July 18, 2018


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Medicare ACOs are designed to slow growth in Medicare spending and improve the quality of care delivery. Since the first ACOs were established in 2012, there has been a persistent question of whether the population health management and wellness measures employed by ACOs will result in fewer inpatient stays and lower hospital revenue. Can ACO participation be worth the financial risk for inpatient hospitals?  

Ultimately, no hospitals would be willing to join an ACO if lower revenue put the financial future of the hospital at risk. They just can’t gamble with their own financial health, which could lead to closure or consolidation. The Medicare Payment Advisory Commission (MedPAC), in its recent report to the Congress, put some of these concerns to rest.  

The MedPAC report, titled Report to the Congress: Medicare and the Health Care Delivery Systemsupports the view that hospital revenue can withstand the cost and care management required for successful ACO participation.  MedPAC reviewed several studies which showed that, despite concerns about reduced inpatient admissions, most ACO savings result from a reduction in post-acute care rather than reduced inpatient admissions. This is especially important as more and more ACOs are taking on both upside and downside risk.   

Hospitals need to demonstrate performance under the terms of the ACO model, which means controlling total costs of care. It also means creating new business models that shift from inpatient care to outpatient preventive care over time. Recent data from Caravan Health show that ACOs can be a strong business model for hospitals. Caravan Health ACO revenue, both total and net patient revenue, for our ACO member hospitals steadily increased after the hospital joined an ACO. Our 2015 starters showed net patient revenue growth of 46 percent from 2014 to 2017. Caravan Health’s 2016 starters showed 15 percent revenue growth over the same period. These results did not include any shared savings paid out after the close of the reporting periods which add to total revenues.  

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