Despite Modest Savings to Date, MedPAC Remains Optimistic About ACO Performance

September 17, 2014 09:04 pm Michael Laff

As eager as federal officials may be to introduce new Medicare payment methods to control health care costs, members of the Medicare Payment Advisory Commission (MedPAC) recognize that evidence of real savings will take several years to achieve.

[Cotor sitting at desk talking with senior male patient]

During a recent meeting here(, MedPAC commissioners discussed the performance of accountable care organizations (ACOs) and how to create more incentives to ensure their success.

MedPAC advises Congress on payment and administration of Medicare issues.

Based on the latest statistics from CMS(, 348 ACOs are participating in the Medicare Shared Savings Program (MSSP), covering an estimated 5 million patients.

Early returns on cost savings are modest, with average savings recorded from all ACOs at 0.3 percent. About 15 percent of participants reported savings between 2 percent and 5 percent, and about 10 percent yielded savings between 5 percent and 10 percent. The overwhelming majority of ACOs fell within a range of between a 2 percent loss and a 2 percent gain.

Even acknowledging the modest savings, however, the majority of commission members continued to express support for their operation and sought ways to improve their performance.

"I can see why people look at the data and are disappointed," said MedPAC Commissioner Warner Thomas, M.B.A. "ACOs were built on a fee-for-service chassis. If we create some savings and beat medical trends for some beneficiaries, that is a win."

MedPAC officials said it will take one or two more years of data from MSSP participants to have an adequate timeframe from which to draw conclusions about performance. What commissioners wrestled with during this meeting was whether enough incentives exist for ACOs to continue in the program.

Thomas noted that 70 percent of ACOs achieved savings or broke even, a considerable feat given the difficulty of operating them and the short time they have existed. "They've been relatively successful in two years," he said.

Thomas suggested that ACOs could be more successful if additional incentives were provided and methods were developed to create more interaction between patients and their ACO.

For example, many patients are not even aware that they are part of an ACO. In focus groups conducted with patients, only one in 59 respondents had heard of an ACO. Medicare patients have freedom to choose where they receive care and can see physicians outside of their ACO.

"We don't need to get as many ACOs as we can," Thomas said. "We want to get people who are interested in driving down medical costs and getting waste out of the system."

Commissioner Mary Naylor, Ph.D., R.N, asked what many in the medical field and health analysts have been asking in the two years since ACOs began operating. Looking ahead one year from now, she asked what the definition of success for an ACO would be in terms of improved quality and reduced cost.

Jeff Stensland, a MedPAC policy analyst, responded that Medicare's goal regarding ACO performance should be achieving savings that cover overhead costs and improving quality metrics above those seen in fee-for-service plans. He cautioned members about expecting huge savings from ACOs. Although the waste in fee-for-service models has been estimated at 30 percent, that will not necessarily translate to an equal amount of savings in an ACO.

"We should be happy with singles instead of home runs," said Stensland. "Double-digit savings are not going to happen."

Stensland outlined four possibilities that, if implemented, could help ACOs perform at a higher level:

  • Reduce administrative costs by simplifying the reporting requirements that some organizations have said are too difficult and time-consuming.
  • Offer a higher percentage of shared savings to successful groups.
  • Include greater incentives to keep patients in their particular ACO network.
  • Provide more cash up front to administrators when they are building the ACO.

Another issue discussed during the meeting was that ACOs are not spending on marketing because of "passive enrollment," referring to patients who are members of an ACO without knowing it. Whereas ACOs spend about 2 percent of their budget on administration, Medicare Advantage programs spend about 10 percent on administrative costs. And, although ACO performance varies widely, ACOs perform much better in the South.

Other MedPAC viewed the statistics and admitted that they had higher expectations regarding the projected cost savings.

"I look at the same data, and I'm disappointed compared with what we thought we would get four years ago," said Commissioner Jay Crosson, M.D. Still, he supported efforts to put more ACOs into operation.

"Should we have more ACOs? I think so. It's worth the work," said Crosson. "We have to find out why organizations are choosing to become a Medicare Advantage plan over an ACO."