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CMS Publishes Final Rule on Medicare Shared Savings Program, Announces New Advance Payment ACO Model


Email Alert

October 24, 2011

By Ryan Severson and Julia Feldman* 

On October 20, 2011, the Centers for Medicare & Medicaid Service (CMS) released its final rule on accountable care organizations (ACOs). Congress established the ACO program, more formally known as the Medicare Shared Savings Program, in 2010 as part of the Patient Protection and Affordable Care Act (PPACA). The program is designed to encourage providers and hospitals to form networks that deliver efficient and coordinated care, and allows ACOs to receive a portion of the savings that they produce. CMSafter receiving criticism from many providers and hospitals about its proposed ACO rulemade several changes to the ACO program in the final rule in an effort to increase participation. Some of these changes are outlined below.

One-Sided Risk Model

Under the proposed rule, CMS would have required all ACOs to operate under a "two-sided" risk model, exposing ACOs to the chance of losing money if they did not produce sufficient savings. In its final rule, CMS created a "one-sided" risk model, which will allow ACOs to participate in the program without potentially losing money if they do not produce savings. Still, the final rule allows ACOs to opt into a two-sided risk model in exchange for the opportunity to receive a greater share of savings.

Prospective Beneficiary Assignment

CMS originally proposed to assign Medicare beneficiaries to ACOs retrospectively, based on where beneficiaries received care during the previous year. The final ACO rule abandons this approach in favor of "preliminary prospective assignment." Under this model, every three months CMS will provide ACOs with a list of beneficiaries that it believes will be assigned to that ACO. This change is meant to give ACOs more certainty about their beneficiary population. CMS will modify beneficiary assignment lists at the end of each contract year in order to determine final assignments.

Fewer Performance Measures

The proposed rule required ACOs to track sixty-five different performance measures. The final rule significantly reduces this provision, requiring ACOs to track only thirty-three measures that CMS has determined are relevant to measuring improvements in patient care.

Modified Savings Rates

The final rule also eliminates the proposed rule's requirement that ACOs produce savings of at least 2% in order to be eligible for shared savings payments. Under the final rule, ACOs are eligible for shared savings payments beginning with the first savings that they produce.

Changes to ACO Organization and Governance

The final rule also establishes more flexible rules on ACO organization and governance than those set forth in the proposed rule. The final rule retains the requirement that an ACO be a legal entity, and expands that to include those recognized under federal and tribal law, as well as state law. As in the proposed rule, the final rule establishes requirements for ACO governance, leadership, and management. However, the final rule permits CMS to give consideration to an innovative ACO with a management or governance structure that does not meet the regulatory requirements.

Advanced Payment Model

Along with the final ACO rule, CMS also introduced an Advance Payment program for rural and small physician-owned hospitals that currently lack sufficient capital to establish an ACO. CMS will allow up to fifty small ACOs to receive up-front payments that the agency will later recoup from the savings that the ACOs produce.


CMS will begin to accept applications for the Medicare Shared Savings Program on January 1, 2012, with start dates on April 1, 2012, and July 1, 2012.

In the coming weeks, AHLA will provide further updates, alerts, and analysis regarding the ACO final rule and the Advance Payment Model tailored to different health law specialties.

*We would like to thank Ryan J. Severson, Esquire (K&L Gates LLP, Washington, DC), and Julia Feldman, Esquire (UMass Medical Center, Boston, MA), for authoring this email alert.

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