Key Changes in CMS’ New ESCO Rules

May 9, 2014

During its Special Open Door Forum on April 24, 2014, the Centers for Medicare & Medicaid Services (CMS) provided additional specifics concerning the new Comprehensive End Stage Renal Disease (ESRD) Care Initiative and the revised Request for Application (RFA) published on April 15, 2014, on the CMS Innovation website. Below is a list of key issues and questions discussed:

1. Aggregation of Non-LDO ESCOs. An ESRD Seamless Care Organization (ESCO) applicant must have a minimum of 350 ESRD beneficiaries. For many non-large dialysis organizations (LDOs), this minimum requirement may prove difficult to satisfy. CMS announced that it would offer each non-LDO applicant an opportunity to aggregate the beneficiaries it serves with those served by other non-LDO ESCOs into a single “aggregation pool.” CMS offers non-LDOs two choices on aggregation. Each non-LDO ESCO can (A) choose to participate in the CMS-created “default aggregation pool,” which will include all non-LDO finalists who do not choose their own pool of ESCO participants; or (B) select one or more potential aggregation partners and propose such to CMS. Aggregation partners’ territories do not need to be geographically connected; however, the entire pool (in the aggregate) must meet the quality measures and minimum beneficiary requirements of the ESCO. Therefore, if there are poorly performing ESCOs in the aggregation pool, such ESCOs’ results will hamper the results of the better-performing ESCOs in that pool. As such, knowing your pool partners will be key to obtaining the financial objectives an ESCO believes it has earned.

2. Reduced Risk for Non-LDOs. The RFA eliminates the need for non-LDOs to assume liability for shared losses. Only LDOs will be required to be in the two-sided payment track with the additional shared liabilities. Non-LDOs will be enrolled only in the one-sided payment track. During the Open Door Forum, CMS made it clear that non-LDOs are not permitted to start in the two-sided payment track even if they want to do so. CMS said they made this change because LDOs have greater experience in risk-based arrangements.

3. Deletion of Rebasing. Although CMS previously required that the baseline expenditures (on which savings will be calculated) would be rebased at years four and five during the first five-year contract term, CMS now has eliminated the rebasing requirement in the RFA. Arguably, this means better-performing ESCOs will not be “penalized” for doing well in the first three years by being rebased to more difficult measurements.

4. Third-Party Participants. Previously, at least one non-dialysis facility/non-nephrologist had to participate in each ESCO. This requirement has been eliminated. Thus, ESCOs are free to decide whether third-party participation makes sense for a particular ESCO.

5. Application/Award Dates. All new and previous applicants must complete new applications and submit new letters of intent (LOIs). LDO applicants must submit applications and LOIs on or before June 23, 2014. Non-LDOs must submit applications and LOIs on or before September 15, 2014. CMS could not specify exactly when ESCOs will be awarded for either LDOs or non-LDOs. Rather, CMS stated that the awards would occur in the late fall/early winter for LDOs and later for non-LDOs. Notwithstanding the uncertain award dates, CMS will start LDOs January 1, 2015, and non-LDOs July 1, 2015.

Questions Raised by RFA. Some questions regarding the RFA still remain after the Open Door Forum:

1. Shared Savings. The RFA sets forth that ESCO participants will receive a maximum of 5 percent shared savings on total expenditures. This raises the question of whether a 5-percent return on investment is sufficient to warrant formation of the complicated ESCO structure. A similar question was raised during CMS’ pioneer accountable care organization (ACO) program. Unfortunately, nine of the 32 organizations exited the pioneer ACO program after the first year.

2. Data Sharing. One of the potential benefits of participating in an ESCO is receiving Medicare data from CMS to support care improvement efforts. CMS, however, is permitting beneficiaries to opt out of sharing their identifiable data with the ESCO. In addition, all data will be provided on a monthly basis but will have a lag time of three months. CMS has yet to decide whether it will allow de-identified information of beneficiaries to be shared with ESCO participants. Answering this question in the affirmative will be helpful to all ESCO participants to improve their care, but given the lag time, the question still remains whether the data sharing will be helpful for ESCO participants to make improvements during their contract terms.

3. Other Shared Savings Programs. One key open issue is whether participation in other shared savings programs, such as ACOs, will prevent a nephrologist or nephrology practice from participating in an ESCO. Generally, CMS’ position has been that participation in the Medicare Shared Savings Program trumps all other shared savings programs, but CMS has not provided a definitive answer on this issue. Until CMS makes a decision, all nephrologists or nephrology practices desiring to participate in an ESCO should be wary of entering into any other Medicare Shared Savings Programs.

CMS will be holding a webinar on May 20 from 2:30-4 p.m. ET to assist ESCOs in exploring key structural and financial considerations.