John ValianteIn early May, the U.S. Department of Health and Human Services (HHS) announced that the Pioneer accountable care organization (ACO) model had met the criteria for expansion. HHS Secretary Sylvia Mathews Burwell noted the “Pioneer ACO model has demonstrated that patients can get high-quality and coordinated care at the right time, and we can generate savings for Medicare and the healthcare system at large.”

Supported by a program evaluation conducted by L&M Policy Research, Burwell touted the $384 million in Medicare savings achieved during 2012-13. The actuary for the Centers for Medicare & Medicaid Services (CMS) provided the formal certification for expansion, stating, “Expansion of the Pioneer Model would reduce net [CMS] program spending.”

Two Measures of Savings

Given that CMS reports as recently as September 2014 had shown that Pioneer ACOs had reduced net Medicare spending by only $61 million in 2012-13, what accounts for the large increase in savings claimed by Burwell? As seen in the exhibit below, the two estimates reflect different measures of program savings.

The $384 million figure is based on an econometric estimate of gross Medicare savings compared with the cost of caring for all Medicare beneficiaries in the markets where the Pioneers operate. But this estimate does not reflect shared savings payments made by CMS to the successful ACOs, or shared loss payments by ACOs to CMS. When these amounts are included, the net program savings is actually $249 million—still a positive result, but 35 percent lower than claimed.

Pioneer ACO Performance, 2012-13
Savings accrued by Pioneer ACOs in 2012-13, according to two reports.

For 2012, the March 2015 report estimates total savings of $279.7 million. But after reducing these savings by the amount of shared savings paid to and shared losses collected from the ACOs, net CMS savings become $205 million—an amount dramatically higher than the $17 million estimated from the spending benchmark comparisons in the September 2014 report.

For 2013, the two reports show very similar results for both gross and net savings. It is not clear why the 2012 estimates are so different, but a closer look will likely show that the initial benchmarking methods used were more stringent than warranted by the potential market savings available (as reflected in the L&M Policy Research study).

Pioneer ACO Performance

The L&M Policy Research report issued in March provides detailed information on the performance of each Pioneer ACO during 2012-13. Of the 32 original Pioneers, 10 achieved gross savings in both years, nine achieved savings in one year, and 12 failed to achieve savings in either year.

Combining all Pioneer ACOs, Medicare spending in the program increased at an average annual rate of 2.6 percent during the period. However, when shared savings payments to and from the ACOs are included, the annual rate of increase rises to 3.0 percent, Meanwhile, spending in the comparison group increased at a rate of 3.4 percent.

In summary, the Pioneer ACO program fared only 0.4 percentage points better than the comparison group in terms of spending. The exhibit below shows the estimated monthly Medicare spending per beneficiary for both groups, including the effect of the shared savings payments.

Pioneer ACO Performance, 2012-13
Medicare spending increases for beneficiaries in Pioneer ACOs compared with other beneficiaries in the market.

Impact of SharedSavings

The economic theory underlying the ACO program assumes that sponsors will respond to the incentive of sharing in cost savings by identifying care management processes that improve quality of care and reduce spending. Although these incentives clearly had an impact, the effect was uneven across the Pioneer ACOs. As shown in the exhibit below, 10 Pioneer ACOs generated a total of $268 million in net Medicare savings over the entire 2012-13 period, according to the L&M Policy Research analysis and CMS estimates of shared savings and shared loss payments.a

These ACOs benefitted from $50 million in shared savings payments as a performance incentive. Steward Health Care System, Beth Israel Deaconess, and Michigan Pioneer were the primary beneficiaries of these payments, receiving over 80 percent of the total dispensed. The seven other Pioneer ACOs that generated savings received no or very modest payment because their spending did not come in significantly below their spending benchmarks. Because these payments were planned to offset operating costs, these sponsors funded ACO operations largely from their own capital.b (With several ACOs having deferred their reconciliation during 2013, final 2013 shared savings payments and losses may differ from the CMS estimates here.)

Top-Performing Pioneer ACOs, 2012-13
The 10 Pioneer ACOs that generated the greatest net savings for Medicare, 2012-13.

By way of contrast, a smaller group of Pioneer ACOs generated modest if any savings for Medicare, according to the L&M Policy Research analysis. As shown in the exhibit below, the five Pioneers with the greatest net losses cost the program $110 million during the period.b

Despite the losses, these ACOs received relatively generous shared savings payments. (These payments simply added to the Medicare claims losses during the period.) Although these ACOs may have benefitted from weaknesses in the initial benchmarking methodology in 2012, three ACOs—Montefiore, Monarch, and Banner—received substantial shared savings payments each year. This issue raises many questions, especially regarding whether the benchmark methodologies used to set spending targets for Pioneer ACOs were overly generous in some cases and more punitive in others.

Less Successful Pioneer ACOs, 2012-13
Five Pioneer ACOs that generated net losses for Medicare, 2012-13.

Crunching the Numbers

The Pioneer ACO savings claimed by HHS overstate the net savings to Medicare by the amount of shared savings payments ($145 million) minus ACO payments of shared losses ($10 million). Thus, net Medicare program savings are estimated to be $135 million less than the figure cited by HHS, or $249 million.

Without the prospect of shared savings payments, the Pioneer ACO program would not have attracted the interest of these sponsors. The purpose of the demonstration was to explore what factors contribute to achieving Medicare program savings. Clearly, incentives work. However, when the shared savings and losses are accounted for, the Pioneer ACOs as a group saved Medicare an annual average of only 0.4 percentage points relative to the comparable group of traditional fee-for-service beneficiaries in their markets.

Among individual Pioneer ACOs, the demonstration program exhibited a wide range of performance in controlling costs. The 10 top-performing Pioneer ACOs produced net program savings of $268 million, more than offsetting the poorer performance of the 22 others. The top performers received $50 million in shared savings payments, whereas the other 22 received $85 million (net of shared losses paid back to CMS).

For CMS, expansion of the newly certified Pioneer ACO program will require greater attention to the relationship between the spending benchmarks used to determine shared savings and losses and the broader impact on Medicare.

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


a. These L&M Policy Research savings estimates were statistically significant at the p <0.05 level.

b. These L&M Policy Research estimates were not statistically significant at the p <0.05 level, but represented the mid-point of the estimated range.

Publication Date: Thursday, July 30, 2015