January 2012 Volume 8 Number 5

Risk-Bearing under the MSSP ACO Final Rule

By Gregory W. Bee, Taft Stettinius & Hollister LLP, Cincinnati, OH
and Catherine T. Dunlay, Taft Stettinius & Hollister LLP, Columbus, OH

AuthorAuthorOn October 20, 2011, The Centers for Medicare & Medicaid Services (“CMS”) released a final rule (the “Final Rule”) for accountable care organizations (“ACOs”) under the Medicare Shared Savings Program (the “MSSP”).1 The Final Rule was promulgated pursuant to the 2010 Patient Protection and Affordable Care Act.2 The Final Rule contains a number of changes from the proposed rule3 (the “Proposed Rule”) that, taken together, lessen downside financial risks to participants and, therefore, lower some of the barriers to entry for smaller and less experienced providers. This article provides an overview of the changes affecting risk-bearing by participating ACOs.

Shared Losses Generally. Previous eSource articles have discussed the changes in the Final Rule that will likely lower barriers to entry for some potential ACO participants.4 The changes were spurred by commenters’ concerns over the Proposed Rule that requiring ACOs to quickly accept performance risk for the costs of their patients, or even to accept risk at all, would be too great of a disincentive for smaller providers and/or provider organizations with less experience in coordinating care and assuming performance risk.5 These commenters suggested that a shared-savings only option would increase participation among smaller and less experienced organizations. While CMS believes that it was important to retain a two-track approach, in the Final Rule CMS acquiesces to requests that one of the tracks be a shared-savings only model.6 Thus, under the Final Rule, Track 1 will be a shared-savings only model for the duration of the ACO’s first agreement period, while Track 2 will be a two-sided model for the duration of the ACO’s first agreement period. After the initial agreement period, all ACOs will be required to participate under the two-sided model. ACOs that experience a net loss in their initial agreement period and wish to apply to participate for additional periods will be required to identify in their application the cause(s) for the net loss and to specify what safeguards are in place to enable the ACO to potentially achieve savings in its next agreement period.

Shared Savings Withholds and Repayment Security. In addition to offering a shared-savings only track in the Final Rule, CMS made important changes and clarifications to the risk-bearing requirements of those ACOs that choose to participate in the Track 2 two-sided model. CMS emphasized that ACOs entering the two-sided model must be capable of repaying CMS for costs that exceed the ACO’s benchmark.7 The Proposed Rule required that CMS withhold 25 percent of an ACO’s shared savings payment in order to secure repayment of shared losses in later years.8 CMS, however, recognized that the 25 percent withhold may be inadequate to cover the total amount of shared losses, particularly if an ACO participating in the two-sided model experiences losses in its first year.9 Thus, as additional protection for CMS, the Proposed Rule required that applicants establish a self-executing method for repaying shared losses (e.g., reinsurance, escrowed funds, surety bond, letter of credit, and the like).10 The Proposed Rule required that the ACO’s repayment mechanism be sufficient to ensure repayment of at least one percent of per capita expenditures for assigned beneficiaries from the most recent year available.11 CMS would determine the adequacy of an ACO’s repayment mechanism prior to the ACO’s period of participation in the MSSP, and CMS would require the ACO to demonstrate the adequacy of the repayment mechanism annually. To the extent that an ACO’s repayment mechanism wouldn’t enable CMS to fully recoup losses for a given performance year, the Proposed Rule permitted CMS to carry forward unpaid losses into subsequent performance years (to be recouped either against additional financial reserves, or by offsetting shared savings earned by the ACO).12

Numerous commenters opposed the 25 percent withhold, arguing that it would be too burdensome on participating providers and suppliers, particularly for smaller ACOs.13 Commenters also noted that an ACO, which generates savings during the first or second year, will be likely to generate savings during the third year as well, thus making a withhold unnecessary.14 Commenters additionally argued that the repayment mechanism and the mandatory withhold were unnecessarily duplicative.15 In response to these comments, CMS agreed in the Final Rule to eliminate the 25 percent withhold requirement.16 For ACOs participating in Track 2 (and for all ACOs after the initial three-year participation period), however, CMS holds firm on its proposed requirement that such ACOs establish a repayment mechanism acceptable to CMS.17 CMS finalized its proposal that the repayment mechanism demonstrate the ability to repay potential losses of at least one percent of per capita Medicare fee-for-service Parts A and B expenditures for the ACO’s assigned beneficiaries. Given that an ACO could be responsible for losses of up to 10 percent of the benchmark (which is the cap for the third year under Track 2), CMS believes a one percent security requirement is reasonable.

Several commenters asked how risk should be allocated among the ACO providers and suppliers. In particular, one commenter suggested that ACO providers and suppliers should bear financial risk proportional to the efficiency of their practice.18 CMS noted in the Final Rule that it will allow ACOs flexibility to specify their preferred method for repaying potential losses, and how the method would apply to the ACO participants and ACO providers/suppliers. CMS will, however, require ACOs to specify how the liability for sharing losses will be shared among participants and providers/suppliers. Further, CMS noted that the division of liability for losses among ACO participants and ACO providers/suppliers may implicate certain fraud and abuse laws, except to the extent that those laws are waived.19 Given the breadth of the final fraud and abuse waivers in connection with the MSSP, ACOs will have quite a bit of flexibility to allocate losses among ACO participants and providers/suppliers, so long as the allocation is reasonably related to the purposes of the MSSP.20

In the Final Rule, CMS declined to adopt its earlier proposal to carry forward losses into future program years. In addition, in finalizing the Rule, CMS considered, but rejected, other options for ensuring repayment of losses, including providing a government-sponsored reinsurance option and adjusting the repayment method based on prior year performance in the MSSP or performance/experience with private payors.21 Further, because the Final Rule permits ACOs to opt for an interim payment calculation during the first payment “year” (which could be 21 months or 18 months, depending on the start date), CMS is also requiring that ACOs opting for such interim payments demonstrate an adequate mechanism to repay any overpayments made through such interim payments. The adequacy of the repayment mechanism applicable to these interim payments will be measured in the same manner as described above.

Interaction with State Insurance Laws. In the Proposed Rule, CMS noted that under the MSSP, Medicare, not the ACO or its participating providers/suppliers, retains the insurance risk and responsibility for paying claims for services furnished to Medicare beneficiaries.22 The use of phrases such as “shared risk” in the Proposed Rule, however, created the potential for confusion about whether ACOs were expected to bear risk that would constitute insurance risk under state law. In the Final Rule, CMS makes clear that it does not believe that participating in the MSSP involves insurance risk:

We disagree with the commenters that participating in the Shared Savings Program ultimately involves insurance risk. ACO participants will continue to receive FFS payments for all services furnished to assigned beneficiaries. It is only shared savings payments (and shared losses in the two-sided model) that will be contingent upon ACO performance. As a result, we believe that we will continue to bear the insurance risk associated with the care furnished to Medicare beneficiaries, but ACOs desiring to participate in Track 2 should consult their State laws.23

CMS further clarifies that it is not preempting any state laws, and that participating ACOs will be expected to comply with any applicable state requirements. Although the Final Rule contemplates only continued fee-for-service Medicare payments to providers, ACOs will need to consider state insurance laws, including state laws requiring licensure or registration for “provider-sponsored” organizations or networks, especially if they enter into capitated or other risk-bearing payment arrangements. Thus, for instance, ACOs participating under the Medicare “Pioneer” model24 -- which may receive population-based payments from CMS and which must enter into outcomes-based contracts with purchasers other than CMS (that may include capitated or other risk-bearing arrangements) -- may be required to register or be licensed with the department of insurance in some states.

Conclusion. The changes in the Final Rule to remove the requirement that an ACO accept risk during its initial three year participation period and to revise the repayment security requirements were intended to increase interest in the model from stakeholders. The initial responses from the American Medical Association and American Hospital Association are positive, providing some indication that the Final Rule provides greater potential for participation.25


76 Fed. Reg. 67802 et seq. (November 2, 2011). The rule amended 42 C.F.R. Chapter IV to add part 425.

2 H.R. 3590 (Pub. L. 111-148), as amended by the Health Care and Education Affordability and Reconciliation Act of 2010, H.R. 4872 (Pub. L. 111-152).

76 Fed Reg. 19528 et seq. (April 7, 2011).


See, e.g. “Final ACO Rule: Retooled Risk and Reward Model - But is it Still Too Risky”, Jennifer O. Mitchell, Tyler N. Williams, ABA Health eSource December 2011 ACO Special Edition.


See, e.g., comment letter to CMS from the American Academy of Family Physicians, at this link (noting that “mandatory risk-sharing for all Medicare ACO participants will be problematic.”) See also, comment letter to CMS from the American Medical Association http://www.ama-assn.org/resources/doc/washington/aco-shared-savings-comment-letter-3june2011.pdf (“The AMA urges CMS to provide a payment option that includes shared savings only (a “one-sided risk”) without the mandatory shared loss provision.”)


See 76 Fed. Reg. 67907 (November 2, 2011) (“We believe that this modification will increase interest in the Shared Savings Program by providing a gentler “on ramp” while maintaining the flexibility for more advanced ACOs to take on greater performance-based risk for greater reward immediately.”)


Id at 67937.


76 Fed. Reg. 19615 (April 7, 2011).


Id. at 67937-67938.


76 Fed Reg. 19622-3 (April 7, 2011).


76 Fed Reg 67938 (November 2, 2011).




See, e.g., comment letter to CMS from the American College of Physicians, dated June 2, 2011; comment letter to CMS from the Healthcare Financial Management Association, dated June 3, 2011.


See, e.g., comment letter to CMS from the American Medical Association supra Note 5.


See, e.g., comment letter to CMS from the Catholic Health Association of the United States, June 6, 2011.


Id. at 67910 and 67940.


Id. at 67940-42.


Id. at 67938.


Id. at 67940.


See CMS and OIG Final Waivers in Connection With the Shared Savings Program, 76 Fed Reg 67992 (November 2, 2011).




76 Fed. Reg. 19623 (April 7, 2011).

23 76 Fed. Reg. 67815-16.

CMS’s Center for Medicare and Medicaid Innovation developed the Pioneer ACO Model as an alternative to the MSSP, particularly for larger and more integrated systems that are better able to take on financial risk and move from a shared savings payment model to population-based payment models. Seehttp://innovations.cms.gov/initiatives/aco/pioneer/index.html for more information on the Pioneer ACO Model.

25 See AMA: Final ACO Rule Offers Promise to Improve Care Delivery , available at http://www.ama-assn.org/ama/pub/news/news/final-aco-rule.page; AHA: Statement on Final ACO Rule, available at http://www.aha.org/presscenter/pressrel/2011/111020-st-acorule.pdf.

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