Hospital Participation in Medicare ACOs: No Change in Admission Practices and Spending

ABSTRACT

Objectives: Hospital participation in accountable care organizations (ACOs)—Medicare’s signature alternative payment model—continues to grow despite mixed evidence on spending and quality. This study examines whether hospital ACO participation is associated with changes in emergency department (ED) admission practices, hospital length of stay (LOS), and spending for unplanned admissions.

Study Design: A difference-in-differences analysis of Medicare fee-for-service ED visits and hospitalizations (2008-2019).

Methods: Medicare claims were linked to ACO tracking data from Torch Insight to identify hospitals that joined an ACO between 2012 and 2017 (6 cohorts, followed for a maximum of 5 years), the start date of their initial contract, and ACO characteristics. Key outcomes included ED admission and observation stay rates, hospital LOS for emergent admissions, and total costs for an index ED event.

Results: Among the 995 hospitals (27.6% of the short-term hospitals in our study) that joined a Medicare ACO during the study period, program participation up to 5 years was not associated with changes in the rate of hospitalization from the ED, hospital LOS, or total costs of the index event. Findings remained consistent across ACO program, contract risk levels, year of program entry, and overall ACO performance (eg, whether the ACO generated shared savings).

Conclusions: Hospitals did not significantly alter care delivery for unplanned hospitalizations after joining an ACO. These findings suggest that hospital-led ACOs may have limited impact on reducing costs for emergent admissions, raising concerns about their ability to drive meaningful care transformation.

Am J Manag Care. 2026;32(2):In Press

Takeaway Points

• Accountable care organizations (ACOs) have limited impact on acute care costs: Hospital participation in Medicare ACOs did not significantly alter emergency department admission rates, hospital length of stay, or spending for unplanned admissions. This suggests that ACOs alone may not drive meaningful hospital cost reductions.
• Hospital-led ACO models face challenges in reducing costs for emergent admissions: Physician-led ACOs have shown better cost savings than hospital-led models. The role of hospitals in ACOs should be reconsidered to better align incentives.
• These study findings have policy implications: Policy makers should consider stronger financial levers, such as global budgeting or multipayer alignment, to enhance hospital engagement in value-based care and reduce acute care utilization.

Accountable care organizations (ACOs), Medicare’s signature alternative payment model, have expanded rapidly since the Affordable Care Act was enacted.1 ACOs are groups of providers that aim to coordinate care for a population of Medicare beneficiaries and share in cost savings from more efficient care delivery. Increasingly, ACOs have assumed downside risk, bearing responsibility for losses if spending exceeds predetermined targets. More than 700 ACOs now serve 13 million Medicare beneficiaries (38% of fee-for-service beneficiaries) through the Medicare Shared Savings Program (MSSP) and other CMS demonstration programs.2

ACOs vary widely in structure, including the extent of hospital participation.3 Hospitals may be full or joint leaders of an ACO or affiliate in a nonleadership role. In some cases, physician groups within an ACO may work in hospitals but exclude these hospitals from their ACO contract. Although many early ACOs were hospital led, less than half currently include a hospital in their network.4 Study findings suggest ACOs have produced modest cost savings for Medicare,5-7 with cost and quality benchmarks tending to improve over time.8-12 However, these gains have not been uniform, with physician-led ACOs outperforming those led by hospitals.11

Hospitals participating in ACOs are well positioned to influence the quantity and breadth of acute care and, in particular, unplanned hospitalizations, which nearly all originate in the emergency department (ED).13 Hospitalization rates, length of stay (LOS), and spending for ED encounters vary substantially, suggesting opportunities to reduce acute care costs for ACOs.14 ACO-affiliated hospitals are more likely to engage in efforts to improve transitions of care and develop alternatives to reduce low-value admissions.10,11 Formal risk sharing encourages hospitals to partner and share data with providers across care settings, improving collaboration and follow-up and potentially reducing hospitalizations.15,16 Nevertheless, hospital inclusion in an ACO does not determine whether the ACO generates savings,11 and the value of hospitals in ACOs remains uncertain.17

To date, few studies have examined how hospital care delivery changes in response to ACO participation. Existing studies mostly compare spending and utilization for ACO-attributed vs non-ACO beneficiaries, often capturing upstream prevention rather than changes in care delivery during a hospital encounter itself. Evidence remains limited on how ACO participation influences hospital behavior and the use of resources in an ED encounter. Joining an ACO may reduce hospitalizations and LOS through improved care coordination, streamlined discharge processes, and shifting of care to outpatient settings. ACO evaluations have demonstrated modest reductions in hospital LOS and admissions18-20 and low-value ambulatory services,21 but Medicare evaluations have generally not identified measurable changes in the intensity of resource use among hospitalized patients.22,23 To add to this literature, in this study, we examined the extent to which hospital ACO participation was associated with changes in hospital admission practices and intensity of hospital care associated with an ED visit up to 5 years after joining an ACO.

METHODS

We used an event-study framework to assess changes in hospitalizations from the ED, hospital LOS, and total spending for hospitals that joined an ACO relative to those that did not. The study was determined exempt from human subjects review by the University of Washington Institutional Review Board.

Data Sources and Study Population

A 20% sample of ED visits among short-term hospitals was extracted from Medicare fee-for-service claims between 2008 and 2019. ED visits were identified by a revenue center code of 0450-0459 or 0961 in inpatient and outpatient claims. ED visits associated with an observation stay were identified from outpatient claims with a revenue center code of 0760 or 0762 occurring on the same day as or following day after an ED visit claim. Claims were merged with data on hospital ACO participation contained in the Torch Insight (Milliman, Inc) database,24 which contains data derived from multiple national ACO tracking surveys. For each hospital, we extracted the start and end dates for any Medicare ACO contracts, Medicare ACO program name (MSSP vs others), MSSP track, ACO leadership structure (categorized as hospital led, physician led, or joint leadership), and the presence of preceding or concurrent commercial and Medicaid ACO contracts. When a hospital participated in multiple Medicare ACO contracts, we assigned the leadership and track for the initial contract. Additional hospital characteristics were captured from the CMS cost reports for corresponding years.

Comparator Groups

Our treatment group consisted of hospitals that joined a Medicare ACO between 2012 and 2017 (total of 6 annual cohorts with a minimum of 2 years follow-up). This included hospitals participating in the MSSP as well as Medicare ACO demonstration programs (Pioneer ACO Model and Next Generation ACO Model). Outcomes at ACO-participating hospitals were compared with a control group of hospitals that did not join a Medicare ACO by the end of the study period.

Outcomes

We examined several outcomes related to hospital care. First, we compared changes in unplanned hospitalizations from the ED, including inpatient admissions and observation stays, in ACO vs non-ACO hospitals over time. Second, we examined changes in LOS for hospitalizations originating in the ED (inclusive of observation stays). Third, we examined changes in total spending for index ED events both overall and stratified by disposition.

Medicare reimbursements incorporate geographic payment differentials to account for varying labor and capital costs across US markets. Prior work has shown that ACOs tend to operate in markets that are different from non-ACO hospitals, which may lead to different levels of reimbursement in the treatment groups unrelated to actual resource use.25-27 To standardize costs, we utilized the Geographic Variation Public Use Files from CMS,28 which have data on both actual Medicare costs and costs standardized for geographic differences in payments by county and year. From these variables, we created a ratio of annual price-standardized costs to actual costs for each county and used this as a weight to adjust reimbursements associated with index ED events (inpatient weights were used to adjust reimbursements for ED visits associated with inpatient admissions, and outpatient weights were used to adjust reimbursements for observation stays and treat-and-release visits). We further standardized these weighted costs to 2019 US$, the final year of data in our analytic sample.

Because our goal was to capture changes in hospital behavior, outcomes were assessed at the hospital level for all Medicare enrollees receiving care at the hospital, regardless of whether they were attributed to an ACO. This aligns with clinical practice because providers would not be aware if a patient was an ACO-attributed patient (especially given that the majority of MSSP participants are attributed retrospectively). By assigning beneficiary exposure at the hospital level, we focused on the effects of a hospital joining an ACO on discretionary services under its own control. Outcomes were assessed annually and followed for 5 years or until 2019. We excluded data after the start of the COVID-19 pandemic, as health care utilization patterns and hospital operations were significantly disrupted, making interpretation of longitudinal outcomes difficult. If a hospital stopped participating in a Medicare ACO during the study, we censored any subsequent years of data, even if the hospital reentered the program under a different contract.

Statistical Analysis

To assess the effects of ACO participation on hospital outcomes, we first estimated yearly, case mix–adjusted outcomes for each hospital using generalized linear models, controlling for age, sex, 31 chronic conditions,29 and primary diagnosis grouped by Clinical Classifications Software.30 SEs were clustered at the hospital level. In 2011, Medicare coding changes increased the number of diagnoses hospitals could list on a claim from 9 to 25. To account for these coding changes and avoid inflating any treatment effects due to patients appearing sicker in later years, we used only the first 9 diagnoses on claims records to calculate comorbidity flags, as has been done in other longitudinal evaluations.29,31

Next, we employed a series of dynamic difference-in-differences models to estimate the association between ACO participation and the case mix–adjusted outcomes as the dependent variable, adjusting for hospital characteristics. We used the Callaway-Sant’Anna approach,32 which accommodates unbalanced panels like ours by constructing weighted averages of multiple 2-by-2 comparisons across treatment groups and time to estimate the average treatment effect on the treated. Hospital covariates included size, teaching status, ownership, rurality, Medicare share of inpatient admissions, safety net status (defined as the top quartile of Disproportionate Share Hospital funding), and concurrent non-Medicare ACO contracts. In addition, we expected hospitals serving a greater share of ACO patients to have more incentive to alter practice. Although our data did not allow us to identify specific patients attributed to an ACO, we included a measure of Medicare ACO market penetration as a proxy. ACO penetration was defined as the proportion of Medicare discharges from ACO-participating hospitals out of total discharges within a hospital referral region.33

We conducted several sensitivity and subgroup analyses to test the robustness of our results. First, because our study population included hospitals participating in any Medicare ACO program, which have different incentive structures and up-front payments, we examined outcomes for the MSSP, Pioneer ACO, and Next Generation ACO separately. Second, we examined treatment effects for each of the 6 annual cohorts based on when a hospital joined its first Medicare ACO. Third, we examined whether there were any differences in the outcomes stratified by ACO leadership type or in the subgroup with downside risk in their ACO contracts. Finally, we examined whether outcomes differed among high-performing ACOs, specifically those that received bonuses in year 3 (final year of their initial contract) vs those that did not.

RESULTS

Characteristics of the Study Population

Our analytic sample contained 15,703,717 ED visits from 3611 short-term hospitals. A total of 995 (27.6%) hospitals joined 231 Medicare ACOs during the study period (Figure 1). Of these, 171 (17.2%) hospitals stopped participating in any Medicare ACO by 2019.

Compared with non-ACO hospitals, hospitals that joined an ACO were more likely to be large, urban teaching hospitals and saw a slightly larger share of Medicare patients at baseline (Table). Moreover, ACO hospitals tended to be located in markets with higher ACO penetration and had higher rates of concurrent participation in commercial and Medicaid ACO contracts. Among hospitals joining a Medicare ACO, 312 (31.4%) participated in ACOs led by a hospital/health system, 170 (17.1%) participated in ACOs that were physician led, and 513 (51.6%) participated in ACOs with joint hospital-physician leadership. Participation in ACOs with a downside risk contract remained flat over time, with 18.5% of hospitals exposed to downside risk in 2012 vs 18.9% in 2019.

Outcomes

Figure 2 shows trends in unadjusted outcomes among ACO vs non-ACO hospitals, which were similar among the treatment groups over time. Inpatient admissions from the ED declined 10.1 percentage points (from 37.7% to 27.6% of visits) at ACO hospitals vs 9.7 percentage points (from 34.3% to 24.6% of visits) at non-ACO hospitals. Observation stays increased 3.6 percentage points (4.5% of visits to 8.1%) and 3.3 percentage points (4.0% to 7.3%) at ACO and non-ACO hospitals, respectively. Standardized costs per ED encounter declined in both groups, from $4947 to $3743 (24.3% relative decline) for ACO hospitals and from $4262 to $3726 (12.6% relative decline) for non-ACO hospitals, consistent with lower rates of inpatient admissions in these ED-originating encounters.

In our difference-in-differences models, hospital ACO participation was not associated with a significant change in the rate of inpatient admissions (differential change, 0.57 percentage points; 95% CI, –0.12 to 1.27), observation stays from the ED (differential change, –0.07 percentage points; 95% CI, –0.32 to 0.19), or LOS for these unplanned hospitalizations (differential change, 0.05 days; 95% CI, –0.01 to 0.12) up to 5 years from the first ACO contract start date (Figure 3 and eAppendix Table 1 [available at ajmc.com]). We also found no differences in overall resource use per index event as captured by standardized costs (differential change, $115; 95% CI, –$96 to $326). Finally, there were also no significant changes in these outcomes in any prespecified sensitivity and subgroup analyses (eAppendix Table 2)

DISCUSSION

In this study, hospital participation in a Medicare ACO was not associated with changes in the rate of unplanned hospitalization from the ED, hospital LOS, or total spending during an index ED encounter up to 5 years after joining an ACO contract. These findings are consistent regardless of when a hospital joined an ACO (early vs later entrants), the specific Medicare ACO program/track (Pioneer, MSSP, or Next Generation), or the presence of downside risk in the ACO contract. Our study examined whether hospitals change behavior in response to voluntary ACO participation by focusing on the intensity and cost outcomes under direct control of hospital providers. Our results suggest that ACO participation does not meaningfully change hospitals’ utilization of acute care services for patients with unplanned illnesses and injuries.

The findings of this study contribute to a mixed body of literature on ACO performance. Whereas several studies have reported modest reductions in hospitalizations and costs associated with ACO participation, others have found limited or no significant effects.34-36 One of the mechanisms through which ACOs may generate savings is by reducing high-cost hospital services, including ED visits and hospitalizations. This reduction in acute care may be achieved via 2 pathways: by preventing ED/hospital encounters through better primary care or by reducing the intensity or duration of hospital care for patients presenting to the ED/hospital. In this study, we tested the latter pathway and found no evidence that hospitals changed admission propensity or the breadth or length of hospital care. Physician-led (or primary care–dominant) ACOs may be best positioned to leverage the first pathway to reduce hospital use through care coordination, preventive care, and reductions in low-value ED referrals.

Although hospitals play a crucial role in providing inpatient and specialty services, their inclusion in ACO networks presents both opportunities and challenges. ACOs are designed to incentivize providers to deliver more efficient and coordinated care, but hospitals’ incentives to reduce admissions and other services are lacking, particularly given the fee-for-service reimbursement structure that still dominates in acute care settings. Any potential shared savings from reducing hospitalizations or other services are small compared with what the hospital would forgo in revenue.37 Furthermore, hospital-led ACOs’ overall exposure to value-based payment remains small, often below 10% of total revenue, which may be insufficient to change acute care use patterns.38 As Medicare Advantage enrollment increases and the fee-for-service population shrinks, the incentives tied to traditional Medicare ACO participation will likely carry less weight in shaping hospital behavior, particularly given competing financial pressures from Medicare Advantage plans.17 Stronger incentives for hospitals to participate in value-based contracts, such as larger financial bonuses and penalties, global budgeting, and multipayer alignment, may be necessary for hospitals to achieve substantial reductions in acute care costs.39 A common ACO model that extends across payers is likely needed to ensure that hospitals are exposed to a large enough population of ACO enrollees and thus begin changing practices.

Taken together, our findings suggest that hospital-based ACOs may be overlooking pathways to reduce acute care spending that are within their control. Prior national surveys of ACO leaders have shown that a majority prioritize avoidance of the ED as the primary strategy to reduce acute care spending and that a minority are focused on alternatives to hospitalization for patients already in the ED.40 However, a substantial body of literature has documented variation in ED admission rates—particularly for intermediate-risk conditions such as chest pain, venous thromboembolism, and diverticulitis. Although ED admission rates for these conditions have decreased in recent years, there is still substantial variation in ED admission rates between hospitals without differences in mortality, suggesting room for improvement.41 Recent physician-level quality measures have targeted reductions in low-value admissions for chest pain, syncope, and venous thromboembolism.42 Hospital quality measures to date have prioritized reducing readmissions, which are a small subset of all unplanned admissions, due to the financial penalties associated with the Hospital Readmissions Reduction Program.29 However, evidence suggests that the primary factor associated with successful reductions in readmissions is change in overall admission practices.43,44 Thus, successful engagement between hospitals and emergency practice groups to implement pathways for outpatient management may be an underutilized strategy to reduce acute care use and improve value.45

Limitations

Our results must be interpreted with consideration of several limitations. First, our study focused on ED visits and hospitalizations originating in the ED. Although nearly all unscheduled admissions originate in the ED, there may be differences in both the rate of and resource use during planned or direct admissions that are not accounted for here. Second, we could not account for beneficiary-level ACO attribution among the study population with our data. Hospitals treating more ACO patients, and specifically patients in their own ACO, may have greater incentive to change practices. Although we attempted to mitigate this by including a measure of ACO market penetration in our models, this imperfectly accounts for a hospital’s exposure to ACO risk sharing. Third, if ACOs are successfully keeping patients out of the ED by redirecting or preventing lower-acuity visits and admissions, then it is possible we did not find differential reductions in resource use because the overall population presenting to the ED became sicker. Finally, because our event study relied on an unbalanced panel, compositional changes in the sample over time—such as fewer hospitals contributing data in later years—may affect the precision and interpretation of estimates in the later periods.

CONCLUSIONS

The main finding in this study—that current Medicare ACO programs have not led to observable changes in the treatment of ED visits and emergent hospitalizations—is important for policy making and future iteration of Medicare’s ACO portfolio. Our work suggests that if policy makers and payers want to influence acute care, the current version of the MSSP is likely not effective in doing so. Policy makers should consider alternative strategies and pathways to incentivize hospitals in ways that prioritize efficiency and quality of care while participating in ACOs, such as alignment with commercial contracts and stronger financial incentives to reduce acute care spending. Ultimately, our study highlights the need for ongoing evaluation and refinement of ACO initiatives to optimize their effectiveness in improving health care delivery and outcomes. 

Author Affiliations: Department of Emergency Medicine, University of Washington School of Medicine (AKS, CP, KYL), Seattle, WA; Department of Health Systems and Population Health, University of Washington School of Public Health (AKS, CP), Seattle, WA; Simple Healthcare (DBM), Sanford, FL; Margolis Institute for Health Policy, Duke University (DBM), Durham, NC; Department of Emergency Medicine, Beth Israel Deaconess Medical Center (LGB), Boston, MA; Harvard Medical School (LGB), Boston, MA; Department of Emergency Medicine, Stanford University (MPL), Palo Alto, CA.

Source of Funding: National Institute of Aging 1R01-AG063759-01A1.

Author Disclosures: Dr Sabbatini serves on the board of the Washington chapter of the American College of Emergency Physicians. Dr Muhlestein is the founder and CEO of Simple Healthcare, which has conducted research on accountable care organization performance. Dr Parrish received payment for her involvement in statistical analysis and writing methods and results for this article.

Authorship Information: Concept and design (AKS, CP, KYL, MPL); acquisition of data (AKS, DBM); analysis and interpretation of data (AKS, DBM, CP, LGB, KYL, MPL); drafting of the manuscript (AKS, CP, LGB, MPL); critical revision of the manuscript for important intellectual content (AKS, DBM, CP, LGB, KYL, MPL); statistical analysis (CP); obtaining funding (AKS); and supervision (AKS).

Address Correspondence to: Amber K. Sabbatini, MD, MPH, University of Washington, Magnuson Health Sciences Building, 1705 NE Pacific St, Box 357235, Seattle, WA 98195. Email: asabbati@uw.edu.

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