The MedPAC Blog

MedPAC on Accountable Care Organizations

by MedPAC Staff | Sep 08, 2014


This week at our September public meeting, the Commission will discuss the latest information available on Accountable Care Organizations (ACOs) in Medicare. In the meantime, here is some background about the Commission’s work on the issue to date.

An Accountable Care Organization (ACO) is a group of health care providers that are held responsible for the quality and cost of health care for a population of individuals. The Patient Protection and Affordable Care Act of 2010 created a pathway for the creation of ACOs in Medicare, with the hope that ACOs would help improve the quality of care for Medicare beneficiaries and reduce unnecessary Medicare spending.  MedPAC has written about ACOs in a Report to Congress here and in a recent comment letter here. (MedPAC commented on previous phases of the ACO program here and here).

Since 2012, ACOs have been operating in Medicare through the Medicare Shared Savings Program (MSSP) and through a demonstration program called Pioneer.  Currently, ACOs provide care to approximately 5 million Medicare beneficiaries through more than 300 MSSP participants and about 20 Pioneer ACOs. There are more than 200 ACO arrangements with private payers and over 70 ACOs with both government and commercial contracts. 

The results from the first year of Pioneer program have been mixed. About a third of the 32 Pioneer ACOs reduced spending enough in the first year to receive a bonus from Medicare (shared savings), but a larger share (19 of the 32) either did not reduce spending enough to share in savings or had spending exceed the target. CMS reports that about 30 of the 114 MSSP ACOs that started in 2012 had shared savings; but those are preliminary results. Final results are still coming in.

MedPAC has conducted data analysis, interviews, and site visits with ACOs to learn about their experiences with this new payment model. One of the most frequent reactions we heard in our interviews was that ACOs found it difficult to manage the program because they did not know who their beneficiaries are and what financial benchmark they are managing to. What does this mean?

  • The method Medicare uses to know which beneficiaries an ACO should be held accountable for is called attribution.  Currently, attribution in the MSSP is done retrospectively, which means that the ACO only knows who they have responsibility for at the end of the program year. We understand that CMS made the decision to do it retrospectively for two main reasons: First, CMS perceived it was unfair to make ACOs responsible for beneficiaries who don’t actually see them for most of their care; and second, CMS didn’t want ACOs to differentiate the way they deliver care based on whether a particular beneficiary is attributed to the ACO or not. While these rationales make sense in concept, according to the ACOs, they caused a lot of uncertainty in practice and have made it difficult for them to track their progress during the performance year.
  • An ACO’s financial benchmark is the level of spending that determines whether an ACO saves money and receives a bonus payment or loses money and does not receive a bonus payment. ACOs have difficulty managing to the benchmark because in some cases, they do not know their target until after the year being measured, or in other cases, the targets provided in the beginning of the year were modified through the year, creating a “moving target.”

If participants in the MSSP knew their population and their target in advance, it would improve their ability to manage their programs and have the certainty they need to invest the necessary resources for a successful program. In MedPAC’s June letter to CMS, we discuss improving the methods used for attribution of Medicare beneficiaries to ACOs, using prospective attribution, and having prospective benchmarks.

In the letter we sent to CMS, we also discuss a range of other short and long-term improvements to the program including strategies for greater beneficiary engagement, regulatory relief for providers that accept financial risk, and simplifying the quality measurement component of the program. 

The Commission's conversation on ACOs will continue at our public meeting on Thursday, September 11. To follow along, attend the meeting at the Ronald Reagan Building or get the slides and transcript afterwards at medpac.gov.

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