The Medicare Payment Advisory Commission (MedPac) released its biannual report summarizing policy issues and changes to be considered for the Medicare program, punctuated with a surprisingly strong endorsement of Accountable Care Organizations in Medicare. The June 2018 report reviewed the current performance of accountable care organizations (ACOs), highlighting specific problems that need to be addressed for two-sided ACOs to remain sustainable in the program.

Most notably, MedPac’s conclusion shows that ACOs are generating larger savings than simple comparisons to their benchmarks would suggest, stating that “ACOs may have saved Medicare from 1 percent to 2 percent more than indicated by their performance relative to benchmarks.” MedPAC also noted that “While these savings may appear modest, they are more than most care coordination demonstrations have achieved, including the most recent Comprehensive Primary Care initiative (Dale et al. 2016, Nelson 2012).”

MedPAC also analyzed contributors to ACO savings and found that, contrary to widespread concern among hospital leadership, most savings in ACOs to date have come from post-acute care, not reduced inpatient admissions.

In interviews we conducted in 2012 and 2013, many ACO leaders expected to generate savings by reducing the volume of inpatient care. In particular, physician leaders of ACOs saw the hospital as a key driver of spending, and reducing unnecessary hospital admissions as a key source of savings. However, a review of the literature finds that reducing (post-acute care) has been a much bigger source of ACO savings than reducing inpatient admissions (McWilliams et al. 2017a, McWilliams et al. 2017b).

MedPAC also affirmed that ACOs including hospitals can be productive participants in the program, saying that “the data show that ACOs with hospitals can meet spending targets.”

CMS is expected to issue a new rule affecting the Medicare Shared Savings Program ACOs within the coming weeks. Caravan Health hopes that CMS will address deficiencies in the regional benchmarking methodology that punish rural areas as well as other contributors to instability in the program benchmarks. Stay tuned at for analysis of the proposed rule when it’s posted.

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