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INSIGHT: Overhauling the Medicare Shared Savings Program for Accountable Care Organizations

Sept. 11, 2018, 1:31 PM

In August 2018, the Centers for Medicare & Medicaid Services (CMS) issued a proposed rule (the Proposed Rule) for overhaul of the Medicare Shared Savings Program (MSSP) for Accountable Care Organizations (ACOs). With the current MSSP’s failure to generate savings to the federal government and most ACOs continuing to participate in the upside-risk-only track, CMS aims to use the Proposed Rule to push more ACOs to a two-sided risk model, and, therefore, to realize greater cost savings for CMS. “[T]he time has come to put real ‘accountability’ in Accountable Care Organizations,” said CMS administrator Seema Verma in a CMS press release, continuing: “Medicare cannot afford to support programs with weak incentives that do not deliver value.”

The revised program, referred to as “Pathways to Success,” would make significant changes to the MSSP, principally through changes to the ACO participation options available, in an effort to decrease Medicare’s costs by shifting more risk to ACOs.

The Current ACO Program

CMS launched the MSSP, created by the Affordable Care Act, in 2012. CMS reports that, today, 561 ACOs, serving over 10.5 million Medicare fee-for-service (FFS) beneficiaries, participate in the program. The MSSP is designed to hold ACOs accountable for the total cost of care and quality outcomes. ACOs that reduce Medicare expenditures below a set benchmark while meeting quality requirements are eligible to receive additional reimbursement in the form of a percentage of the cost savings achieved.

The MSSP currently has three participation tracks. Track 1, a one-sided shared savings track, allows ACOs to receive additional reimbursement of up to 50% of savings under the benchmark, with no requirement to share in the costs should spending exceed the benchmark. Over 80% (460 out of 561) of current ACOs participate in Track 1 and, therefore, do not currently share in any downside risk. ACOs participating in Tracks 2 and 3, the two-sided shared savings/shared losses tracks, are eligible to receive a greater percentage of program savings, but also are required to bear downside risk, sharing losses with CMS if total Medicare spending on beneficiaries for whom they are responsible is above the benchmark.

The current MSSP originally was projected to produce $1.7 billion in net savings from 2013-2016. However, a recent analysis reports that the MSSP in fact led to increased spending of over $380 million on ACOs—far beyond initial projections under the Congressional Budget Office’s scoring of the MSSP as part of the Affordable Care Act. Josh Seidman et al., Medicare Accountable Care Organizations Have Increased Federal Spending Contrary to Projections That They Would Produce Net Savings (March 29, 2018). Nonetheless, despite this overall net expense, the analysis found that the tracks with downside risk (Tracks 2 and 3) did reduce federal spending by $60 million over five years. Those savings were simply overshadowed by net program expenses resulting from the more popular Track 1. By redesigning the program, CMS seeks to increase savings for the Medicare program by increasing the number of ACOs participating in two-sided risk tracks and, presumptively, forcing ACOs to manage beneficiaries’ care more tightly by making the ACOs financially responsible for increased costs.

Proposed Redesign Of The Program

Changes to the Risk Model

The most significant change in the Proposed Rule is revision of the MSSP’s participation tracks and mandatory advancement of ACOs to greater levels of two-sided risk. Under the Proposed Rule, Tracks 1, 2 and 3 will be replaced with two “glide paths.”


Under the Proposed Rule, Tracks 1 and 2 would be scrapped entirely, replaced by the BASIC glide path, which would limit the amount of time ACOs may participate in a one-sided risk model. On the BASIC path, eligible ACOs would initially participate in a one-sided model, with a maximum amount of potential shared savings (Shared Savings Cap) of 25%, a reduction from Track 1’s Shared Savings Cap of 50%, and would incrementally assume downside risk, which would increase in amount over time.

The BASIC glide path achieves this incremental phase-in through use of subcategories called experience levels (“Experience Levels”). Under the Experience Levels, ACOs become eligible for both increased Shared Savings Caps and levels of shared downside risk.

ACOs new to MSSP would be permitted two years in a one-sided risk Experience Level (one year at Level A and one year at Level B), while ACOs that previously participated in Track 1 would be ineligible to enter the program at Level A, and therefore would be limited to just one year of participation in a one-sided risk Experience Level (Level B). Levels A and B would be the only Experience Levels without downside risk, forcing ACOs to bear risk within two years.

Regardless of the Experience Level in which an ACO begins, ACOs advance through further Experience Levels, climbing one level each year (or more, if they wish), assuming additional risk with each level. ACOs would begin to bear two-sided risk and thereby to share in losses at Level C, assuming risk for 30% of higher-than-benchmark costs, not to exceed 2% of ACO participant revenue, and capped at 1% of the updated benchmark. By Experience Level E, ACOs’ Shared Savings Cap would reach 50%, and shared losses would reach 30% of higher-than-benchmark costs, subject to a calculated cap. Participation at Experience Level E qualifies as participation in an Advanced Alternative Payment Model under the Quality Payment Program. Providers participating in an Advanced Alternative Payment Model are eligible to receive additional incentive payments from CMS and are exempt from participation in Merit-based Incentive Payment System (MIPS) reporting requirements and potential downward payment adjustments.


Under the Proposed Rule, the ENHANCED glide path would replace the current MSSP ACO Track 3, which it largely mirrors. As with Track 3, ACOs participating in the ENHANCED path would have a Shared Savings Cap of 75% and would shoulder responsibility for between 40% and 75% of higher-than-benchmark costs. The Proposed Rule indicates that CMS also would offer ACOs participating in the ENHANCED path at the highest Experience Level additional tools and regulatory flexibility, including, among others, broadened use of telehealth and waiver of the 3-day Skilled Nursing Facility admission rule, as described below.


Eligibility to participate in each path varies, and depends on an ACO’s prior participation and level of experience, and whether the ACO is classified as a high-revenue or low-revenue ACO.

ACOs less experienced with performance-based Medicare initiatives would be eligible to enter an agreement period under the BASIC path.

Experienced ACOs, including those identified as previously participating in Track 2 or Track 3, would be eligible only for the ENHANCED path, or the BASIC path’s Level E if the ACO qualifies as a so-called low-revenue ACO. CMS has noted that low-revenue ACOs have outperformed high-revenue ACOs, but that many lack a pathway to transition from a one-sided track to levels of risk exposure.

Low-revenue ACOs, defined as ACOs that receive less than 25% of their total Medicare FFS expenditures from the ACO’s assigned beneficiaries, could participate in the BASIC path for up to two agreement periods. Low-revenue ACOs are typically smaller physician practices, rural providers or other providers working in underserved markets. High-revenue ACOs, those with total Medicare FFS revenue for assigned beneficiaries greater than 25%, would be required to transition to the ENHANCED path more quickly, being permitted, at most, a single agreement period on the BASIC path.

Updates to Repayment Mechanism and Benchmarking Methodology

To encourage participation in risk bearing, the Proposed Rule modifies the repayment mechanism requirements, reducing the burden on ACOs in performance-based risk tracks. Currently, ACOs accepting performance-based risk must establish a repayment mechanism to ensure that they can repay losses for which they may be liable. Under Pathways to Success, certain ACOs participating in Levels C, D, or E of the BASIC path would have a lower required repayment mechanism amount, reflecting the BASIC path’s potentially lower levels of loss liability. Additionally, ACOs renewing their participation in the MSSP would be permitted to maintain a single, existing repayment arrangement, to streamline repayments made during the transition period to the new glide paths.

The Proposed Rule would also refine the MSSP benchmarking methodology, a complex calculation incorporating each ACO’s risk-adjusted historical expenses along with national or regional spending trends. CMS hopes the changes will ensure that ACOs’ spending targets accurately reflect spending and growth in their local market. First, the methodology would incorporate regional factors within the first agreement period, allowing for an earlier and more accurate comparison of ACOs’ expenses within a service area. Second, the agreement period would be extended from three to five years, reducing the frequency of benchmark rebasing, and providing greater predictability for both ACOs and CMS. Lastly, so as not to punish or reward an ACO excessively based on its geographic location, CMS proposes reducing the maximum weight given to the regional adjustment and capping the total regional adjustment.

Additionally, CMS proposes using a blended regional and national growth rate, with the weight placed on the national component increasing as an ACO’s penetration in its regional services area increases. CMS believes this methodology will lead to more favorable treatment for ACOs with high penetration in their regional service area and with lower spending growth compared to the nation, encouraging overall cost savings for Medicare by rewarding increased market penetration coupled with lower spending growth.

In addition to changing the methodology, the Proposed Rule would authorize CMS to terminate an ACO’s participation in the program following multiple years of poor financial performance.

Greater Flexibility for ACOs

The Proposed Rule also seeks to encourage ACOs to become more innovative in coordinating care by offering regulatory flexibility. “Having more Accountable Care Organizations take on real risk, while offering them the flexibility they need to generate savings, is an important step forward in how Medicare pays for value,” stated Verma.

ACOs participating in the ENHANCED path, or Levels C, D, or E of the BASIC path, would be permitted to receive payment for telehealth services, even if otherwise applicable Medicare geographic requirements are not met. ACOs in these tracks would also be permitted to waive the CMS rule requiring a three-day stay in a hospital prior to admission to a skilled nursing facility.

Additionally, enrolled ACOs, regardless of track, would be permitted to select prospective assignment or preliminary prospective assignment with retrospective reconciliation prior to the start of each agreement period, and would be able to change their selection for each subsequent performance year, providing ACOs a greater choice of beneficiary assignment methodology.

Enhanced Beneficiary Engagement and Interoperability

The Proposed Rule also seeks to improve quality and to lower costs by promoting beneficiary engagement. Certain ACOs participating in the two-sided risk models would be allowed to establish beneficiary incentive programs and to provide beneficiaries with incentives for receiving primary care services. ACOs would, however, be required to provide additional beneficiary notifications, including information regarding how to change one’s primary care provider. Additionally, the types of non-physician providers eligible to be designated as a “primary clinician” would be expanded, providing beneficiaries with more flexibility in choosing a provider and, perhaps more important, providing ACOs with more flexibility for staffing.

Additionally, the Pathways to Success program would eliminate the meaningful use electronic health record quality measure, allowing ACOs instead to attest that a specified percentage of their eligible clinicians use Certified EHR Technology (CEHRT) in order to participate in the program. The Proposed Rule also proposes use of an interoperability criterion regarding CEHRT use to determine both ACOs’ eligibility for initial participation in the program, as well as ACOs’ annual certification of compliance with program requirements.

Potential Impact of “Pathways to Success”

CMS’ proposed overhaul of the MSSP would significantly alter the risk landscape for participating ACOs. With the vast majority of ACOs participating in the one-sided model, the proposed rule could lead many ACOs to drop out of the program entirely if they determine they are not ready or willing to accept downside risk. Under the current MSSP, the 82 ACOs that enrolled in Track 1 in 2012 or 2013 are supposed to move to a risk-based model by the third contract period beginning in 2019. Of these 82 ACOs, 71% indicated, in a survey conducted by the National Association of ACOs (NAACOS) earlier this year,that they are likely to leave the MSSP if forced to take on more risk. Press Release, National Association of ACOs (May 2, 2018). In a statement objecting to the proposed rules, NAACOS noted the overhaul would in fact jeopardize progress towards reducing costs, stating “[i]t’s naïve to think that ACOs that aren’t ready can be forced to take on risk, given that the program is voluntary. The more likely outcome will be that many ACOs quit the program, divest their care coordination resources and return to payment models that emphasize volume over value.”

CMS acknowledges the risk in its proposal, predicting that more than 100 ACOs will exit the program over the next 10 years. However, as the ACOs that would withdraw from the programs are likely to be one-sided participants, CMS does not view the exits as a negative consequence of the program overhaul, but instead as removal of what CMS might critically consider to be dead wood—although the ACOs might consider themselves more fairly to be shoots that would blossom if given due time, and that view would be supported by findings that, while ACOs in their first three program years have generated net costs to Medicare, ACOs in their fourth program year produced net savings of over $150 million. Josh Seidman et al., Medicare Accountable Care Organizations Have Increased Federal Spending Contrary to Projections That They Would Produce Net Savings (March 29, 2018). Furthermore, CMS has asserted that the proposed program’s simplicity, added flexibility and tools and opportunities to participate in an Advanced Alternative Payment Model, will attract providers to participate—whether the carrots appear tastier than the sticks seem painful is yet to be seen, but a critic might note that the carrots are not wholly new, and therefore might not entice organizations not currently in the program. Nonetheless, according to Verma, “[w]hen [CMS] developed this program, we wanted to move the entire program towards providers taking more risk because we know that works. We want to work with ACOs that are serious about participating in the program and investing in the type of changes that are going to deliver value to patients.” A simpler statement might be that CMS wants to assure a “heads we all win, tails we all lose” paradigm, and therefore is limiting the upside-only model to achieve it.

Next Steps

If the proposed rule is finalized in its current form, CMS will offer a one-time new agreement period start date of July 1, 2019, in lieu of an agreement period start date of January 1, 2019. ACOs with a participation agreement expiring December 31, 2018 would have a one-time opportunity to extend their current agreements through June 30, 2019. The Proposed Rule would change all agreement terms following the renewal period from three years to five years. The 60-day public comment period will run through October 16, 2018.


Michael Lampert is a partner in the health care practice of Ropes & Gray in its Boston office. He can be reached at Susan Sheffler is an associate in the health care practice of Ropes & Gray in the firm’s San Francisco office, she can be reached at Whitney Wadman is an associate in the corporate practice of Ropes & Gray in its New York office. She can be reached at