Under the program regulations, an ACO refers to a group of providers and suppliers of services (e.g., hospitals, physicians, and others involved in patient care) that will work together to coordinate care for the Medicare Fee-For-Service patients they serve. The goal of an ACO is to deliver seamless, high-quality care for Medicare beneficiaries, instead of the fragmented care that often results from a Fee-For-Service payment system in which different providers receive different, disconnected payments. The ACO will be a patient-centered organization where the patient and providers are true partners in care decisions.

The Affordable Care Act specifies that an ACO may include the following types of groups of providers and suppliers of Medicare-covered services:

• ACO professionals (i.e., practitioners meeting the statutory definition) in group practice arrangements,
• Networks of individual practices of ACO professionals,
• Partnerships or joint ventures arrangements between hospitals and ACO professionals,
• Hospitals employing ACO professionals, or
• Other Medicare providers and suppliers as determined by the Secretary.

In the program regulations, the Secretary has determined that certain critical access hospitals, federally qualified health centers, and rural health clinics are eligible to participate independently in the Shared Savings Program. Additionally, any other Medicare enrolled provider or supplier in good standing is encouraged to participate in an ACO since all providers are important for the ACO to achieve its goal of better coordinating care.

To participate in the Shared Savings Program, providers must come together to become a Medicare ACO, and the ACO must apply to CMS. An existing ACO will not be automatically accepted into the Shared Savings Program. To be accepted, ACOs must meet all eligibility and program requirements, must serve at least 5,000 Medicare Fee-For-Service patients and agree to participate in the program for at least 3 years. Medicare providers who participate in an ACO in the Shared Savings Program continue to receive payment under Medicare Fee-For-Service rules.

The statute also requires each ACO to establish a governing body representing ACO providers of services, suppliers, and Medicare beneficiaries. The ACO is responsible for developing processes to promote evidence-based medicine, promote patient engagement, internally report on quality and cost, and coordinate care. The ACO is responsible for maintaining a patient-centered focus.

Under the program regulations, Medicare continues to pay individual providers and suppliers for specific items and services as it currently does under the Medicare Fee-For-Service payment systems. CMS also develops a benchmark for each ACO against which ACO performance is measured to assess whether it qualifies to receive shared savings, or for ACOs that have elected to accept responsibility for losses, potentially be held accountable for losses. The benchmark is an estimate of what the total Medicare Fee-For-Service Parts A and B expenditures for ACO beneficiaries would otherwise have been in the absence of the ACO, even if all of those services were not provided by providers in the ACO. The benchmark takes into account beneficiary characteristics and other factors that may affect the need for health care services. This benchmark is updated for each performance year within the agreement period.

CMS implemented both a one-sided model (sharing savings, but not losses, for the entire term of the first agreement) and a two-sided model (sharing both savings and losses for the entire term of the agreement), allowing the ACO to opt for one or the other model for their first agreement period. CMS believes this approach will have the advantage of providing an entry point for organizations with less experience with risk models, such as some physician-driven organizations or smaller ACOs, to gain experience with population management before transitioning to a shared losses model, while also providing an opportunity for more experienced ACOs that are ready to share in losses to enter a sharing arrangement that provides a greater share of savings, but with the responsibility of repaying Medicare a portion of any losses.

CMS also established a Minimum Savings Rate (MSR) and a Minimum Loss Rate (MLR) to account for normal variations in health care spending. The MSR is a percentage of the benchmark that ACO expenditure savings must meet or exceed in order for an ACO to qualify for shared savings in any given year. Similarly, an ACO with expenditures at or above the MLR are accountable for repaying shared losses. Under the program regulations, ACOs in the one-sided model that have smaller populations (and having more variation in expenditures) will have a larger MSR and ACOs with larger populations (and having less variation in expenditures) have a smaller MSR. Under the two-sided model, CMS applies a flat 2 percent MSR to all ACOs.

Under both models, if an ACO meets quality standards and achieves savings and also meets or exceeds the MSR, the ACO shares in savings, based on the quality score of the ACO. ACOs share in all savings, not just the amount of savings that exceeds the MSR, up to a performance payment limit. Similarly, ACOs with expenditures meeting or exceeding the MLR share in all losses, up to a loss sharing limit.

CMS measures quality of care using nationally recognized measures in four key domains: patient experience, care coordination/patient safety, preventive health, and at-risk population.

These measures are aligned with the measures in other CMS programs such as the Electronic Health Records (EHR) and Physician Quality Reporting System (PQRS). Eligible professionals in an ACO that successfully report the quality measures required under the Shared Savings Program in any year of the program are deemed eligible for the PQRS bonus, regardless of whether the ACO qualifies to share in savings. Starting with the 2013 quality reporting period, if an ACO fails to satisfactorily report ACO Group Practice Reporting Option (GPRO) quality measures, all eligible professionals billing through ACO participants will not receive a PQRS incentive and will be subject to the PQRS payment adjustment.

Providers and suppliers who are already participating in another shared savings program or demonstration under Fee-For-Service Medicare, such as the Independence at Home Medical Practice pilot program, are not eligible to participate in a Shared Savings Program ACO.

Health care providers have reported that a barrier to improving care coordination is lack of information. While they may know about the services they provide to the beneficiary, they don’t know about all other services provided to the beneficiary. To better treat patients and to coordinate their care, ACOs may request Medicare claims information about their patient from CMS. Before doing so, ACOs must notify a beneficiary in writing that it will request the beneficiary’s claims information from CMS. ACOs must allow beneficiaries to decline having their claims information shared with the ACO. Declining to have this information shared, however, does not affect the provider’s participation in the ACO or CMS’ use of the patient’s data for the purpose of assessing the ACO’s performance on quality or cost measures. This notification may happen by mail but must also happen the first time an ACO practitioner provides a primary care service to the beneficiary.