Largest ACO Program Saves Piddling Amounts for Medicare

December 22, 2023

Estimated Savings From the Medicare Shared Savings Program
JAMA Health Forum
Dec. 15, 2023
By Andrew M. Ryan & Adam A. Markovitz

The Medicare Shared Savings Program (MSSP) was launched in 2012 to improve efficiency and generate financial savings for the Centers for Medicare & Medicaid Services (CMS). Under the program, voluntarily constituted accountable care organizations (ACOs)—groups of clinicians, hospitals, and other institutional participants—face accountability for the total costs of care received by traditional Medicare beneficiaries. If medical spending is below a specific target (benchmark), ACOs are eligible for financial bonuses. For CMS to break even or achieve net savings for traditional Medicare beneficiaries in the MSSP, gross reductions in medical spending must equal or exceed the sum of bonus payments paid to ACOs.

Results: The MSSP was associated with net losses to traditional Medicare of between $584 million and $1.423 billion over the study period. Savings from MSSP-related reductions to Medicare Advantage benchmarks totaled between $4.480 billion and $4.923 billion. Across traditional Medicare and MA, the MSSP was associated with savings of … 0.075% of combined spending.

Comment by: Kip Sullivan & Jim Kahn

The Physician Group Practice Demonstration, which was conducted by the Centers for Medicare and Medicaid Services (CMS) between 2005 and 2010, was the first test of the “accountable care organization” (ACO) concept. It failed: The ACOs cut traditional Medicare spending by a mere 3 tenths of a percent, and those teensy savings would have been losses if the evaluation had taken diagnostic upcoding and participation bias into account.

Despite the failure of this first ACO experiment, Congress inserted into the Affordable Care Act (ACA) provisions authorizing CMS to establish more ACO demonstrations within the traditional Medicare program, as well as a permanent ACO program known as the Medicare Shared Savings Program (MSSP). We reported in 2022 that the CMS ACO programs, including MSSP, were not working: they had saved or lost just a few tenths of a percent between 2012 and 2018.

This new analysis confirms the earlier studies we reviewed. The authors reported that bonuses CMS paid to the ACOs exceeded the gross savings some of them achieved, for a net loss of between $584 million and $1.4 billion over the 2013-2021 period. These are large sums of money, but represent only a few tenths of a percent of total spending for those ACO enrollees. Due to patient, physician, and organization participation bias, the actual net loss may be greater.

The analysis also examined the effect of the MSSP’s financial performance on Medicare Advantage (MA) costs. MA monthly capitation (premium) rates are calculated in part based on traditional Medicare costs. Thus, gross MSSP savings reduce MA capitation levels. (The provider bonuses which create MSSP net losses affect geographic adjustments but not overall MA capitation, per CMS rules.) The authors’ estimated savings to MA are larger than the MSSP’s loss to traditional Medicare, resulting in net savings for the entire Medicare program of $4-5 billion over 9 years, or $500 million per year. Again, sounds like a huge amount of money. But it represents less than 1/1000th of Medicare spending for the relevant time period; just 75 pennies per $1000 in program cost.

So, will MSSP (and ACOs generally) be a significant way to control Medicare costs? No, evidently not. And, as we’ve reported previously, the Medicare Advantage program is overcharging CMS by at least $100 billion per year – that’s about 200 times higher than MSSP savings. ACO REACH is even worse, inserting contractors between CMS and medical providers, creating more incentives to deny care.

Fiddling with payment incentive programs is not a real solution for our extravagantly expensive medical costs. Single payer is the real solution, combining efficiency with universal access.

Kip Sullivan is a member of the Health Care for All Minnesota policy committee.
Jim Kahn is an emeritus professor at UCSF and editor of HJM.