Policy & Regulation News

Medicare Shared Savings Program Gets New Cost Calculations

CMS has finalized a rule that will calculate cost benchmarks for Medicare Shared Savings Program participants based on regional healthcare spending trends rather than national rates.

By Jacqueline LaPointe

- The Centers for Medicare and Medicaid Services (CMS) has recently finalized a rule that will change the methodology for calculating costs under Medicare Shared Saving Program, the federal agency announced.

CMS finalized changes to Medicare Shared Savings Program cost calculations

MSSP accountable care organizations (ACOs) will be evaluated based on regional rather than national healthcare spending trends during the second or subsequent agreement period. The changes will allow ACOs to stop competing against themselves and compare their success against their peers.

“Today’s changes will encourage more physicians to improve patient care by joining Accountable Care Organizations, while also refining how the program measures success, so that current participants are better rewarded for quality,” said Andy Slavitt, CMS Acting Administrator, in the press release. “These new flexibilities are based on significant input from participants and will help physicians prepare for the new Quality Payment Program, part of bipartisan legislation Congress passed last year repealing the failed Sustainable Growth Rate.”

CMS plans to phase in the new methodology for ACOs entering into an agreement period starting on January 1, 2017. The agency intends to gradually change the program to allow providers to prepare and evaluate healthcare costs that may exceed regional averages.

Under the new methodology, CMS will adjust ACO cost benchmarks for the second or subsequent three-year contract period using the following modifications:

• Establish an ACO’s rebased historical benchmark using regional trend factors, which includes any county where one or more assigned beneficiary population resides, rather than national spending data and eliminate the adjustment that accounts for savings produced under the ACO’s prior agreement period;

• Adjust the ACO’s rebased historical benchmark to account for a percentage of the difference between the regional fee-for-service expenditures in the ACO’s regional service area and the ACO’s historical expenditures;

• Annually revise the rebased benchmark to include changes in regional fee-for-service spending rather than basing it on the absolute amount of projected growth in national fee-for-service spending;

• And recalculate an ACO’s rebased historical benchmark before the start of the performance year to incorporate the regional adjustment, changes in the ACO’s certified Participant List during the agreement period, and determine if the ACO has higher spending compared to its regional peers.

ACOs that have higher healthcare spending rates than its regional peers will face a different weight on regional adjustment, reported CMS. For higher spending ACOs, CMS will decrease the regional adjustment to 25 percent (compared to the typical 35 percent) in the first agreement period and to 50 percent (compared to 70 percent) in the second agreement period.

By the third agreement period, CMS will apply a 70 percent weight to all ACOs when determining the regional adjustment for the cost benchmark.

“We believe this approach will improve the program’s incentives for ACOs by recognizing an ACO’s efficiency relative to its region and limiting the link between an ACO’s performance and its future benchmarks,” wrote CMS in a fact sheet.

“Further, the phased approach to increasing the weight used to calculate the regional adjustment will incrementally lower benchmarks for ACOs determined to have higher spending than their region over the course of multiple agreement periods, affording these ACOs time to adapt to the revised methodology.”

Additionally, the finalized rule will expand the options for ACOs under MSSP Track One, which is a one-sided shared savings model. While eligible ACOs can currently continue in Track One for a second agreement period or apply to a two-sided risk model, CMS will allow these ACOs to renew under a two-sided model for a second agreement period. If the renewal is approved, the ACO can request to extend Track One participation for an additional year.

The majority of MSSP’s 430 ACOs are currently participating in a one-side model and many have hesitated to transition into the more advanced tracks. CMS intends for the changes to encourage ACOs to take part in more shared savings models.

“We are committed to facilitating entry and continued participation in the Shared Savings Program by ACOs with varying levels of experience with accountable care models and differing degrees of readiness to take on performance-based risk, and to encourage transition of ACOs to performance-based risk tracks,” explained CMS.

The rule also added timeframes and other criteria for appealing a shared savings or loss determination. ACOs will have four years after the date of the initial determination’s notification to re-open the payment amounts.

CMS aims for the modified rule to help ACOs continue to reduce healthcare costs and tie more Medicare payments to value-based reimbursement models. While ACOs saved $411 million in 2014, CMS has also recently linked 30 percent of Medicare payments to alternative payment models.

“Today’s changes build on that progress, so that more patients benefit from coordinated care and Medicare pays for what works to help doctors, nurses, and other clinicians focus on the quality of care, not the quantity of services,” added the press release.

Dig Deeper:

Mixed Results for MSSP Accountable Care Organizations

Five Best Practices to Prepare for Value-Based Reimbursement