``In 
adjusting the benchmark for health status''.
0
C. Redesignating paragraph (a)(4) as paragraph (a)(4)(i).
0
D. In newly redesignated paragraph (a)(4)(i) by removing the phrase 
``To minimize variation'' and adding in its place the phrase ``For 
performance years before 2017 to minimize variation''.
0
E. Adding paragraph (a)(4)(ii).
    The addition reads as follows:


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

    (a) * * *
    (4) * * *
    (ii) For the 2017 performance year and subsequent performance 
years, 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 the applicable 
performance year for assignable beneficiaries identified for the 12-
month calendar year corresponding to the performance year.
* * * * *


Sec.  425.800  [Amended]

0
11. Amend Sec.  425.800 as follows:
0
A. In paragraph (a)(4) by--
0
i. Removing the phrase ``The determination of whether'' and adding in 
its place the phrase ``The initial determination or revised initial 
determination of whether''.
0
ii. Removing the phrase ``including the determination'' and adding in 
its place the phrase ``including the initial determination or revised 
initial determination''.
0
iii. Removing the cross-reference ''Sec.  425.602, Sec.  425.604, and 
Sec.  425.606'' and adding in its place the cross-reference 
``Sec. Sec.  425.602, 425.604, 425.606, and 425.610''.
0
B. In paragraph (a)(5) by removing the cross-reference ``Sec.  425.604 
and 425.606'' and adding in its place ``Sec. Sec.  425.604, 425.606, 
and 425.610''.

    Dated: May 27, 2016.
Andrew M. Slavitt,
Acting Administrator, Centers for Medicare & Medicaid Services.
    Dated: June 3, 2016.
Sylvia M. Burwell,
Secretary, Department of Health and Human Services.
[FR Doc. 2016-13651 Filed 6-6-16; 4:15 pm]
 BILLING CODE 4120-01-P

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