The Medicare Shared Savings Program

A recent issue of the Bulletin featured a primer for surgeons on accountable care organizations (ACOs).1 The authors of that article provided information based on the proposed rule implementing the Medicare Shared Savings Program (MSSP), which the Centers for Medicare & Medicaid Services (CMS) issued on April 7, 2011. They also relied on related documents issued by CMS and other federal agencies, including the Office of the Inspector General of the Department of Health and Human Services, the Department of Justice, the Federal Trade Commission, and the Internal Revenue Service.

This article picks up where that one left off and is based on information in the final rule published by CMS on November 2, 2011, and other related documents.2 It also considers a related Pioneer ACO initiative being conducted by the Center for Medicare and Medicaid Innovation (CMMI), a new CMS component. Finally, this article explores the potential implications of the various Medicare ACO programs for surgeons and their patients.

How does the final rule describe ACOs?

In the Medicare context, an ACO is an organization of health care providers that agrees to be accountable for the quality, cost, and overall care of Medicare beneficiaries who are assigned to it. It is especially important to understand that, while accountable, an ACO is not required to directly provide all the services its assigned Medicare beneficiaries need. In fact, unlike the Medicare Advantage Program enrollees, beneficiaries assigned to an ACO retain full freedom of choice with respect to where they receive their services. They are not locked in.

How does the final rule define an ACO professional, participant, and provider/supplier?

  • ACO professional: An ACO provider/supplier who is a physician (for this purpose, the term refers only to doctors of medicine and osteopathy), physician assistant, nurse practitioner, or clinical nurse specialist (note that the term “supplier” in this instance includes physicians)
  • ACO participant: An individual or group of ACO provider(s)/supplier(s) that is identified by a Medicare-enrolled tax identification number (TIN), that alone or together with one or more other ACO participants comprise(s) an ACO
  • ACO provider/supplier: An individual or entity that bills for items or services it furnishes to Medicare fee-for-service beneficiaries under a Medicare billing number assigned to the TIN (typically a National Provider Identifier or NPI) or an ACO participant and is included on the list of ACO providers/suppliers

To shed further light on the interplay of these definitions, ACO professionals are capable of independently forming an ACO under the MSSP, perhaps in company with one or more hospitals. The broad definition of ACO participant clearly indicates that essentially any professional or provider who bills Medicare may participate in an ACO. For example, whereas podiatrists, optometrists, or physical therapists do not meet the definition of ACO professional, they could nonetheless become ACO participants. Finally, in comparing the terms ACO provider/supplier and ACO participant, the former could, for example, refer to an individual surgeon in a group practice, whereas the latter would refer to the entire group practice.

Does the final rule respond to the concerns that stakeholders expressed about the proposed rule?

Yes. The final rule has been better received and makes a large number of changes clearly intended to increase interest in the ACO concept. These changes include the following:

  • Less burdensome governance and structural requirements, with ACOs allowed to add or subtract ACO participants throughout the course of their agreement with CMS
  • Fewer performance measures
  •  revised beneficiary assignment methodology (final assignment is still retrospective but CMS will now also make periodic, preliminary assignments based on the latest available data)
  • ACOs may choose a shared savings-only model for the initial three years and not be forced to switch to a model involving shared losses in year three
  • Greater financial rewards for ACOs (once savings achieve the minimum savings rate assigned to an ACO, 2 percent to 3.9 percent, first dollar savings can be shared, with the maximum shared savings rate ranging from 50 percent to 60 percent)
  • A significantly revised methodology for calculating ACO expenditure benchmarks and expenditures for ACO-assigned beneficiaries (most notably, these calculations now exclude both direct and indirect medical education payments and disproportionate share payments made to hospitals, which should help produce a level playing field for teaching hospitals)
Table 1. Four quality performance measurement domains

Table 1. Four quality performance measurement domains

What quality measures are in the rule, and how will they be measured?

Table 1 and the measure list (Table 2) show how ACO performance in the MSSP will initially be assessed, using 33 quality measures across four measure domains. Surgeons will notice that the initial measure list is quite weak on surgical care. Nonetheless, ACOs in the MSSP will have to achieve a minimum level of performance on these measures to qualify for shared savings. Producing shared savings alone will be insufficient. This requirement is obviously viewed as a beneficiary protection. In addition, the performance measure list is likely to evolve over time, based on stakeholder input. However, for year one of the MSSP, only data reporting is required for all measures; in subsequent years, performance above the 30th percentile or 30 percent level on measures will become increasingly important.

How will beneficiaries be assigned to ACOs?

Beneficiary assignment to ACOs under the MSSP is a two-step process. The first consideration is where a beneficiary has received the plurality of Medicare-allowed charges for primary care. Under the rule, primary care services include the CPT/HCPCS codes for office, nursing home, rest home, home, and wellness visits. Thus—if a beneficiary over the course of a calendar year received the plurality of his or her primary care services from primary care physicians participating in an ACO—that beneficiary would be (retrospectively) assigned to the ACO at the end of a performance period. However, if a beneficiary receives no services from a primary care physician (inside or outside of the ACO), then assignment would be based on where the beneficiary received most of his or her primary care services from physicians, including specialists, and certain nonphysician practitioners (such as nurse practitioners, physician assistants, and clinical nurse specialists).

Table 2. ACO performance measures under the MSSP

Table 2. ACO performance measures under the MSSP

This new, two-step assignment methodology could have important implications for specialists who provide primary care services (for example, office visits) because a beneficiary could theoretically be assigned to an ACO based on the services provided by specialists participating in that ACO. More specifically, CMS has stated that:

Each ACO participant TIN upon which beneficiary assignment is dependent [not just primary care physicians] must be exclusive to one…ACO for purposes of Medicare beneficiary assignment. ACO participant TINs upon which beneficiary assignment is not dependent are not required to be exclusive to one…ACO.3

While the full implications of this exclusivity policy are uncertain, and the matter is likely to require further clarification from CMS, it seems reasonably clear that at least some specialists might only be able to participate in a single Medicare ACO.

What are the application deadlines for the 2012 MSSP?

There will be two start dates for interested organizations, April 1 and July 1; after that, a single annual start date is envisioned. Organizations interested in applying for the MSSP began by submitting a Notice of Intent (NOI) to apply. For those interested in an April 1 start date, the NOI was due by January 6. For those interested in the July start date, the NOIs were due by February 17. The application deadlines for the two start dates were or are January 20 and March 30, respectively. CMS’ target dates for announcing its decisions on applications are March 16 (for the April start date), and May 31 (for the July start date). Comparable deadlines for the 2013 MSSP have not yet been announced.

What is CMS doing to encourage participation in the MSSP?

To facilitate participation in the MSSP, CMS has created a mechanism for certain organizations to receive upfront funding to assist in ACO development and operations. This mechanism is formally known as the Advanced Payment Model.4 This mechanism will only be available to organizations applying to participate in the MSSP for 2012. In addition, advanced payments are only available to two types of organizations:

  • ACOs that do not include any inpatient facilities and have less than $50 million in total annual revenue
  • ACOs in which the only inpatient facilities are critical access hospitals and/or Medicare low-volume rural hospitals that have less than $80 million in total annual revenue

Under the Advanced Payment Model, eligible organizations approved by CMS would gain up-front access to capital but they would essentially be “borrowing against” expected future shared savings because of their participation in the MSSP.

What is the interest level among providers?

Despite all the changes in the MSSP final rule, the level of interest in the option remains uncertain, especially with respect to 2012 start dates. CMS estimates that 50 to 270 ACOs will be participating in the MSSP in the first four years (CY 2012–2015), serving 1 to 5 million Medicare beneficiaries. CMS “median” estimates include $470 million in net Medicare savings, $1.31 billion in shared savings payments to ACOs, nothing in shared losses, and $451 million in ACO start-up and continued investment costs.

Table 3. Pioneer ACO participating organizations (alphabetical by state)

Table 3. Pioneer ACO participating organizations (alphabetical by state)

What is going on with the Pioneer ACO initiative?

On December 19, 2011, CMS announced that 32 health care organizations had been selected to participate in the Pioneer ACO initiative.5 This initiative, directed by the CMMI, was designed expressly for organizations “with experience offering coordinated, patient-centered care, and operating in ACO-like environments.” Unlike the MSSP, the Pioneer ACO initiative will require participants to partner with non-Medicare payors as well as Medicare in shared savings-types of arrangements. It may also eventually involve partial capitation payments (not just normal fee-for-service payments). In addition, under the Pioneer ACO initiative, beneficiary assignment can be prospective rather than retrospective. The Pioneer ACO initiative resembles the MSSP in that participating ACOs may qualify to receive shared savings if they maintain quality at acceptable levels and reduce Medicare expenditures below specified levels. In turn, the ACOs will have the responsibility of allocating shared savings across their ACO participants.

The 32 organizations selected to participate in the Pioneer ACO are listed in Table 3, with organizations in the same state listed together.

More detailed information about each of the selected organizations, including affiliated hospitals, can be found on the CMMI website.6

How will Medicare ACO programs affect me?

First, it’s important to remember that the MSSP is not a demonstration or pilot project, but an entirely new way of doing business with the Medicare program. In addition, as should be evident from a review of selected Pioneer ACOs, this separate initiative, which is a demonstration project, covers a wide swath of the health care marketplace. Hence, some surgeons may be part of an organization participating in the Pioneer ACO program or know that their organization is planning to apply for the MSSP. Other readers may practice in communities that already have or will soon have Medicare ACOs. And, if there is a Medicare ACO in your community, it is possible for your practice to exist either inside or outside of the ACO.

Although Medicare beneficiaries assigned to an ACO will retain full freedom of choice, it would be foolhardy to assume that ACOs might not alter patient referral patterns in a community over time. In this regard, an ACO might preferentially “suggest” or “recommend” that beneficiaries obtain specialty care from specialists participating in the ACO (with these specialists sharing in any Medicare savings produced). On the other hand, an ACO might also favor referring patients to non-ACO participants if doing so is likely to result in high-quality, low-cost care. Also of note, an ACO would be under no obligation to share savings that might be produced by cost-efficient surgeons not participating in the ACO (the ACO would not necessarily be precluded from doing so, provided it was careful not to run afoul of federal or state anti-kickback or physician self-referral laws, as well as the Civil Monetary Penalty Law).

What about billing for services under the MSSP?

Medicare payments under the MSSP and billing for services furnished by all involved providers and suppliers would be unchanged. For example, surgeons would continue to bill for the services they provide to all Medicare beneficiaries, including those who will ultimately be assigned to an ACO, and they would continue to be paid individually on the usual fee-for-service basis. What would change is that at the end of a performance period, CMS would determine whether shareable savings have been produced by the ACO as a whole and, if so, pay the ACO a portion of these savings based on the ACO’s quality performance scores. The ACO would, in turn, have to decide how to allocate the savings among its ACO participants.

How will ACOs determine the allocation of any Medicare shared savings?

CMS believes that it does not have the legal authority to dictate how shared savings are distributed and anticipates that ACO participants would negotiate and determine among themselves how to equitably distribute shared savings or use these savings to meet the goals of the MSSP program. Nonetheless, MSSP applicants must indicate how they plan to use potential shared savings to meet the goals of the MSSP, including the criteria that will be used to distribute shared savings among ACO participants. That said, there is very little specific information or consensus about appropriate methodologies for allocating shared savings. For example, to what extent should such allocations be based on individual physician performance in the areas of quality, efficiency, or other measures?

It is also worth emphasizing that under an ACO-like demonstration project, the Physician Group Practice (PGP) Demonstration program, the participating sites that received shared savings appear to have simply used the payments organization-wide (for example, to help acquire health information technology), rather than allocating them to individual physicians.

In any event, shared savings raise the potential that physicians who reduce Medicare expenditures (for example, by taking steps that help decrease hospital admissions or readmissions) could essentially end up receiving a portion of Medicare Part A payments that would otherwise have gone to a hospital, in addition to the Medicare Part B payment they received for their professional services.

What are the chances that an ACO will be able to produce shareable savings?

This is obviously a question that an organization interested in applying to become a Medicare ACO needs to ask and answer. Suffice it to say that, all other things being equal, it would be more challenging for an ACO in a historically low-cost area to receive shared savings because the expenditure benchmarks for each ACO are set locally, based on historic data. Thus, an organization that has historically adopted conservative care practices would likely find it more difficult to produce savings than an organization located in a high health care cost area. In addition, because ACO benchmarks will be re-based roughly every three years, savings achieved during one agreement period would be expected to yield lower expenditure benchmarks in the future, making it ever-more challenging to continue to qualify for shared savings.

How will Medicare beneficiaries react to the ACO concept?

The answer to this key question is largely unknown. CMS will develop a communications plan, including educational materials and other forms of outreach, to help educate beneficiaries about the MSSP. This exercise could be a delicate and challenging one, as most objective observers acknowledge that the ACO concept entails both potential benefits and potential risks for Medicare beneficiaries. ACOs also will be required to post signs in the facilities of participating ACO providers and suppliers and to make available standardized written information to Medicare fee-for-service beneficiaries whom they serve. Because beneficiary assignment to an ACO is retrospective, a beneficiary receiving care early in the year from a surgeon participating in an ACO—and being formally informed of such participation—might actually not get assigned to that ACO at the end of the year. In any event, any negative beneficiary reaction to the ACO concept, akin to the historic backlash against managed care, could have far-reaching implications for physicians and other ACO participants.

What other concerns do various stakeholders have?

Hospitals worry that some types of ACOs will seek to produce Medicare shared savings by substantially reducing hospital admissions and the use of other hospital-provided services. Health care technology producers worry that ACOs will end up denying beneficiaries prompt access to the latest technology in order to produce shared savings. Pharmaceutical companies worry that because Medicare Part D (prescription drug) costs do not count against ACOs, they will end up switching patients from pharmaceuticals covered under Medicare Part B, such as drugs administered intravenously in a physician’s office, to drugs covered under Medicare Part D, even if the latter might be less effective or otherwise carry more risk for patients. Employers and private insurers worry that ACOs participating in the Medicare program will attempt to produce Medicare shared savings by shifting costs to the private sector or that ACOs will use their market power to demand higher payments for privately insured patients.

Suffice it to say that the future of the MSSP—and of the ACO concept generally—is uncertain, but even the busiest of surgeons would be ill-advised to pretend that nothing has changed.

1. Ganske I, Abott MM, Meara J. Accountable care organizations: A primer for surgeons. Bull Am Coll Surg. 2011:96(9):27-35.
2. Centers for Medicare & Medicaid Services. Medicare Shared Savings Program: Accountable care organizations. Final rule. Available at: Accessed November 2, 2011.
3. 76 Fed. Reg. 67981 (November 2, 2011).
4. The Center for Medicare & Medicaid Innovation. Advanced payment model. Available at: Accessed December 29, 2011.
5. Centers for Medicare & Medicaid Services. Pioneer accountable care organization model. General fact sheet. December 19, 2011. . Accessed December 19, 2011.
6. Centers for Medicare & Medicaid Services. Selected participants in the Pioneer ACO model. December 19, 2011. Available at: Accessed December 19, 2011.

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