A summary of the impactful MSSP rule changes in the 2023 Medicare Physician Fee Schedule update

The rule changes for the Medicare Shared Savings Program (MSSP) included in the 2023 Medicare Physician Fee Schedule Final Rule from the Centers for Medicare and Medicaid Services (CMS), published on November 1, 2022,¹ have the potential to be as impactful as the “Pathways to Success” (PTS) rule changes of 2018. While PTS focused on transitioning accountable care organizations (ACOs) to downside risk, the 2023 fee schedule update aims to grow the ACO program by easing the transition to downside risk, modifying financial benchmark methodologies that were unfavorable to some ACOs, and enhancing the risk sharing for certain ACOs. Most ACOs will be minimally affected by the rule changes in the short term. However, all ACOs will be directly affected in their next agreement period renewal. Many ACOs will need to review the fee schedule updates closely to assess the implications for their specific circumstances.

We summarize notable changes related to program options, financial benchmark methodology, risk sharing, and attribution below. We do not cover all rule changes, nor do we touch on many of the operational changes ACOs will need to consider as they operate under this new set of rules.

Easing of transition to downside risk

Basic Level A or B continues

Rule change

ACOs already in the BASIC glide path under Levels A or B will have the option to continue their current level for the remainder of their agreement (effective January 1, 2023).

Potential implications

For ACOs apprehensive about downside risk, this may be a big relief. Given the reduced benefits of being in BASIC Level E for 2023—no Advanced Alternative Payment Methodology (AAPM) bonus under the Medicare Access and CHIP Reauthorization Act (MACRA)—this may be an attractive option for many ACOs.

ENHANCED optional

Rule change

The final rule removes the limitation on the number of agreement periods in which an ACO can participate in Level E of the BASIC track while making the ENHANCED track purely optional (for new agreement periods beginning on or after January 1, 2024).

Potential implications

Lower-revenue ACOs may appreciate the ability to retain a revenue-based loss-sharing limit to reduce their total risk exposure.

Many higher-revenue ACOs may find that BASIC Level E’s loss-sharing limit provides less marginal value than what they gain with the ENHANCED track’s greater shared savings rate (75% vs. 50%).

Financial benchmark methodology changes

Financial benchmark trend update methodology change

Rule change

Incorporates a prospective trend factor based on the U.S. per capita cost (USPCC)—called the Accountable Care Prospective Trend (ACPT)—into the current benchmark trend calculation from the third benchmark year (BY3) to the performance year (PY), calculation (for new agreement periods beginning on or after January 1, 2024.)

Trend (from BY3 to PY) will be calculated as one-third ACPT, two-thirds previous national-regional blended trend. For example, if the national-regional blended trend from BY3 to the PY for an ACO is 5% while the ACPT is 6% over the same time period, the final trend CMS will apply is 5.33% (1/3 * 6% + 2/3 * 5%).

The ACPT will be set near the start of the agreement period for the ACO’s entire five-year agreement period and remain unchanged for the duration of the agreement period. However, CMS will “retain flexibility” to update to the ACPT if “unforeseen circumstances occur during the ACO’s agreement period"²

If the updated trend methodology results in a shared loss for an ACO, CMS will recalculate shared loss using the former trend methodology (relying entirely on the national-regional trend) and the ACO will receive the smaller shared loss between the two methodologies. If using the former methodology results in a shared savings, the ACO will receive neither a shared loss nor a shared savings.

Potential implications

A more prospective trend increases the ability for ACOs to budget. However, it may come at a cost of financial benchmark accuracy, which could benefit or hinder an ACO.

At a weight of one-third, we expect the ACPT to have a modest, but material, impact on financial settlements.

Key questions arise such as what might trigger “unforeseen circumstances,” e.g., an event, a certain degree of inaccuracy in the prospective trend. How confident are ACOs that the trend will not be adjusted?

Prior savings adjustment

Rule change

Adjust benchmark for renewing or reentering ACOs for prior attained savings (for new agreement periods beginning on or after January 1, 2024).

ACOs that receive a positive regional adjustment will receive the greater of 50% of prior per capita savings and the regional benchmark adjustment. For example, if an ACO’s prior savings is $70 per beneficiary per year (PBPY) then its adjustment to the benchmark would be $35 PBPY. If the regional adjustment to the benchmark is +$30 PBPY, then the ACO’s benchmark would only be adjusted by $35 PBPY, the greater of the two amounts.

ACOs that receive a negative regional adjustment will have their prior savings adjustment netted out of their negative regional adjustment. A 50% factor will then apply if the combined adjustment is positive. For example, if the regional adjustment had a -$15 PBPY impact on the benchmark but the prior savings amounted to +$20 PBPY, then the net adjustment would be 50% of +$5 PBPY, or $2.50 PBPY.

Potential implications

CMS may be looking to bolster enrollment by increasing the financial benchmark for some ACOs.

ACOs with past success in MSSP that are not receiving a significant regional adjustment to the benchmark will gain the most from this change.

Dampen downside impact of regional adjustment

Rule change

Reduce cap on downward adjustment from 5% of national costs to 1.5% of national costs (for new agreement periods beginning on or after January 1, 2024).

Gradually decrease negative regional adjustment amount as an ACO’s proportion of dual eligible beneficiaries or hierarchical condition category (HCC) risk score increases.

Potential implications

We do not expect this change will benefit many ACOs as only a small percentage of ACOs currently receive a negative regional benchmark adjustment. However, this small minority of ACOs will benefit greatly through an increase to their financial benchmark. In our experience, this will include ACOs focused on higher-risk populations, where the risk-adjusted regional benchmark does not fully capture the populations’ expected cost levels.

Regional benchmark assignment window to align with ACO’s chosen assignment

Rule change

Regional costs for benchmark methodology will be identified based on the ACO’s selected assignment methodology, prospective or retrospective (for new agreement periods beginning on or after January 1, 2024).

This change will only affect ACOs that select prospective assignment (currently regional cost benchmarks only reflect retrospective attribution).

Potential implications

Our internal analysis confirms that prospective regional benchmarks are lower than retrospective regional benchmarks.

We anticipate significant variation at the ACO level in terms of how much this affects the regional benchmark adjustment and the regional trend. Because ACOs can select the assignment methodology annually (versus each agreement period), ACOs should ensure they quantify the benchmark impact of both retrospective and prospective attribution.

Update risk adjustment cap

Rule change

Update 3% risk adjustment cap so that it is applied relative to the demographic risk score growth, similar to the current ACO Realizing Equity, Access, and Community Health (REACH) methodology (for new agreement periods beginning on or after January 1, 2024). Additionally, the cap will be applied on an overall basis across the four enrollment category types. The previous methodology applies the cap at the individual enrollment category level.

Potential implications

We expect this adjustment will better reflect ACOs’ risk profiles and will protect ACOs that experience significant changes in their patient rosters.

Shared savings/losses changes

Minimum savings rate (MSR) flexibility for low revenue ACOs

Rule change

Low-revenue ACOs in the BASIC track can share in savings at half of the final standard shared savings rate if they generate savings below the MSR (for new agreement periods beginning on or after January 1, 2024).

Potential implications

We do not expect this change to impact many current ACOs because there are few low-revenue ACOs in BASIC tracks with gross savings less than the MSR. However, the change will allow the ACOs in this category to achieve savings, whereas previously they would have none. This provides an opportunity for low-revenue ACOs in BASIC Tracks C, D, and E to limit their risk exposure (with a higher MSR/minimum loss rate [MLR]) without decreasing their likelihood of achieving shared savings. Those in BASIC Track E will then also be eligible for the Qualifying Participant (QP) incentive.

This change is particularly impactful for low-revenue ACOs that are unable to take on even modest risk exposure and/or cannot afford private reinsurance.

With a lower hurdle to obtain savings and the ability to stay in low-risk or no-risk tracks, this change, coupled with the changes to the glide path, may incentivize new entities to form ACOs and join MSSP.

Quality score changes

Rule change

ACOs exceeding the quality performance standard will continue to share in savings at the maximum sharing rate for their level of participation. However, the “all or nothing” quality score cliff for ACOs not achieving the quality performance standard will be removed and replaced with a sliding quality score scale similar to the quality score methodology in place prior to PY2020 (effective January 1, 2023).

Potential implications

The methodology utilized for PY2021 and PY2022 of an “all or nothing” approach to quality represented a significant risk for many ACOs. This change will remove the “quality cliff” and revert to a methodology that adjusts the shared savings/loss rate for ACOs not meeting the quality performance standard.

Attribution updates

Rule change

Updated code list to include new prolonged service and chronic pain management codes as well as an update to how federally qualified health clinics (FQHCs) and rural health clinics (RHCs) are identified (effective January 1, 2023).

Potential implications

This update is likely to have a minimal impact on most ACOs but could be meaningful (and justify additional analyses) for organizations that are utilizing prolonged service and chronic pain management codes for a large portion of their population.

Advance Investment Payments (AIPs)

Rule change

New, low-revenue ACOs that are inexperienced with performance-based risk can elect to receive AIPs, which include a $250,000 fixed payment initially, followed by risk-based quarterly payments for the first two years of the agreement period. Any AIP payments will be recouped by CMS once the ACO generates shared savings (for new agreement periods beginning on or after January 1, 2024).

Potential implications

These payments will only be available to a limited number of ACOs and will have no net impact on their shared savings. However, these payments represent additional cash flow for some ACOs looking to invest in care management activities and transition to a risk-based model for their Medicare fee-for-service (FFS) population.

These thoughts and observations reflect the authors’ opinions, not those of Milliman. The commentary presented within this paper is based on the CMS 2023 Medicare Physician Fee Schedule Final Rule.

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¹ See the 2023 Medicare Physician Fee Schedule Update Final Rule at: https://www.govinfo.gov/content/pkg/FR-2022-11-18/pdf/2022-23873.pdf. See also the CMS Fact Sheet at: https://www.cms.gov/newsroom/fact-sheets/calendar-year-cy-2023-medicare-physician-fee-schedule-final-rule-medicare-shared-savings-program.

² See page 483 of the 2023 Medicare Physician Fee Schedule Update Final Rule.