Final ACO Rule

CMS “put on display” the final ACO rule on October 20, 2011.

The ACO PRM was officially published in Federal Register on November 2, 2011.

Other agencies – IRS, HHS/OIG and FTC/DOJ – have released notices of rulemaking / policy statements as well

–      HHS/OIG (See above links)

–      IRS

–      FTC/DOJ   

Statutory Basis

For over 20 years, there have been many failed models of healthcare integration – PPMs, IPAs, PHOs, Hospital employment and acquisition of physicians, etc.

The ACO name is relatively new. It was invented late in 2006 during a discussion at a public meeting of the Medicare Payment Advisory Commission.

ACOs represent the next wave of integration and care coordination.

Section 3022 of the Patient Protection and Affordable Care Act (“PPACA”) directs the Secretary to establish shared savings program no later than January 1, 2012.

Statutory purpose of the shared savings program is to “promote accountability for patient population and coordinate services under parts A and B, and encourage investment in infrastructure and redesigned care processes for high quality and efficient service delivery.”

Groups of providers for services and suppliers are provided financial incentives to work together in an ACO where they manage and coordinate care for Medicare FFS beneficiaries.

ACOs that achieve lower costs and meet certain quality performance standards are eligible for share savings payments and other incentives that CMS may establish.

Many have touted ACOs as one of the most critical reforms in the healthcare reform act, by realigning healthcare provider financial incentives to patient-centered and preventive care and away from procedure/volume based care.


Eligibility, Structure, and Governance (42 C.F.R. §  425.5)

Assignment and Marketing (42 C.F.R. § 425.6)

Data (42 C.F.R. §  425.19)

Qualify (42 C.F.R. §§ 425.8, 425.9, 425.10, and 425.17)

Payment and Sharing (42 C.F.R. § 425.7)

Compliance Obligations, Structures, Programs (42 C.F.R. § 425.5)

Eligible Organizations

ACOs may be formed by the following organizations:

–      ACO professionals in group practice arrangements.

–      Networks of individual practices of ACO professionals.

–      Partnerships or joint venture arrangements between hospitals and ACO professionals.

–      Hospitals employing ACO professionals

–      Providers or suppliers otherwise recognized under the Social Security Act.

–      CAHs that meet certain criteria.

ACOs must have established a mechanism for shared governance to participate in the Shared Savings Program.

–      Existing ACOs do not have to create a new structure.

ACOs are required to enter into a three-year contract with CMS.

ACOs must have a t least 5,000 beneficiaries and a commensurate number of primary care physicians.

ACO must be recognized as a legal entity in the State in which it is established, and must have a Tax Id Number.

–      Program Enrollment Not Required:   The ACO’s legal entity does not need to be a participating Medicare entity.

Must be capable of:

–      Receiving and distributing share savings;

–      Repaying shared losses;

–      Establishing, reporting, and ensuring ACO participant and ACO provider/supplier compliance with health care quality criteria, including quality performance standards; and

–      Performing the other ACO functions identified in the statute.


Board Composition:  Governing board must be representative of the organizations comprising the ACO.

–              Must include a Medicare beneficiary representative.

–              Possess broad responsibility for the ACO’s administrative, fiduciary and clinical operations.

–              ACO participants must have at least 75 percent control of the governing body.

 Leadership and Management Structure

 Operations Manager:  Operations must be managed by an executive, officer, manager, or general partner.

Medical Director:  Clinical management and oversight would be managed by a senior-level medical director who is a board-certified physician, licensed in the State in which the ACO operates, and physically present in that State.

Meaningful Commitment:  Participants must have a meaningful commitment to the ACO’s clinical integration program to ensure its likely success.

Quality Assurance:  ACOs must have a physician-directed quality assurance and process improvement committee.

Clinical Guidelines:  ACOs must develop and implement evidence-based medical practice or clinical guidelines for delivering coordinated care.

Data Collection Infrastructure:  ACOs must have an infrastructure (i.e. information technology) that allows the ACO to collect and evaluate data and provide feedback across the organization, and report data to CMS.

 Contractual Obligations to CMS and Requirements

Three year agreement beginning January 1.

ACO would be responsible for providing a copy of the agreement to its ACO participants and ACO providers/suppliers.

The ACO contract with CMS may be changed:

–      Routine CMS “business operations”

–      Benefit Coverage Decisions

–      Additional Quality Measures

 ACO must provide in writing how it will implement changes.

ACO must enter into Data Use Agreement.

Two-Sided models also have surety bond, line of credit requirements.

 Beneficiary Assignment

 FFS beneficiaries who receive primary care services from primary care physicians in ACOs are assigned to the ACO in which the beneficiary received a plurality of the services

–      Primary care physician must have a primary specialty designation of internal medicine, general practice, family practice, or geriatric medicine

–      Primary care services based on specified HSPCS codes

–      Plurality of services based on allowed charges

Assignment does not limit right of beneficiaries to choose non-ACO providers

Primary care services include – services described above as well as the ‘Welcome to Medicare’ visit, wellness visits, and visits for HCPCS codes 99201-215, 99304-50.

Primary care physician can only contract with one ACO (exclusive relationship); other ACO providers must not be required to be exclusive to a single ACO.

At start of agreement period (and at end of each performance period), ACO upon request can (consistent with HIPAA) receive name , DOB, sex and HICN of beneficiaries who CMS determines would have been assigned to ACO in any of prior 3 available years, plus aggregated date (including de-identified utilization data).

 Beneficiary Notices

 ACO providers must post signs in facilities and provide written notice to beneficiaries about their participation in the ACO.

–      CMS indicates that notices would be standardized

ACO must also provide opt-out form to beneficiary prior to requesting claims data for the beneficiary from CMS; form must be provided as part of office visit with primary care physician.


 All ACO Marketing materials and communications such as mailings, telephone calls or community events regarding the ACO Must be approved by CMS prior to use; subsequent changes must also be approved prior to use.

 We expect marketing guidelines to closely resemble those applicable to Medicare Advantage plans.

 Quality Performance Metrics 

Quality Measures (33 of them) divided between 4 areas: 

(1)   patient/caregiver experience;

(2)   care coordination/patient safety;

(3)   preventive health; and

(4)   at-risk population 

  • If an ACO fails to achieve the quality performance standard on at least 70 percent of the measures in each domain (and that qps must be at least the 30th percentile), CMS will place the ACO on a corrective action plan and re-evaluate the following year. If the ACO continues to underperform in the following year, the agreement would be terminated. 

Shared Savings Models 


–      Benchmarks

–      One-Sided Model

–      Two-Sided Model 


–      ACO providers will continue to be paid under the Medicare fee-for-service payment systems throughout participation in the ACO.

–      To realize shared savings, ACOs must exceed a benchmark set by CMS.

–      Categorizing beneficiaries in the following cost categories: ESRD, disabled, aged/dual eligible Medicare and Medicaid beneficiaries, and aged/non-dual eligible Medicare and Medicaid beneficiaries.

–      This benchmarking methodology will apply to all ACOs, including those consisting of FQHCs and/or RHCs (either independently or in partnership with other eligible entities).

–      Weight of claims data increases as you approach 2012:  claims data from 2008 is weighted 10%, claims data form 2009 is weighted 30% and claims data for 2010 is weighted 60%.  The benchmark also includes annual updates to account for the increase in national Medicare fee for services expenditures. 

One-Sided Model

One-Sided Model:  ACO shares only program savings for all 3 years (but at a lower percentage than the two-sided model), and no program losses.

Minimum Savings Rate (MSR):  Medicare computes an MSR based on the number of beneficiaries assigned to the ACO.

–      This rate ranges from 3.9% (for ACOs with 5,000-5,999 beneficiaries) to 2.0% (60,000+ beneficiaries).

–      Note:  ACO’s with fewer beneficiaries are more susceptible to large dips and spikes in experience.

–      Once MSR is reached, ACOs have “flipped the switch” and are eligible for shared savings. 

Shared Savings:  Under the one-sided model, an ACO that exceeds its MSR is eligible to share savings net 2 percent of the benchmark dollar for dollar.

The regulations include 4 exceptions exempting ACOs from the 2 percent net savings threshold (which allows for first-dollars savings): 

(i) all ACO participants are physicians or physician groups;

(ii) 75% or more of the ACO’s assigned beneficiaries reside in counties outside an MSA;

(iii) 50% or more of the ACO’s assigned beneficiaries were assigned on the basis of services received from Method II CAHs; and (iv) at least 50% of the assigned beneficiaries had a t least one encounter with a participating rural health clinic (RHC) or federally qualified health center (FQHC). 

To realize shared savings, an ACO must meet the requirements described above and demonstrate quality performance as described under §425.10.

–      Shared savings are calculated on a sliding scale, by multiplying the savings rate and the quality score.

Additional Increase to Shared Savings:  Under the one-sided model, an ACO’s shared savings rate may be increased by 0.5% and up to 2.5% if the ACO includes a RHC or FQHC.

The amount of shared savings an ACO receives under the one-sided model may not exceed 7.5% of its benchmark.

Under the one-sided model, ACOs are eligible for shared savings of up to 50%. 

Two-Sided Model 

Under the Two-Sided Model, ACOs can share up to 60% of the savings (compared to 50% under the One-Sided Model), but may also share in losses.

Minimum Savings Rate:  To qualify for shared savings, ACOs average per capita Medicare expenditures for the performance year must be below its benchmark by at least 2%.  To qualify for savings, ACOs must meet minimum savings requirement

Minimum Loss Rate:   To share losses, an ACO’s average per capita Medicare expenditures for the performance year must be at least 2% above its benchmark costs for the year.

Qualification for Payment:  As with the One-Sided Model, ACOs must meet the minimum savings rate and also the minimum quality performance standards established under § 425.10.

Increase in Shared Savings:  ACOs may increase their shared savings rate by up to 5.0 percentage points if the ACO includes a RHC or FQHC.

Payment Limit:  Under the Two-Sided Model, an ACO’s shared savings is capped at 10% of its benchmark.

Shared Loss Rate:  With respect to the shared loss rate, plans that have losses that are high performance will share fewer losses than plans that are low quality and low performance.

Withholding:  In both models, gains are subject to a 25% withholding to help ensure repayment of losses to Medicare in later years.

Repayment Guarantee:  ACO’s must obtain reinsurance, place funds in escrow, obtain surety bonds, or establish a line of credit that the Medicare program can draw upon to ensure repayment of any losses in advance of participating in the Shared Savings Program under the two-sided model.

Loss Caps:  The amount of share losses may not exceed the following percentages over the yearly benchmark.

–      5 percent in the first year

–      7.5 percent in the second year

–      10 percent in the third years 


Compliance obligations appear to closely track the Medicare Advantage requirements.

ACOs will be required to have an “effective” compliance plan

Specific requirements:

–      In writing

–      Include policies and procedures

Include the following elements:

–      A designated compliance officer (or individual) who is not legal counsel to the ACO and who reports directly to the ACO’s governing body

–      Mechanisms for identifying and addressing compliance problems related to the ACO’s operations and performance

–      A method for employees or contractors of the ACO or ACO providers/suppliers to report suspected problems

–      Compliance training for the ACO, the ACO participants, and the ACO providers/suppliers

–      A requirement to report suspected violations of law

Contracts with downstream and related entities:

–      All contracts or arrangements between or among the ACO, its participants and providers/suppliers, and other entities furnishing services related to ACO activities must require compliance with the obligations under ACO-MCS agreement, including document retention requirements.

–      CMS will monitor the existence of, and adherence to, these requirements

–      Subject to audit by HHS-OIG

Excluded providers

HIPAA:  Privacy and data security

Document retention requirements: ACO records (e.g., books, contracts, and other evidence, such as data related to Medicare utilization and costs, quality performance measures, shared savings distributions) must be retained for 10 years from the end of the agreement period

Enforcement Actions:  CMS may impose a wide range of enforcement actions, including termination, for failure to comply with these requirements

 ACOs and Fraud and Abuse 

Specified waivers of the following laws:

–      Physician Self Referral law (Stark): 42 USC §1395nn — Prohibits physician with direct or indirect financial relationship with a hospital from referring for DHS for which payment may be made under a federal healthcare reimbursement program.

–      Anti-kickback statute, 42 USC §1320a-7b(b)(1) and (2) — It is a crime to knowingly and willfully offer or receive remuneration intended to induce referrals for services which may be reimbursed under a federal healthcare program.

–      Gainsharing is a system of management used by a business to get higher levels of performance through the involvement and participation of its people. As performance improves, employees share financially in the gain. 42 USC §1320a-7a(b)(1) and (2) prohibits this between hospitals and providers

 CMS/OIG Reasoning Behind Waivers: Protect financial relationships created in the ACO model, both within the ACO and outside of the business, and only protect relationships outside ACO if relates closely to requirements of an ACO.

 Interested in forming an ACO?

  • Form the leadership team (which will evolve)
  • Assess readiness for accountable care – SWOT analysis – Make decision
  • Put together the project team – clinical and administrative, legal, nursing, community – Steering Committee
  • Determine legal/accounting requirements
  • Create legal and organizational framework that promotes a collaborative structure and includes financial incentives
  • Ensure operational requirements are met to optimize and sustain performance —  identify priorities, integrate best practices, name persons who will execute the different components of the plans
  • Integrate information technology to reach meaningful use, explore HIEs
  • Assess financial readiness – review payor contracts, reimbursement rates, revenue cycle functions, ancillary services, etc.
  • Strengthen payor-provider relationships and collaboration
  • Make the community an ally
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