On December 31, 2018, the Centers for Medicare and Medicaid Services (CMS) published a final rule (Final Rule) establishing the “Pathways to Success” program that overhauls the Medicare Shared Savings Program (MSSP). The Final Rule largely mirrors CMS’ proposed rule (see our summary here), but with several modifications in response to public comments. Accountable care organizations (ACOs) may participate in the Pathways to Success program beginning July 1, 2019, and those ACOs interested in beginning participation in July must submit to CMS a notice of intent to apply by January 18, 2019. CMS guidance on submission of the NOIA is available here. CMS expects to release application deadlines in the near future.

Significant features of the Pathways to Success program, which are described in detail below, include:

  • Replacement of Track 1, Track 2 and Track 3 with two participation options: the BASIC track (consisting of five levels) and ENHANCED track (similar to the current Track 3),
  • Creation of a “glide path” that requires ACOs to incrementally accept performance-based downside risk over the agreement period,
  • Requiring ACOs experienced with downside risk to assume downside risk, while allowing inexperienced ACOs an option to begin participation with no downside risk before advancing to riskier models,
  • Replacement of the previous three-year participation agreement period with a five-year period,
  • Creation of a six-month performance year from July 1, 2019 through December 31, 2019 to coincide with the one-time mid-year start date,
  • Revisions to the benchmarking methodology to incorporate regional trends from the beginning of an ACO’s participation in the MSSP,
  • Expansion of ACOs’ use of telehealth and availability of the SNF Three-Day Rule Waiver, and
  • Ability for ACOs to provide monetary incentives to encourage beneficiaries to receive certain primary care services.

MSSP Background

The MSSP was established via regulations issued in November 2011 and subsequently revised in June 2015 (see our analysis of those rules here and here). Under the MSSP, ACOs consisting of ACO participants – such as physician groups and hospitals (identified by Taxpayer Identification Number (TIN)) – and ACO providers/suppliers (individual physicians and other providers/suppliers that may bill through the TINs of participants) agree to become accountable for the quality, cost and overall care furnished to Medicare beneficiaries. ACO participants and providers/suppliers receive Medicare fee-for-service (FFS) payments for services rendered, that are reconciled at the end of each performance year against a historical benchmark determined by CMS. ACOs that satisfy certain quality performance metrics and save money compared to the benchmark are eligible to share savings with CMS. Certain ACOs participating in two-sided models also accept performance-based risk and therefore may be liable for shared losses with CMS in the event costs exceed the ACO’s historical benchmark.


The Final Rule replaces Tracks 1, 2, and 3 under the MSSP with two tracks, referred to as the BASIC and ENHANCED tracks.

The BASIC track contains five levels (Levels A through E), which CMS refers to as a “glide path,” under which ACOs assume incrementally higher levels of risk. Levels A and B of the BASIC track have no downside risk and give ACOs an opportunity to share up to 40 percent of its savings generated in excess of the minimum savings rate (MSR). ACOs participating in Levels C through E would be liable for 30 percent of losses in excess of the minimum loss rate (MLR), but could be eligible for up to 50 percent of savings in excess of the MSR. The losses in Levels C through E are capped at increasing amounts, such that the ACO assumes a potentially higher share of losses as it progresses through the glide path (while remaining eligible for the same amount of shared savings at each level). Notably, Level E of the BASIC track (which is equivalent to the MSSP’s current Track 1+ model) qualifies as an Advanced Alternative Payment Model (AAPM) for purposes of the CMS Quality Payment Program (QPP). The ENHANCED track is essentially the same as MSSP Track 3 and requires the participating ACO to assume performance-based risk. Under the ENHANCED track, as in Track 3, an ACO may be eligible for savings of up to 75 percent, but is exposed to potential shared losses between 40 percent and 75 percent. The ENHANCED track also qualifies as an AAPM.

Each ACO in the BASIC track will automatically advance to the next level within the BASIC track starting after the performance year which commences January 1, 2020 (except for certain inexperienced, low-revenue ACOs). However, low-revenue ACOs that are new legal entities and are inexperienced will be permitted to stay at Level B (with no downside risk) for an additional year and will then be automatically advanced to Level E for the following performance year. An ACO may also choose to advance more quickly along the glide path to accept higher levels of risk by skipping levels.

Eligibility for BASIC and ENHANCED tracks

Eligibility for participation in either the BASIC or ENHANCED tracks depends upon an ACO’s experience with performance-based risk and an ACO’s revenue. Under the Final Rule, a low-revenue ACO is an ACO whose total Medicare Parts A and B FFS revenue of its participants is less than 35 percent of the total Parts A and B FFS expenditures of the ACO’s assigned beneficiaries; high-revenue ACOs are ACOs that do not meet the definition of a low-revenue ACO. CMS expects high-revenue ACOs will generally be those ACOs that include an institutional provider (e.g., a hospital) as a participant. An ACO is experienced with performance-based risk where either (1) it is the same legal entity as an ACO that has previously participated in a Medicare performance-based risk initiative, such as Tracks 1+, 2 or 3; or (2) at least 40 percent of an ACO’s participants have participated in a Medicare performance-based risk initiative within the previous five performance years.

High-Revenue ACOs

High-revenue ACOs that have experience with performance-based risk will generally be limited to participating in the ENHANCED track only. However, high-revenue ACOs that are currently participating in Track 1+ and that had a first or second agreement period beginning in 2016 or 2017 may “renew” their participation agreement in the Pathways to Success program on either July 1, 2019 or January 1, 2020, and may participate in either Level E of the BASIC track or the ENHANCED track. High-revenue ACOs that are inexperienced with performance-based risk may generally participate in any Level of the BASIC track or the ENHANCED track. However, such ACO may not enter under Level A if the ACO (1) previously participated in Track 1 of the MSSP or (2) has more than 50 percent of its participants who have experience in a Track 1 ACO. As an example, an ACO that included a hospital as a participant (and thus likely qualified as high-revenue) and previously participated in Track 1, could enter the BASIC track at Level B or higher or the ENHANCED track.

        Low-Revenue ACOs

Low-revenue ACOs that have experience with performance-based risk are able to enter the Pathways to Success program at either Level E of the BASIC track or the ENHANCED track. Low-revenue ACOs that are inexperienced with performance-based risk may generally participate in any Level of the BASIC track or the ENHANCED track. As noted above, new, low-revenue ACOs that are inexperienced with performance-based risk may elect to remain in Level B for an additional year after which the ACO would progress directly to Level E. Low-revenue ACOs may remain in the BASIC track for up to two five-year agreement periods, provided that such a low-revenue ACO must remain at Level E (or move to the ENHANCED track) for the duration of the second agreement period. For example, if a new low-revenue ACO is formed and that ACO is inexperienced with performance-based risk, the ACO could enter the BASIC track under Level A in January 1, 2020, then move to Level B as of January 1, 2021 and remain in Level B until January 1, 2023, at which time it would move to Level E.

2019 Performance Year

Under the Final Rule, ACOs may enter the BASIC or ENHANCED tracks starting on July 1, 2019 – a one-time mid-year start date to accommodate the CMS rulemaking process and ACOs who entered into a six-month extension of their prior agreements as of January 1, 2019. ACOs interested in participation in the MSSP as of July 1, 2019, are required to submit a Notice of Intent to Apply (NOIA) to CMS by January 18, 2019. CMS will resume its annual application and performance year cycle for agreement periods beginning January 1, 2020.

To participate under either track, an eligible ACO (as discussed below) would enter into a five-year participation agreement with CMS to participate in either the BASIC track or ENHANCED track. For ACOs that utilize the one-time start date of July 1, 2019, the initial agreement period will be for five and a half years. CMS explains that MSSP results have shown that “ACOs tend to perform better the longer they are in” the MSSP, and the extended agreement periods give ACOs more time to perform against their benchmark.

ACOs that are currently in the middle of a three-year MSSP participation agreement will be allowed to continue their participation under the terms of that agreement until its expiration; however, CMS affords those ACOs an option to terminate early to join the Pathways to Success program. Additionally, ACOs whose agreements were extended for six months from January 1, 2019 through June 30, 2019, will be able to commence new participation agreements in the Pathways to Success program as of July 1, 2019.

Minimum Savings Rate/Minimum Loss Rate

In the Final Rule, CMS finalized several changes pertinent to the selection and timing of the MSR/MLR, and it also took steps to address the MSR/MLR for ACOs with small population sizes.

ACOs participating in a one sided model of the BASIC track’s glide path (Levels A or B) will have a variable MSR determined based upon the number of beneficiaries assigned to the ACO. The variable MSR will be determined in the same manner that the MSR was determined under Track 1. Prior to transitioning to a two-sided model under the BASIC track, an ACO will have the opportunity to select its MSR/MLR. ACOs participating in the ENHANCED track will also be able to select their MSR/MLR. Once an ACO selects its MSR/MLR, it may not change it for the duration of the agreement period. ACOs participating in a two-sided model (BASIC track Levels C through E or ENHANCED track) will be able to select a MSR/MLR among the following available options:

  • 0 percent MSR/MLR;
  • Symmetrical MSR/MLR in 0.5 percent increments between 0.5 percent and 2 percent; or
  • Symmetrical MSR/MLR that varies based on the ACO’s number of assigned beneficiaries.

For ACOs that are unable to maintain 5,000 beneficiaries, there is concern that the effects of normal expenditure variation may either unduly reward or penalize such ACOs because of the out-sized effect normal expenditure variations may have on a small population size. In response to this concern, CMS will permit a variable MSR/MLR if an ACO’s assigned beneficiary population falls under 5,000 for the applicable performance year.

Beneficiary Assignment

Under the Final Rule and beginning July 1, 2019, CMS will allow all ACOs participating in the Pathways to Success program (whether on the BASIC or ENHANCED track) to choose their beneficiary assignment methodology: (1) prospective assignment or (2) preliminary prospective assignment with retrospective reconciliation. ACOs will also be allowed an opportunity to change their selection of beneficiary assignment methodology on an annual basis.

Note that the November 2018 physician fee schedule final rule revised the definition of “primary care services” used in the beneficiary assignment methodology. Specifically, the definition of primary care services was expanded to include procedure codes for advance care planning, administration of health risk assessment, prolonged evaluation and management or psychotherapy services beyond the typical time of the primary procedure, annual depression screening, and alcohol misuse screening, as well as add-on codes for visit complexity related to evaluation and management services.

Waiver of the SNF 3-Day Rule

In the Final Rule, CMS adopts its proposal to expand access to the Skilled Nursing Facility (SNF) 3-Day Rule Waiver (SNF Waiver). The SNF Waiver waives applicability of the Medicare payment requirement of a three-day inpatient stay as a prerequisite for Medicare coverage of post-acute SNF services. Eligible ACOs can obtain a SNF Waiver in part by entering into affiliate agreements with SNFs.

The Final Rule expands access to the SNF Waiver to ACOs accepting performance-based risk in the BASIC or ENHANCED tracks, and enables risk-bearing ACOs to apply for the SNF Waiver regardless of their choice of beneficiary assignment methodology. Previously, only ACOs that selected prospective assignment and participated in Track 3 (now the ENHANCED Track) or the Track 1+ model were eligible to apply for the SNF Waiver. Notably, ACOs in the midst of MSSP agreement periods in Tracks 1+ or 3 that continue participating in those tracks also remain eligible to apply for the SNF Waiver.

CMS also expands access to the SNF Waiver by allowing critical access hospitals and other small rural hospitals providing SNF services under a swing bed arrangement to partner with Pathways to Success ACOs as SNF affiliates for purposes of the SNF Waiver.


Currently, CMS calculates the cost benchmark for new participants in the MSSP based in part on the use of national growth rates to trend forward Medicare expenditure data for each of the years making up the ACO’s historical benchmark. Starting with an ACO’s second or successive renewal term in the MSSP, CMS shifts to use regional growth rates to calculate an ACO’s historical benchmark, which is based on the ACO’s actual risk-adjusted historical expenditures. In the Final Rule, CMS revised the ACO benchmarking methodology to address its concerns that (1) the regional adjustment can lead to overly inflated benchmarks for ACOs that are relatively low spending compared to their region, and (2) ACOs with higher spending compared to their region may have little incentive to participate in the MSSP when faced with a significantly reduced benchmark. Effective for all ACOs entering or renewing in the Pathways to Success program beginning on July 1, 2019, historical benchmarks will use a blend of national and regional trend factors; however, the ACO’s historical benchmark will now also incorporate regional adjustments. Further, the weight of the regional adjustment will phase in over time based on whether the ACO has higher or lower expenditures for its service area and is capped at a maximum weight of 50 percent (down from the current cap of 70 percent). These changes are intended to more accurately reflect costs of the regional service area while encouraging greater participation from both higher and lower-cost ACOs.


Currently, there are several requirements for Medicare reimbursement of telehealth services. Some of those requirements include that the patient receiving telehealth services must be at an “originating site” located in certain geographic areas. The originating site also must be a physician’s office, hospital or other specified health center. In the Final Rule, CMS relaxes these requirements for telehealth services provided by an ACO provider/supplier to beneficiaries prospectively assigned to an ACO during the relevant performance year. For certain telehealth services provided by eligible practitioners billing through the TIN of an ACO participant, CMS removes the geographic limitation on the originating site and permits a patient to use his or her home as an originating site. However, Medicare will not pay a facility fee where the originating site was a patient’s home, nor does this policy apply to telehealth services not appropriate for furnishing in a patient’s home if the originating site is the patient’s home. These telehealth payment policies are effective for services furnished on and after January 1, 2020 and apply only to ACOs participating in a two-sided risk model that choose to assign beneficiaries using the prospective assignment method.

Beneficiary Incentives

Under the Final Rule, ACOs bearing two-sided risk may establish beneficiary incentive programs that provide incentive payments to assigned beneficiaries who receive qualifying primary care services. Incentive payments to beneficiaries may be in amounts up to $20 (adjusted annually by the percentage increase in CPI) and must be cash equivalents (such as a check, debit card or other traceable cash equivalent) and not cash. A qualifying primary care service is a service with respect to which coinsurance applies under Part B and is furnished by an ACO professional who qualifies as a primary care physician, a physician assistant, nurse practitioner, certified (i.e., clinical) nurse specialist, a federally qualified health center or rural health clinic. Incentive payments must be provided by the ACO within 30 days of a beneficiary receiving a qualifying service.

ACOs must notify beneficiaries of the incentive program prior to or at a beneficiary’s first primary care service visit of each performance year. Otherwise, the ACO may not advertise the program to a beneficiary or any potential patient enrolled in a federal health care program. ACOs must also maintain records of the incentive payments and may not accept funds for incentives from an outside entity or otherwise shift such costs to a federal health care program.

Importantly, material changes to existing beneficiary incentive programs and all new programs must be approved by CMS. CMS will approve programs established as of July 1, 2019 for an 18-month term, or as of January 1, 2020, for a 12-month term. Additionally, in the Final Rule CMS also amends a current regulation that allows ACOs and their participants to provide in-kind items and services as incentives to beneficiaries to clarify that such in-kind incentives can be provided to all Medicare fee-for-service beneficiaries – not just beneficiaries assigned to an ACO – as long as they meet applicable requirements.

Repayment Mechanism

ACOs applying to enter a two-sided model under the Pathways to Success program have specific requirements with respect to demonstrating that they have established an adequate repayment mechanism to repay shared losses to CMS. The repayment mechanism may be through an escrow account, line of credit or surety bond. The repayment mechanism amount varies based upon the applicable track. For a BASIC or ENHANCED track ACO, the amount must be equal to the lesser of (1) 1 percent of the Medicare Parts A and B FFS expenditures for the ACO’s assigned beneficiaries for the most recent calendar year for which 12 months of data is available; or (2) 2 percent of the Medicare Parts A and B FFS revenue of its ACO participants for the most recent calendar year for which 12 months of data is available. CMS will annually recalculate the repayment mechanism amount, and if it falls below a certain level, CMS will require the ACO to increase its repayment amount. Generally, the mechanism must be in effect for the duration of the ACO’s participation in a two-sided model and for 12 months thereafter.

Beneficiary Notifications

In the Final Rule, CMS also addressed its concern that beneficiaries may be unaware of the different resources available regarding the MSSP and what participation means for the beneficiary’s care. CMS therefore expanded requirements for content and delivery of beneficiary notifications. Going forward, ACOs must notify all Medicare FFS beneficiaries of the following: (1) each ACO provider/supplier participating in the ACO, (2) the beneficiary’s ability to decline claims data sharing and (3) the beneficiary’s ability to change the clinician designated as their primary clinician for purposes of voluntary alignment (and the process for doing so). In addition, the ACO must notify its assigned beneficiaries of any beneficiary incentive program. Notice must be provided in writing at or prior to the beneficiary’s first primary care service visit of each performance year. To alleviate any associated administrative burden, CMS will be developing template beneficiary notices for ACOs and ACO providers/suppliers to use.