In line with its earlier announcement to tie increasing percentages of Medicare payments to quality and value through alternative payment models by 2018, the Centers for Medicare and Medicaid (CMS) released its final rule updating the Medicare Shared Savings Program (MSSP) and provisions relating to the payment of Accountable Care Organizations (ACOs) on June 4, 2015. CMS noted that the final rule is designed to provide additional flexibility in the MSSP and “grow participation” in the ACO alternative payment model. As CMS chief medical officer Dr. Patrick Conway noted, “Shifting from fee-for-service to accountable-care models takes time…a long-term transition [that] can certainly take more than three years. We’re really trying to meet providers where they are.”

Prior to this latest update, ACO providers could participate in the less risky “Track 1” or “one-sided” risk model, for only the first three-year agreement period, during which ACOs would not be held accountable for losses.[1] ACOs would only share in potential savings up to a 50 percent share rate based on quality performance. ACOs that wished to continue participating in MSSP after the initial three-year term were then required to move to “Track 2.”

Under Track 2, also known as the “two-sided model,” ACOs would share in losses in return for the opportunity to share in a higher portion of savings—up to a 60 percent sharing rate, compared to Track 1. CMS recognized that many providers were not ready to make this transition to risk-based payment after three years. With the new rule, ACOs will now be allowed to sign up for a second three-year term under Track 1.

For more experienced ACOs or those that are ready to move more quickly towards the opportunity for a larger portion of shared savings, the final rule also creates a new Track 3. Modeled after the Pioneer ACO model with some features of the Next Generation ACO, here are some key features of Track 3:

  • The Track 3 model equally weighs savings or losses at a higher sharing rate of up to 75 percent;
  • Track 3 features prospective beneficiary attribution; and
  • Waives the 3-day inpatient stay required before Skilled Nursing Facility (SNF) services are covered by Medicare to help providers avoid costly hospital visits.

The final rule does not leave Track 2 untouched either. With the new rule, ACOs in Track 2 (and Track 3) now have the ability to choose from a menu of options for setting what is known as the minimum savings rate (MSR) and minimum loss rate (MLR) for the duration of their agreement periods. This means greater flexibility for ACOs in setting the threshold they must meet before they are eligible to share in savings or be accountable for losses.[2]

CMS noted that the menu of choices for setting MSR/MLR, reflect its desire to retain symmetry between upside and downside risk. The choices include:

  • Remove the MSR/MLR (the ACO shares in savings/losses from the first dollar);
  • Select a symmetrical MSR/MLR in a 0.5 percent increment between 0.5 – 2.0 percent; and
  • Implement a MSR/MLR that varies based on the size of the ACO’s assigned population according to the methodology established under the one-sided model.

In addition to the extension of Track 1 participation, adding flexibility to Track 2’s financial model, and the addition of Track 3, CMS also announced in its final rule that it is updating its benchmarking methodology used to measure ACO financial performance.  CMS plans to develop benchmark formulas that are adjusted by region and noted that it will release details about the benchmarking methodology later this year. CMS noted that the new benchmark formula would apply to ACOs beginning new agreement periods in 2017 or later. The final rule updates to the MSSP are largely effective August 3, 2015, with the remainder being implemented to agreements starting January 1, 2016. More details on effective dates and other provisions of the MSSP can be found in the final rule.[3]


[1] For more information on the MSSP and ACOs, see here.

[2] For more background information on MSRs and MLRs and how they are calculated, please see the final rule at 59.

[3] Please see: