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Physician-led ACOs are the most effective at reducing care costs: report


By managing chronic conditions and offering preventive screenings, they are able to keep patients out of high-cost care settings


Accountable care organizations (ACOs) that are led by independent practices and include a relatively large number of primary care providers (PCPs) save more money for Medicare than do hospital-led ACOs, according to a recent government study.

The report from the nonpartisan Congressional Budget Office examines factors that have either contributed to or limited the ability of ACOs—groups of physicians or hospitals that take responsibility for the quality and cost of care for an assigned group of patients—to reduce Medicare spending.

The focus of the report is largely on the Medicare Shared Savings Program (MSSP) which, with 11 million beneficiaries, is the largest Medicare fee-for-service ACO. Its findings are based on studies in peer-reviewed journals, official evaluations of Medicare ACOs, and think tank and research organization reports. The authors also consulted industry executives, professors and former government officials, among others.

The report found evidence that Medicare ACOs with a large proportion of PCPs, advanced primary care practices, or patient-centered medical homes were apt to produce the largest savings. It said this is due to PCPs’ ability to manage patients’ chronic conditions and provide preventive screenings, thereby reducing the need for higher-cost specialty care or treatment settings such as emergency departments.

By contrast, CBO’s literature review found that hospital-led ACOs have less control over the types of services patients receive. That means they must “find ways to algin the behavior of the providers who are on the frontlines of care with the hospital’s objectives,” the report states. 

In addition, hospitals generally have higher fixed costs than physician groups and must cover these regardless of the services they provide. Those fixed costs also produce conflicting incentives, in that reduced inpatient admissions—one of the primary goals of ACOs—means less revenue with which to cover fixed costs.

The report also discusses factors that limit ACOs’ ability to generate savings, starting with weak incentives for reducing spending. ACO spending benchmarks are set and updated according to the amounts spent on the ACO’s attributed beneficiaries. That means ACOs that reduce spending while maintaining care quality are effectively penalized with lower subsequent benchmarks, thereby weaking the ACO’s incentive to reduce its spending.

In addition, the report notes, sometimes the shared savings aren’t enough to incentivize provider participation. That’s particularly true for hospitals and health systems, where the incentives to reduce low-value care or shift care to lower-cost settings are further weakened by the revenue losses they would incur by making those changes, as well as their high fixed costs.

Another factor limiting ACOs’ effectiveness is the cost required to start a one. These are often steep and thus impede participation by smaller practices or those in rural or underserved areas.

The report includes several recommendations for policy changes that could lead to greater ACO savings, especially through the Medicare Shared Savings Program. Among these are:

  • Making ACO participation more attractive by restructuring or extending incentive payments, temporarily limiting downside risk, and making risk-adjustment systems more accurate,
  • Providing capitation payments to PCPs,
  • Increasing providers’ share of savings they generate by participating in an ACO, and
  • Strengthening incentives for Medicare beneficiaries to use doctors in a practice that’s part of an ACO
Stethoscope with text about ACOs ©Dorothy-stock.adobe.com


Responding to the report, the National Association of Accountable Care Organizations said,“We’re glad to see CBO lend their thinking to this important topic. We already know ACOs are an effective tool in lowering costs and improving quality.”

It added, however, that it’s “disappointed that policymakers undermine the contribution of hospital-based ACOs, some of whom have been and still are driving savings and quality improvements.”

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