Participating Accountable Care Organizations (ACOs) that meet quality performance standards will be eligible to receive payments for shared savings.

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1 Background Sec of the Patient Protection and Affordable Care Act (PPACA) requires the Secretary to establish the Medicare Shared Savings Program by Jan. 1, 2012 Program goals: Promote accountability for a patient population Coordinate items and services under Medicare Parts A and B Encourage investment in infrastructure and redesigned care processes for high quality and efficient service delivery The program is for fee-for-service (FFS) Medicare beneficiaries Participating Accountable Care Organizations (ACOs) that meet quality performance standards will be eligible to receive payments for shared savings. ACOs Participants May Include: ACO professionals (physicians, physician assistants, nurse practitioners and clinical nurse specialists) in group practice arrangements; Networks of individual practices of ACO professionals; Partnerships or joint venture arrangements between hospitals and ACO professionals; Hospitals employing ACO professionals; and Critical Access Hospitals that bill under Method II The above groups could establish ACOs that include additional Medicare-enrolled entities such as Federally Qualified Health Centers (FQHCs), Rural Health Centers (RHCs), post-acute facilities and other Medicare-enrolled providers and suppliers as ACO participants Specialists may be associated with more than one ACO. ACO Models: Participating ACOs would choose between two Tracks Track 1 or One-Sided Approach: ACOs would be eligible for shared savings and not responsible for losses in first 2 years of 3-year agreement; transition to two-sided model in year 3 and responsible for some losses. Track 2 or Two-Sided Approach: More experienced ACOs eligible for higher percentage of shared savings, starting with first-dollar savings, but also responsible for shared losses throughout agreement period.

2 Proposed Legal Structure of an ACO ACO must be a legal entity (e.g., corporation, partnership, LLC) with a tax ID number authorized to conduct business under state law and capable of: (a) receiving and distributing shared savings; (b) repaying shared losses; (c) establishing, reporting, and ensuring provider compliance with health care quality criteria, including quality performance standards; and (d) performing other required ACO functions. ACO must have a governing body (e.g., a board of directors or other body that provides a mechanism for shared governance and decision-making for all ACO participants) comprised of ACO participants or their designated representatives and Medicare beneficiary representatives, with adequate authority to execute the statutory functions of an ACO and having broad responsibility for the ACO s administrative, fiduciary, and clinical operations; ACO participants must hold at least 75 percent control of the governing body As part of its application, an ACO must submit supporting materials to CMS that demonstrate the ACO s leadership and management structure, including clinical and administrative systems that align with and support the goals of the Medicare Shared Savings Program and the aims of better care for individuals, better health for populations, and lower growth in expenditures. General Rule: 3-Year Agreement In order to participate in the Medicare Shared Savings Program, an ACO must enter into an agreement with CMS. CMS will determine whether to approve or deny applications from eligible organizations prior to the end of the calendar year in which the applications are submitted. The participation agreement must be for a term of 3 years, starting on the January 1 following approval of an application or date specified in the agreement. Unless otherwise specified, the ACO s annual performance period under the agreement must be the 12-month period beginning on January 1 of each year during the term of the agreement. In light of the short time frame for implementing the program for the first year, CMS is soliciting comments on any alternatives to a January 1, 2012 start date. ACOs will be subject to all future regulatory changes except: (a) eligibility requirements concerning the structure and governance of ACOs; (b) calculation of sharing rate; and (c) beneficiary assignment. If changes in law or regulations require an ACO to change its processes in a manner that affects the design of its care processes and delivery of care, changes to the quality of care, or changes in planned distribution of shared savings, the ACO will be required to submit to CMS a supplement to its original application. Processes to Promote Evidence-Based Medicine, Patient Engagement, Reporting, and Coordination of Care In its application, an ACO must provide CMS with documentation of its plans to: (a) promote evidencebased medicine; (b) promote beneficiary engagement; (c) internally report quality and cost metrics; and (d) coordinate care. Distribution of Shared Savings As part of its application, an ACO must describe how: (a) it plans to use shared savings payments, including the criteria it plans to employ for distributing shared savings among its participants; (b) the proposed plan will achieve the specific goals of the program; and (c) the proposed plan will achieve the

3 general aims of better care for individuals, better health for populations, and lower growth in expenditures. Medicare Beneficiaries will be assigned to an approved ACO Medicare will determine whether a beneficiary has received a sufficient level of requisite primary care services from physicians associated with a specific ACO such that that ACO may be designated as exercising basic responsibility for the beneficiary s care. Beneficiaries would be assigned to an ACO through a TIN based on the primary care services they received from primary care physicians (internal medicine, general practice, family practice, and geriatric medicine) billing under that TIN. ACO professionals on which beneficiary assignment is based (i.e. primary care providers) must be exclusive to one ACO agreement; other ACO participants (e.g., hospitals, specialists) could participate in multiple ACOs. CMS intends to develop a communications plan to give beneficiaries information about their utilization of services furnished by an ACO and the possibility of being assigned to an ACO; ACOs will be required to give beneficiaries a form allowing them to opt out of data sharing and inform beneficiaries if they will no longer be participating in the Shared Savings Program. Sufficient Number of Medicare Beneficiaries CMS will deem an ACO to have a sufficient number of primary care physicians and beneficiaries if the number of beneficiaries historically assigned to the ACO participants is 5,000 or more. If at the end of a performance year, an ACO s assigned population falls below 5,000, then that ACO will be issued a warning and placed on a corrective action plan; if the ACO s assigned population has not returned to at least 5,000 by the end of the next performance year, then the agreement will be terminated and the ACO will not be eligible to share in savings for that year. Proposed Quality Measures ACOs that do not meet quality performance standards will not be eligible for shared savings. For 2012 only, an ACO will be considered to meet the ACO Quality Performance Standard if it has reported on applicable quality measures; in later years, an ACO will have to both report quality measures and achieve performance at a minimum attainment level. CMS proposes 65 measures in 5 key domains to serve as the basis for assessing, benchmarking, rewarding and improving ACO quality performance: (1) Patient/Caregiver Experience; (2) Care Coordination; (3) Patient Safety; (4) Preventive Health; and (5) At-Risk Population/Frail Elderly Health. Quality measures pertaining to gastroenterology are limited. There are two measures in the Preventive Health domain are colorectal cancer screening (same PQRS measure # 113) and body mass index screening and follow-up (same as PQRS Measure #128). Quality measures for the remaining 2 years of the 3 year agreement will be proposed in future rulemaking; expanded measures may address highly prevalent conditions of interest and may add measures of hospital-based care and measures for care furnished in other settings. Incorporation of Physician Quality Reporting System (PQRS) Reporting Requirements. ACOs would report and submit data on behalf of eligible professionals to try to qualify for the PQRS incentive as a group practice. ACOs will need to report on all measures in order to receive both the Shared Savings Program shared savings and the PQRS incentive. CMS also proposes that ACO s publicly report information on: (1) providers and suppliers participating in the ACO; (2) parties sharing in the governance of the ACO; (3) quality performance standard scores; and (4) general information on how an ACO shares savings with its members; CMS will provide a standardized format for this reporting through guidance.

4 ACO Benchmarks and Shared Savings Providers and suppliers participating in ACOs ( ACO participants ) will continue to receive FFS payments under Parts A and B. ACOs are eligible to receive shared savings payments if they meet all contract requirements and quality performance standards, and achieve savings exceeding the ACO s minimum savings rate the percentage that Parts A and B expenditures must be below the benchmark in order to ensure that savings are not attributable to normal variation in expenditures. The sharing rate is the percentage of the savings which an ACO that exceeds the minimum savings rate will be allowed to retain. The sharing cap is the limit on the total amount of shared savings that may be paid to an ACO. An ACO s benchmark is essentially the baseline measure of Medicare Parts A and B expenditures against which the ACO s financial performance will be measured. To determine an ACO s benchmark, CMS proposes to use the Parts A and B expenditures for beneficiaries that would have been assigned to the ACO in the 3 years prior to the agreement period, as opposed to the expenditures for beneficiaries actually assigned to the ACO for the agreement period. That is, claims records of ACO participants (based on taxpayer ID number) would determine the list of beneficiaries who received a plurality of their primary care services from primary care physicians in the ACO in each of the 3 most recent available years of claims data. A fixed benchmark would be estimated from per capita Parts A and B FFS expenditures in the 3 prior years for these beneficiaries, trended forward to current year dollars and adjusted for overall growth and beneficiary characteristics. The amount of shared savings an ACO receives depends on the minimum savings rate (MSR) and the sharing rate that apply to the ACO. The MSR an ACO must achieve in order to be eligible to share savings would vary based on the number of beneficiaries in the ACO and which track is selected (with an MSR floor of 2%). For Track 1, a sliding scale confidence interval would determine the MSR, ranging from an MSR of 3.9% for ACOs with 5,000 beneficiaries to an MSR of 2.0% for ACOs with 60,000 or more beneficiaries. That is, an ACO with 5,000 beneficiaries must achieve savings of at least 3.9% in order to be eligible to share any savings while an ACO with 60,000 or more beneficiaries must achieve savings of at least 2.0% to share any savings. For Track 2, a flat 2.0% MSR would apply, regardless of the size of the ACO s assigned population. Once an ACO surpasses its MSR: Track 1 ACOs would share in the net savings that exceed 2% of its benchmark. Certain Track 1 ACOs (e.g., ACOs with primarily non-urban residents or comprised only of ACO professionals) with fewer than 10,000 beneficiaries would be exempt from the 2% threshold, instead sharing first-dollar savings. Track 2 ACOs would share in net savings on a first dollar basis (i.e., any savings as compared to the benchmark). The sharing rate would be determined based on quality performance (up to 50% for Track 1 ACOs and 60% for Track 2 ACOs) plus any additional increase for including FQHCs or rural health centers in the ACO (up to 2.5% additional for Track 1 ACOs and up to 5% additional for Track 2 ACOs).

5 Shared savings would be capped at 7.5% of the benchmark for Track 1 ACOs and 10% of the benchmark for Track 2 ACOs. Thus, an ACO s shared savings payment is calculated as the net savings as compared to the benchmark (beyond 2% of the benchmark for non-exempted Track 1 ACOs), multiplied by the sharing rate, up to the sharing cap. ACOs are responsible for costs above the targeted benchmark Track 2 ACOs and Track 1 ACOs in the third year of the 3-year agreement period will share both savings and losses with CMS. For Track 1 ACOs that are transitioned to the two-sided model in the third year of their agreement, a 5% shared loss cap would apply. For Track 2 ACOs, the shared loss cap would be phased in over a 3-year period: 5% of the benchmark in year 1 of the program; 7.5% in year 2, and 10% in year 3. To ensure repayment of shared losses CMS proposes A flat 25% withholding of any shared savings payment (to be repaid if an ACO has a positive balance at the end of an agreement period) To require ACOs to establish in the application a method for repaying losses equal to at least 1% of per capita expenditures from the most recent year of data; methods might include recouping funds from Medicare payments to ACO participants, reinsurance, placing funds in escrow, obtaining surety bonds, establishing a line of credit or other repayment mechanism, subject to CMS approval. Losses that cannot be recouped in a given year would be carried forward until repaid CMS would notify an ACO in writing regarding the amount of shared losses; ACOs must make payment in full within 30 days of receipt and would also need to submit a certification of compliance and accuracy of information.