Understanding Savings From Accountable Care Organizations

The Accountable Care Organization (ACO) program in Medicare is much-debated, with its success and viability as a means to curb healthcare spending growth being questioned.

The ACO program serves as the CMS' most notable population-based payment model. ACOs are formed by groups of healthcare entities that come together and take accountability for the spending and quality of care for their Medicare patients.

With the release of a report on the savings resulting from ACOs in the Medicare Shared Savings Program, the debate has been drawn back into the spotlight. According to an article published by Health Affairs, clarity on the program’s effectiveness requires addressing conceptual and semantic questions about the meaning of “savings.”

The authors of the article, including The American Journal of Managed Care® co-Editor-in-Chief Michael Chernew, PhD, have previously conluded savings must be assessed against a reasonable estimate of what the spending on ACO-attributed beneficiaries would have been without the ACO program. With confusion surrounding the meaning of “savings” in regard to the program, the authors outlined 3 different types of “savings.”

• The first type of savings is utilization savings, which is the difference between Medicare fee-for-service (FFS) spending on ACO beneficiaries and what the Medicare FFS spending on those beneficiaries would be without the ACO. This type of savings reflects changes in spending that are a result of ACO providers’ patterns of health service provision.
• Payer savings is the difference between Medicare program spending with, versus without, the ACO program. This is the type of savings that refers to the budget impact on payers and is equivalent to a price cut and real savings from the payer’s perspective.
• Societal savings are savings achieved because less services are delivered and offset by payer and provider administrative costs associated with the ACO program, but ignoring changes in prices or distribution of savings and losses. For example, providers will hire case managers and payers will hire staff to manage the data requirements associated with the program.

While savings might be small at first, evidence has shown that the longer a beneficiary is attributed to the ACO, the more savings are generated. With some questioning the ACO program, there are multiple reasons for continuing it.

ACOs allow providers to benefit financially because they generate efficiencies by giving providers a way to withstand fee cuts while providing better quality care for their patients. ACOs also generate savings over time, allowing payers to develop a successful payment model. Lastly, beneficiaries benefit from ACOs in the form of lower premiums and improved quality of care.

While the program will present challenges, this is seen in any strategy to reduce spending.

“A voluntary ACO program seems to offer a conceptually appealing way to give providers control over spending,” concluded the authors. “Given that early results show both utilization savings and payer savings—albeit modest, but growing—working to improve the model seems wise.”