[Federal Register Volume 81, Number 112 (Friday, June 10, 2016)]
[Rules and Regulations]
[Pages 37950-38017]
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: [email protected].
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
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Section title/
Preamble section description Applicability date
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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.
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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 http://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
[[Page 37956]]
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.
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\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).
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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 http://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 http://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 http://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/index.html).
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