On January 28, 2016, the Centers for Medicare & Medicaid Services (CMS) issued a proposed rule that would change the methodology used to evaluate and adjust the performance of Medicare Shared Savings Program (MSSP) Accountable Care Organizations (ACOs). The proposed rule is intended to improve long-term incentives for ACOs and create a path for long-term sustainability.

ACO performance is currently measured using a multi-step process that evaluates an ACO’s effectiveness in lowering expenditures for a group of assigned beneficiaries against a benchmark established based on an ACO’s historical costs. At the beginning of the ACO’s three-year agreement period, CMS sets an average per capita historical benchmark. CMS adjusts the historical benchmark on an annual basis based on projected growth in national per capita expenditures for Medicare Parts A and B services under the fee-for-service (FFS) program.

The proposed rule would revise the process for resetting performance benchmarks for ACOs that continue to participate in the MSSP after the initial three-year agreement period. Changes would apply to agreement periods beginning on or after January 1, 2017. Specifically, the new methodology would incorporate factors based on regional FFS expenditures, including regional spending. It would replace the national trend factor with regional trend factors and make an adjustment when establishing the ACO’s rebased historical benchmark to reflect a percentage of the difference between the FFS expenditures in the ACO’s regional service area and the ACO’s historical expenditures. CMS would annually update the rebased benchmark to account for changes in regional FFS spending, which would replace the current annual update that is based solely upon national FFS spending. The proposed rule would define an ACO’s regional service area to include any county where one or more assigned beneficiary resides and would weight county-level FFS costs by the proportion of the ACO’s assigned beneficiaries in the county.

Other key changes include:

• using all beneficiaries eligible for ACO assignment instead of all FFS beneficiaries for purposes of program calculations using regional and national FFS expenditures;
• adjusting an ACO’s historical benchmark for changes in participant composition using an expenditure ratio calculated for a single year;
• adding a participation option to facilitate an ACO’s transition to performance-based risk arrangements by allowing ACOs to elect a fourth year under their existing first agreement and defer by one year entering a second agreement period under a performance-based risk track; and
• clarifying the timeline for reopening determinations of ACO shared savings and shared losses to correct financial reconciliation calculations, including:
  1. limiting re-openings to not later than four years after the date of the notification to the ACO of the initial determination of shared savings or shared losses for the performance year for good cause, and
  2. reserving the right to reopen a payment determination, at any time in the case of fraud or similar fault.

Among other changes, the proposed rule significantly modifies the methodology used to establish and adjust ACO historical benchmarks. These changes will impact the financial incentives and business decisions of ACOs, providers, and suppliers participating in the growing MSSP. The proposed rule is open to a 60-day public comment period. CMS encourages all interested members of the public to submit comments for consideration as CMS develops the final rule. Comments may be submitted by March 28, 2016. For more information, please contact your regular Crowell & Moring contact.