(a) General rule. Upon the reopening of an initial determination pursuant to § 425.315(a)(4), CMS will use the methodology specified in this section to account for the impact of improper payments when:

(1) Determining savings or losses for the relevant performance year in accordance with § 425.315 in order to issue a revised initial determination.

(2) Adjusting the benchmark by recalculating benchmark year expenditures under §§ 425.601(a)(9)(iii) and 425.652(a)(9)(viii) in the event that CMS recalculates a payment determination and issues a revised initial determination for the corresponding performance year in a prior agreement period, in accordance with paragraph (a)(1) of this section.

(b) Improper payment. For the purpose of this section, improper payment includes:

(1) An amount associated with a demanded overpayment determination.

(2) An amount identified in a settlement agreement or judgment, pursuant to conduct by individuals or entities performing functions or services related to an ACO's activities, less any penalties or damages.

(c) Accounting for improper payments. To adjust Medicare Parts A and B fee-for-service expenditures for improper payments CMS does the following:

(1) Identify each Shared Savings Program expenditure calculation for a performance year or benchmark year, as calculated according to the standard methodology described in this subpart and expressed as a per capita dollar amount, that will be adjusted for the impact of improper payments.

(2) Determine each specific population of Medicare fee-for-service beneficiaries used to calculate the expenditure amount identified in paragraph (c)(1) of this section. The populations relevant for a specific expenditure calculation may include:

(i) The population of beneficiaries assigned to the ACO for calculating the ACO's performance year or benchmark year expenditures.

(ii) The population of assignable beneficiaries in each county in the ACO's regional service area for calculating county-level expenditures.

(iii) The national population of assignable beneficiaries for calculating national assignable expenditures.

(iv) The national population of Medicare fee-for-service beneficiaries for calculating national expenditures.

(3) Determine the per capita amount of improper payments for the performance year or benchmark year included in the per capita Medicare Parts A and B fee-for-service expenditure amount for a population identified in paragraph (c)(2) of this section in accordance with paragraph (d) of this section for all providers or suppliers with identified improper payments.

(4) Subtract the per capita amount determined in paragraph (c)(3) of this section from the expenditure calculation identified in paragraph (c)(1) of this section for the population identified in paragraph (c)(2) of this section for each of the following populations of beneficiaries:

(i) ESRD.

(ii) Disabled.

(iii) Aged/dual eligible Medicare and Medicaid beneficiaries.

(iv) Aged/non-dual eligible Medicare and Medicaid beneficiaries.

(5) If applicable, CMS will do the following to adjust regional expenditures for improper payments:

(i) Adjust county-level fee-for-service expenditures determined under paragraph (c)(4) of this section, for each county in the ACO's regional service area, for severity and case mix of assignable beneficiaries in the county using prospective HCC risk scores. This calculation is made for each of the populations of beneficiaries identified in paragraphs (c)(4)(i) through (iv) of this section.

(ii) Weight the risk adjusted county-level fee-for-service expenditures determined under paragraph (c)(5)(i) of this section according to the ACO's proportion of assigned beneficiaries in the county, determined in accordance with § 425.601(d)(1), § 425.603(f)(1), or § 425.654(b)(1), as applicable, for each of the populations of beneficiaries identified in paragraphs (c)(4)(i) through (iv) of this section.

(iii) Aggregate the values determined in paragraph (c)(5)(ii) of this section for each of the populations of beneficiaries identified in paragraphs (c)(4)(i) through (iv) of this section across all counties within the ACO's regional service area.

(d) Determining the per capita amount of improper payments. CMS may use one or more of the following approaches to determine the per capita amount that will be used to adjust expenditure calculations identified in paragraph (c)(1) of this section:

(1) Calculate aggregate improper payments attributable to a population identified in paragraph (c)(2) of this section for each provider or supplier that had improper payments.

(i) For improper payments associated with specific claims, CMS will do the following:

(A) For improper payments to a provider or supplier that correspond to payment amounts on claims or line items that were used in a Shared Savings Program calculation identified in paragraph (c)(1) of this section, and subsequently adjusted after the 3-month claims run out period, CMS will sum the improper payment amounts across all such claims or line items with dates of service during the period used to calculate performance year or benchmark year expenditures for the population identified in paragraph (c)(2) of this section.

(B) In the event CMS determines it is necessary to account for the impact of improper payments on Shared Savings Program financial calculations by adjusting the payment amounts for a specific HCPCS or CPT code billed by the provider or supplier for the population identified in paragraph (c)(2) of this section, CMS will do the following—

(1) Identify the applicable claims or line items with dates of service during the period used to calculate performance year or benchmark year expenditures processed before the end of the applicable 3-month claims run out period;

(2) Sum the claim or line item payment amounts, on the claims or line items identified in paragraph (d)(1)(i)(B)(1) of this section; and

(3) If applicable, multiply the sum calculated in paragraph (d)(1)(i)(B)(2) of this section by a scaling factor to compute the payment differential between the HCPCS or CPT code that was improperly billed and a CMS-identified alternate code.

(ii) For aggregate improper payment amounts that are not linked to specific claims or line items, CMS will calculate the amount attributable to the population identified in paragraph (c)(2) of this section by applying a proration factor to the aggregate improper payment amount identified for that provider or supplier. CMS calculates the proration factor as follows:

(A) The denominator of the proration factor is total Medicare Parts A and B claim or line item payment amounts to the provider or supplier for all fee-for-service beneficiaries on claims of specified claim types for the time period associated with the aggregate improper payment amount identified for the provider or supplier that were made before the end of the applicable 3-month claims run out period.

(B) The numerator of the proration factor is the portion of the total from the denominator, in paragraph (d)(1)(ii)(A) of this section, that CMS determines is attributable to the population identified in paragraph (c)(2) of this section with dates of service during the period used to calculate expenditures for the applicable performance year or benchmark year.

(2) Sum the amounts calculated pursuant to paragraph (d)(1) of this section attributable to a population identified in paragraph (c)(2) of this section across all providers or suppliers that had identified improper payments.

(3) Take the lesser of the following two values—

(i) The sum from paragraph (d)(2) of this section; or

(ii) Total Medicare Parts A and B claim or line item payment amounts to all providers or suppliers that had improper payments for the population identified in paragraph (c)(2) of this section on claims of specified claim types with dates of service within the performance year or benchmark year made before the end of the applicable 3-month claims run out period.

(4) Express the lesser-of amount from paragraph (d)(3) of this section as a per capita value by dividing by the total beneficiary person years in the population identified in paragraph (c)(2) of this section for the applicable performance year or the benchmark year.