On October 20, 2011, the Centers for Medicare and Medicaid Services (CMS) released its final rule on Accountable Care Organizations (ACOs), also known as the Medicare Shared Savings Program (the “Program”), enacted as a part of the Patient Protection and Affordable Care Act of 2010 (aka Health Reform).  The Program is designed to encourage providers and hospitals to create networks that deliver efficient and collaborative care, and allows ACOs to receive a portion of the savings that they produce.

The proposed rule was met with criticism from many providers, hospitals, and trade groups.  In response, CMS adopted a relaxed version of the proposed requirements for ACOs.  Some key changes, include:

  • One-Sided Risk Model:  Under the proposed rule, all ACOs would have operated under a “two-sided” risk model where ACOs had the chance of losing money if they did not produce sufficient savings.  In the final rule, ACOs are allowed to participate in a “one-side” risk model, which will allow providers to participate in the program without risking a loss in the event that their ACO does not produce savings.  The final rule also allows ACOs to opt into a “two-sided” risk model in exchange for the opportunity to receive a greater share of savings.
  • Shared Savings:  The proposed rule originally required that the ACO provide a savings of at least 2% to receive the shared savings payments.  Under the final rule, ACO’s are eligible beginning with the first savings they create.
  • Prospective Beneficiary Assignment:  Originally, CMS intended to assign Medicare beneficiaries retrospectively based on where the beneficiaries received care during the previous year.  In the final rule, CMS sought to provide ACOs more certainty about their beneficiary population and thus implemented a “preliminary perspective assignment” of Medicare beneficiaries.  CMS will modify the beneficiary assignment lists at the end of each contract year in order to determine final assignments.
  • Reduction in Quality Measures:  The proposed rules required ACOs to track 65 performance measures; whereas the final rule requires ACOs to track only 33 measures.
  • Eliminating the Savings Threshold:  The proposed rule required ACOs to produce savings of at least two percent in order to be eligible for shared savings.  The final rule allows ACOs to share in savings beginning with the first savings that they produce.
  • Changes to ACO Organization and Governance: The final rules allows for more flexible ACO organization and governance requirements.  Under the final rule, ACOs are still required to be a legal entity, as recognized under state, federal, or tribal law.  ACOs must meet requirements for governance, leadership, and management. However, the final rule also allows CMS to consider an innovative ACO with a management or governance structure that does not meet the regulatory requirements.
  • Advanced Payment Model:  In attempt to remove some funding hurdles faced by small ACOs, CMS introduced an Advance Payment program that will allow a select number of rural and small physician-owned ACOs to receive up-front payments that the agency will later recoup from the savings that the ACOs produce.
  • Expanded Participation:  The final rule broadens participation to include RHCs and FQHC, as well as practices/organizations in which specialists provide primary care.
  • Relaxed EHR Requirements:  The final rule eases EHR burdens by no longer requiring EHR meaningful use compliance for participation in the Program.  Under the final rule, EHR is retained as a quality measure, but weighted higher than measures for quality scoring purposes.

CMS will begin to accept applications for the Program on January 1, 2012, with start dates on April 1, 2012 and July 1, 2012.