Up Front

The ACO Hypothesis: What We’re Learning from the Medicare Shared Savings Program

Farzad Mostashari and Ross White

Last month, the Center for Medicare and Medicaid Services (CMS) reported first-year results from the Medicare Shared Saving Accountable Care Organization Program (MSSP). As noted in a previous post, shifting to an accountable care model is a long-term, multi-year transition that requires major overhauls to care delivery processes, technology systems, operations, and governance, as well as coordinating efforts with new partners and payers. Participants in the MSSP program are also taking much more responsibility and risk when it comes to the effectiveness and quality of care delivered.

Given these complexities, it is no surprise that MSSP’s first year results (released January 30, 2014) were mixed. The good news? Of the 114 ACOs in the program, 54 of the ACOs saved money and 29 saved enough money to receive bonus payments.  The 54 ACOs that saved money produced shared net savings of $126 million, while Medicare will see $128 million in total trust fund savings.

At the time, CMS did not provide additional information about the ACOs with savings versus those without. While a more complete understanding of their characteristics and actions will be necessary to understand what drives ACO success, the recent disclosure  of the 29 ACOs that received bonus payments allows us to offer some preliminary interpretations:

Physician-owned practices are NOT disadvantaged.

When the program was launched, there was much skepticism among policy experts as to whether physician-only ACOs could generate cost savings. After all, they accounted for only a small fraction of the total health care utilization, and many wondered if primary care providers could reduce costs without the active partnership of a hospital system. They also lacked the capital, operational sophistication, and staff resources of larger well-capitalized hospital-sponsored ACOs. Their smaller size also indicated they would have to demonstrate savings at a higher level (the “minimum savings rate” or MSR) to receive shared savings payments.

However, 21 of the 29 successful ACOs were physician-led. While the difference is not statistically significant, 29% of the physician-led ACOs achieved savings greater than their MSR, versus 20% of the remaining participants (mainly hospital-sponsored). The reason why is unclear. However, it’s possible that physician-led ACOs tend to me more nimble in execution, or perhaps the “one foot in two canoes” problem is less acute for primary care providers than hospitals. For example, improvements in care coordination, chronic disease management, and prevention result in more primary care services, whereas hospitals must contend with “demand destruction” on their fee-for-service lines of business if they reduce procedures, admissions and emergency department visits.

Is it working? The “Underpowered” Advanced Payment Pilot

If asked the most common barrier to a successful ACO transition, physician-led ACOs will usually reference the lack of financial resources to adopt necessary technology or practice transformation assistance / infrastructure. While the MSSP program is a permanent program administered through the Center for Medicare, the Center for Medicare and Medicaid Innovation (CMMI) gave 35 small and rural ACOs (including 20 of the 114 ACOs for which Year One results are now available) upfront and monthly payments as part of an Advanced Payment Model. Six of the 20 (30%) Advanced Payment ACOs achieved shared savings, comparable to the 15/53 (28%) of other physician-led ACOs. The problem is, with such small numbers the true difference between the two groups may actually be significant, but there are not enough Advanced Payment ACOs to compare the two groups.


CMS recently released a Request for Information about ways to support clinical transformation in small practices, to encourage participation in alternative payment models.  CMMI has not indicated whether any participants will be added to the Advanced Payment pilot, but we believe it should be considered in order to generate more evidence on how to best assist smaller ACOs.

It’s easier to cut costs if you start high

While individual ACO benchmarks have not yet been released (something we strongly encourage), there is some evidence that ACOs in the highest cost states are more likely to be achieve shared savings. The states with the most expensive (risk adjusted and standardized) regions for Medicare are Florida, Louisiana, Mississippi, and Texas. ACOs in these states account for 25 of the 114 ACOs (22%) but include 10 (34%) of the 29 ACOs with shared savings (p~ 0.07). While reducing costs in high-cost areas is an important policy objective, achieving physician participation in alternative payment models nationwide may require CMS to consider modifications to the baseline calculation formulas in the next round of ACO rulemaking (expected this fall).

It remains to be seen if these trends continue as more experience with the program accumulates, but the first year results from MSSP suggests Medicare ACOs are on the right track and with prudent evolution, can continue to move providers closer to greater accountability for health care costs and quality.