ACO Repayment Mechanisms – Types of Surety Bonds

Certain Medicare Shared Savings Program (Shared Savings Program) Accountable Care Organizations (ACOs) must establish a repayment mechanism to assure CMS that they can repay losses for which they may be liable upon reconciliation for each performance year of an agreement period under which they accept performance-based risk.

To be eligible to participate in a two-sided shared savings / losses model (Track 2, Track 3 and NextGen), an ACO must demonstrate that it has established an adequate repayment mechanism. These ACOs must demonstrate that they would be able to repay shared losses incurred at any time within the agreement period, and for a sufficient period of time following the end of each agreement period (the “tail period”), to permit CMS to calculate the amount of any shared losses that may be owed by the ACO and to collect this amount from the ACO.

An ACO’s repayment mechanism must be equal to at least 1% of its total per capita Medicare Parts A and B fee-for-service expenditures for its assigned beneficiaries, as determined based on expenditures used to establish the ACO’s benchmark.

In their application to the Shared Savings Program or for renewal of their participation agreement, ACOs must select from one or more of the following 3 types of repayment arrangements:

  1. Funds placed in escrow,
  2. A line of credit as evidenced by a letter of credit that the Medicare program could draw upon, and/or
  3. Surety bond.

There are three general classifications of surety bonds to consider for this purpose:

Compliance Bonds. These are bonds that a business would require in order to comply with various state statutes or municipal ordinances. Compliance bonds guarantee to the state/municipality that the business will follow all provisions that are outlined in the specific state statute or municipal codes/ordinances.

CMS will conduct its own due diligence from the completed application and does not require any compliance bonds guaranteeing any specific laws, so compliance bonds will not apply to ACO’s.

Financial Guarantee Bonds. Since the surety bond to be used as a repayment method is taking the place of an escrow account or a letter of credit, a financial guarantee bond would be most appropriate for an ACO.

Performance and Payment Bonds. These bonds are specific to construction contracts and would not be utilized by the ACO’s.

CMS has provided the following guidance for surety bonds:

  • Surety Companies: The surety bond should be issued from a company included on the U.S. Department of Treasury’s Listing of Certified (Surety Bond) Companies. Using a bond from a company not included on the Department of Treasury listing, may result in the ACO’s application be subject to additional scrutiny to make sure appropriate safeguards are in place.
  • Surety Bond Terms: The bond must contain:
    1. A statement that the surety is liable for assessments that occur during the term of the bond;
    2. The surety’s name, street address or post office box number, city, state, and zip code;
    3.  A statement naming the ACO as the Principal, CMS as the Obligee, and the surety (and its heirs, executors, administrators, successors and assignees, jointly and severally) as surety.

CMS may require assurance that the surety will notify CMS promptly in writing if there is a lapse in the surety bond coverage, a change in the amount of the bond, or termination of the bond.

Need help securing your repayment method?  Call Tracy Hoffman today for a no-obligation quote at (860).927.0995 or contact us here.