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COVINGTON & BURLING LLP

The ACO may agree to a “two-sided” risk model, in which it will bear the risk of both savings and higher than anticipated expenditures for the year. This will entitle the ACO to a greater portion of the savings attained but will also make it subject to a penalty for high expenditures. This option is recommended for ACOs with established programs that are confident in their ability to achieve savings.

The ACO may also agree to a “one-sided” risk model, in which it will accept a smaller portion of what savings it does attain, in exchange for avoiding any penalty for high expenditures. This structure is intended to encourage participation by ACOs that are less established and thus less certain of their ability to generate savings. The one-sided risk model will apply for the first two years of the ACO’s existence, and the final year will follow the two-sided model. After the first three years of the agreement, the ACO must use the two-sided risk model.

C. Assignment of Beneficiaries to an ACO

Medicare beneficiaries will be assigned to (or, as the rule states, “aligned with”) an ACO retrospectively, at the end of a “performance year.” The beneficiary does not elect enrollment in an ACO and can choose to receive services from non-ACO as well as ACO providers. At the end of the year, Medicare will assign a beneficiary to an ACO if a Medicare beneficiary has received a plurality of his or her primary care services (based on allowed charges) from an ACO professional. Thus, an ACO will not know, until the end of the year, which of the patients it serves are subject to the Program.

  • II.

    SHARED SAVINGS PROGRAM AND COST-REDUCTION INCENTIVES

    • A.

      Benchmarks

According to the proposed rule, providers and suppliers that participate in ACOs will continue to be reimbursed by Medicare in the same way they are under the current system. Under the Program, CMS will create benchmarks for each ACO that are an estimate of the total fee-for-service payments that would have been made for ACO beneficiaries in the absence of the ACO. The benchmarks will be based on Medicare beneficiaries who have received a plurality of their primary care services from the ACO providers in the most recent three years; it will not be based on the actual beneficiaries assigned to the ACO in the performance year. The benchmark will be updated annually.

The performance of an ACO will be measured against its benchmark to determine whether it will receive a shared savings payment or, if applicable, a penalty. ACOs that achieve savings compared to their benchmarks will receive a shared savings payment from CMS. The payment will be made to the ACO itself, which will decide how it will be distributed.

B. Minimum Savings Rate

CMS has proposed a minimum savings rate (MSR) to account for small variations in health care spending. For ACOs using a two-sided risk model, the MSR would be 2 percent of the benchmark. The ACO would have to save more than 2 percent of the benchmark to qualify for a shared savings payment and would have to exceed the benchmark by more than two percent to be assessed a penalty. There is also a shared loss cap of 5 percent in the first year, 7.5 percent in the second year, and 10 percent in the third year.

For ACOs using a one-sided risk model, the MSR would be based on the number of beneficiaries in the ACO; those with smaller populations would have a larger MSR percentage due to the anticipated

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