CMS Final Rule Redesigns the Medicare Shared Savings Program

Health Update

On December 21, 2018, the Centers for Medicare & Medicaid Services (CMS) issued a final rule redesigning the Medicare Shared Savings Program (the Program) for Accountable Care Organizations (ACOs). The policies reflected in the final rule accelerate the move to two-sided risk arrangements in which participating ACOs share in savings and losses depending on whether their spending falls below or above a benchmark rate. Other changes include additional flexibility for ACOs relating to beneficiary incentives, telehealth services and the beneficiary assignment methodology. The start date for the first agreement period under the new participation options will be July 1, 2019.

Background

The Medicare Shared Savings Program (MSSP) was created by the Affordable Care Act with the aims of promoting accountability for a patient population, encouraging care coordination and fostering high-value care. It is a voluntary program under which groups of doctors, hospitals and other healthcare providers establish ACOs that agree to be held accountable for the quality, cost and experience of care for an assigned Medicare fee-for-service (FFS) beneficiary population. ACOs that meet quality and savings requirements share a percentage of the achieved savings with Medicare. Conversely, ACOs assume downside risk share in losses if their spending exceeds a certain benchmark.

The Program began in 2012 and as of January 2018, there were 561 ACOs participating, providing care to more than 10.5 million Medicare FFS beneficiaries. Currently, the Program offers three financial models with varying levels of upside and downside risk. The vast majority of ACOs currently participate in the one-sided, shared savings only model (Track 1), under which eligible ACOs share in savings under the benchmark but are not responsible for any spending above the benchmark. Tracks 2 and 3 require certain levels of downside risk but also offer greater levels of shared savings and waivers from certain Medicare rules.

For performance years 2012 to 2016, CMS found that ACOs in two-sided models generated significant savings for the Medicare program and improved quality of care, while one-sided model ACOs increased spending relative to benchmarks. In light of these findings, in August 2018, CMS issued a proposed rule that sought to redesign the Program’s financial models to accelerate the assumption of downside risk. The final rule implements the proposed revisions, with certain modifications, including a partial rollback of proposed reductions to the shared savings rate for no- and low-risk ACOs.

Key Takeaways

1. Reorganized Structure to Accelerate Participation in Two-Sided Models

The final rule reorganizes the Program by replacing Tracks 1 and 2 with a new BASIC Path. The BASIC Path is divided into five levels that provide progressively higher increments of risk and potential reward. Under the BASIC Path, eligible ACOs may begin participation under a one-sided model and incrementally phase in risk and potential reward over a single agreement period. Levels A and B provide for a maximum potential shared savings (shared savings cap) of 40%, which is less than the 50% provided for under Track 1 but more than the proposed cap of 25%. Under Levels A and B, ACOs assume no downside risk. Levels C, D and E offer greater potential savings, providing a shared savings cap of 50%, but require ACOs to assume incrementally greater levels of downside risk.1 The ENHANCED Path has a single level that closely resembles the existing Track 3. It provides for a shared savings cap of 75% and requires ACOs to assume responsibility for 40% to 75% of higher-than-benchmark costs.2

Eligibility to participate in each path varies based on whether the ACO is a high- or low-revenue ACO and the extent of its experience with performance-based risk Medicare ACO initiatives. High-revenue ACOs, which tend to include those sponsored by institutional providers that are larger and better capitalized, are defined as those ACOs whose total Medicare Parts A and B FFS revenue for their ACO participants, based on revenue for the most recent calendar year for which 12 months of data are available, is at least 35% of the total Medicare Parts A and B FFS expenditures for the ACOs’ assigned beneficiaries based on expenditures for the most recent calendar year for which 12 months of data are available. Low-revenue ACOs, which will typically be smaller and have less capital, are defined as ACOs whose Medicare Parts A and B FFS revenue of the ACO participants falls below the 35% threshold.

High-revenue ACOs will be limited to a single agreement period under the BASIC track prior to being required to transition to the ENHANCED track. Low-revenue ACOs will be permitted two agreement periods under the BASIC track. ACOs that have experience with performance-based risk Medicare ACO initiatives, including ACOs that previously participated in Track 2 or 3, will be eligible to participate in the ENHANCED path only, or the BASIC path’s Level E if the ACO qualifies as low-revenue.

Under the final rule, the current three-year agreement period is replaced with an agreement period of at least five years. The start date for the first agreement period under the new participation options will be July 1, 2019.

Importantly, ACOs participating in the BASIC Path will be required to advance at least one level each year—more if they wish—thereby limiting the amount of time ACOs may spend in one-sided models. The only exception is for low-revenue ACOs that lack experience with performance-based risk Medicare ACO initiatives. These ACOs will be permitted an additional program year in Level B but will be required to move to Level E for the final two years of their five-year agreement period.

Additionally, the final rule modifies the repayment mechanism arrangement requirements to reduce the burden on ACOs participating in two-sided models. The final rule also adjusts the methodology for establishing, adjusting, updating and resetting benchmarks for agreement periods beginning on July 1, 2019, and in subsequent years. These changes include, among others, modifications to the application of factors based on regional FFS expenditures, safeguards to mitigate the risk that an excessive positive or negative regional adjustment will be used to establish and reset the benchmark, and better accounting for certain health status changes to adjust the benchmark performance each year.

2. Greater Flexibility for ACOs

The Final Rule includes several policy changes that will increase flexibility for ACOs participating in the Program. First, under the final rule, ACOs entering agreement periods in the BASIC Track or ENHANCED Track, beginning July 1, 2019, and in subsequent years, will have the option to choose prospective assignment or preliminary prospective assignment with retrospective reconciliation at the time of application. In addition, ACOs will be able to switch their selections of beneficiary assignment methodology on an annual basis.

Second, the final rule establishes regulations in accordance with the Bipartisan Budget Act that allow for payment for telehealth services furnished to prospectively assigned beneficiaries receiving telehealth services in non-rural areas and allows beneficiaries to receive certain telehealth services at home. Additionally, the regulations provide for limited waivers of the originating site and geographic requirements to allow payment for telehealth services in an expanded set of circumstances.

Third, the final rule expands eligibility for waiver of the skilled nursing facility (SNF) three-day rule, which requires a three-day stay in an inpatient hospital prior to admission to an SNF. Under the final rule, eligibility for the waiver is expanded to include ACOs participating in a two-sided model under preliminary prospective assignment with retrospective reconciliation.

Finally, the final rule establishes regulations in accordance with the Bipartisan Budget Act to allow ACOs under certain two-sided models to implement CMS-approved beneficiary incentive programs that will encourage beneficiaries to obtain medically necessary primary care and require ACO compliance with program integrity and other requirements.

Conclusion

The final rule may significantly alter the calculus for organizations considering whether to begin or continue participating in the MSSP. Under the current MSSP structure, ACOs can spend up to six years in a one-sided no-risk model. Under the new structure established by the final rule, effective July 1, 2019, ACOs will be permitted to continue for only two years in a one-sided model, or three if the ACO qualifies as low-revenue.

In addition, subject to a limited exception for low-revenue ACOs (which may spend two years in Level B), ACOs in the BASIC Path will be required to assume incrementally greater risk each year. And all ACOs will ultimately be required to transition off the BASIC Path and on to the ENHANCED Path, which requires assumption of risk for 40–75% of costs above benchmark. These Program changes will make readiness to assume downside risk quickly—and in incrementally larger amounts over time—a critical consideration for ACOs deciding whether to participate in the Program going forward.

In addition to redesigning the gain- and loss-sharing models, the final rule gives ACOs participating in the Program new flexibility with respect to the choice of beneficiary assignment methodology, telehealth coverage, the skilled nursing facility (SNF) three-day rule and beneficiary incentive programs. ACOs considering whether to participate in the Program will have to evaluate the extent to which these new options will increase their ability to assume greater financial accountability for their assigned beneficiaries.

Entities that intend to apply for the BASIC Track or ENHANCED Track of the Program, to apply for a SNF three-day rule waiver and/or to establish a beneficiary incentive program were required to submit a notice of intent to apply to CMS no later than January 18 at noon ET.3

1Levels C, D and E all provide a loss-sharing rate of 30%, but include different limits on loss sharing, with total potential losses increasing with each advancement in level. For Level C, the shared losses may not exceed 2% of ACO participant revenue capped at 1% of updated benchmark; for Level D, they may not exceed 4% of ACO participant revenue capped at 2% of updated benchmark; and for Level E, they may not exceed the percentage of revenue specified in the revenue-based nominal amount standard under the Quality Payment Program (e.g., 8% in 2019–2020), capped at the amount that is 1% higher than the percentage of the updated benchmark specified in the expenditure-based nominal amount standard under the Quality Payment Program (e.g., 4% in 2019–2020).

2Specifically, the ENHANCED Track has a maximum shared savings rate of 75%, not to exceed 20% of updated benchmark, and loss-sharing rate determined based on the inverse of the final sharing rate, but not less than 40% (i.e., between 40% and 75%), not to exceed 15% of updated benchmark.

3More information about the application timeline and process is available here.