Although many ACOs successfully produced savings for the Medicare Shared Savings Program, the vast majority will need to consider whether incentives are strong enough to continue.

Over the past three years, more than 300 healthcare providers have formed accountable care organizations (ACOs) as vehicles to coordinate care, improve outcomes, and save money in government programs such as Medicare and Medicaid. In particular, the Affordable Care Act (ACA) authorized the formation of ACOs as a primary means to generate savings for the Medicare program to help fund the subsidies provided to lower-income purchasers of health insurance on the ACA exchanges.

Although the Center for Medicare and Medicaid Services (CMS) has reported that many ACOs have indeed established extensive quality metrics, improved care coordination, and achieved savings, the overall picture is less clear. The original 32 Pioneer ACOs, primarily larger integrated delivery systems with a history of strong care coordination, achieved overall savings against their spending targets of $91 million in 2012. In 2013, the number of Pioneers declined to 23 ACOs, with the 20 reporting ACOs yielding $104 million in savings against their spending targets. After shared savings and losses of $61 million, the net savings to CMS was $43 million.

The experiences of the 220 ACOs that participated in the lower-risk Medicare Shared Savings Program (MSSP) in 2013 also provide a perspective on the extent to which these organizations can generate savings for CMS and earn a share of those savings for their participating providers.a Those with savings above 2 percent of their targets allowed them to share savings with CMS. As previously reported, and as shown in Exhibit 1, the 58 top-performing ACOs generated $705 million in savings relative to their spending targets in 2013—a 6 percent savings. These ACOs received incentive payments of $316 million, roughly 45 percent of the savings, to distribute among their provider members. (Six of these ACOs failed to get bonuses due to poor quality scores and/or reporting.) Viewed alone, these results suggest there is substantial potential for realizing savings in the fee-for-service segment of the Medicare population.

Exhibit 1
Medicare Shared Savings Program (MSSP) accountable care organization (ACO) Performance, 2013

However, when looking at the entire group of MSSP ACOs, including those with savings between 0 and 2 percent and those with net losses to CMS, overall savings are $234 million, amounting to just 0.55 percent of targeted spending or $5.30 per member per month (PMPM). In fact, after paying bonuses for the top performers, CMS wound up $78 million below its breakeven target—not exactly the result it was hoping for.

In looking more closely, two factors appear to have contributed strongly to the positive performance of some plans.

Historical regional Medicare spending patterns. Because spending targets were based heavily upon the prior three-year spending pattern for beneficiaries attributed to an ACO, regional variation had a significant impact on ACOs’ ability to generate savings. Higher historical spending PMPM created more “headroom” for plans to achieve their targeted spending levels.

Physician sponsorship and control. Many ACOs sponsored by physician groups achieved
significant savings during 2013, due to the stronger incentive for nonhospital sponsors to reduce unnecessary admissions and readmissions, emergency department visits, and more costly hospital diagnostic services. But physicians in the higher-cost regions had greater success than those in lower-cost regions.

To illustrate the significance of historical regional spending patterns on savings performance, Exhibit 2 shows the savings achieved by ACOs according to their target spending based upon estimated dollars PMPM from the CMS data. (Note: the estimates assume that the number of beneficiaries reported as attributed to each ACO reflects the average number during 2013.)

Exhibit 2
Medicare Shared Savings Program (MSSP) accountable care organization (ACO) Performance, 2013 by Target Dollars PMPM, 2013

As expected, the greatest savings were achieved by ACOs in the regions in which historical Medicare spending patterns were higher. The 47 ACOs with target spending 20 percent or more above the average dollars PMPM for all plans generated $226 million in net savings during the year. ACOs with savings greater than 2 percent generated more than one-half of the total saved by the MSSP program. Meanwhile, the ACOs in the group with spending targets below the average were generally less successful in achieving program savings. Of course, higher targets did not guarantee good performance, as some ACOs in that highest target category incurred losses of $134 million. Reducing the net savings in this group by bonuses paid yields just $79 million in net savings to CMS from the group with the highest spending target.

Examining individual ACOs more closely, medical groups and physician networks sponsored the vast majority in the higher spending regions (Fla., Texas, Calif., N.Y.). These areas also have substantial numbers of fee-for-service Medicare beneficiaries.

CMS has announced plans for modifying the MSSP ACO program, seeking comments on these proposals by early February. A major theme of these proposals is to encourage ACOs to accept full risk of any losses (currently Track 2, but also a new Track 3) while sharing in savings. CMS also seeks to maintain interest in the MSSP program by extending the shared savings track (Track1) through agreements that extend an additional three years. Whether these changes will maintain the early momentum of the ACO program—and still achieve meaningful savings across the board—will depend upon the final rules to be published in the Spring 2015.


a. These 220 ACOs represent the MSSP participants' performance during 2013 as reported by CMS. There were 338 ACOs participating during 2014, for which performance data are not yet available. CMS reported on Dec. 22, 2014, that the number of ACOs participating in the MSSP in 2015 had increased by 89 to an estimated 427 total participants, subject to reductions for those electing to drop out.

John D. Valiante is president, Valiante Healthcare Management Solutions, Scottsdale, Ariz., and a member of HFMA’s Arizona Chapter of HFMA.

Publication Date: Wednesday, January 28, 2015