Toward Accountable Payment

A new look at how 25% of Pioneer ACOs reduced cost growth

Tom Liu

CMS recently released a new evaluation of the Pioneer ACOs' early performance, which put gross savings at $146.9M—nearly double the initial estimate of $87.6M last summer.

But why the discrepancy? And how did the Pioneers generate these savings?

Comparing the two Pioneer ACO performance reports

The difference in estimated savings stems primarily from a difference in the methodology for calculating cost savings.

Last summer’s analysis, which was conducted by CMS and used to determine shared saving payments, compared each Pioneer’s cost growth to a national benchmark. (For more details on the financial model CMS used, read our white paper.) In contrast, the new analysis was carried out by an independent evaluator, and compared each Pioneer’s cost growth to a local benchmark.

As a result, a Pioneer ACO could have achieved savings relative to its local market, but failed to achieve savings under CMS’s official methodology—especially if its market experienced high cost growth. Or a Pioneer ACO could have performed similarly to other local providers, but earned a bonus by virtue of residing in a market with naturally low cost growth.

Different spending growth benchmarks create different winners and losers

The difference in the two reports suggests that using a national benchmark to determine savings advantages organizations in some markets while disadvantaging others.

According to the new evaluation of the Pioneer model, eight of the 13 Pioneers that received bonuses didn’t actually reduce spending relative to their local market. Conversely, three Pioneers that successfully reduced cost growth compared to their local market didn’t receive bonuses from CMS under the official methodology.

Since one purpose of CMMI is to test and innovative upon new payment and service delivery models, these findings raise the question of whether local spending benchmarks may be more appropriate than a national one. CMMI is currently soliciting feedback on the Pioneer ACO Model, and is accepting responses through March 1.

Three lessons from early Pioneer ACO performance

Beyond explaining the difference in methodology for determining cost savings, the new report on the early Pioneer ACO experience highlights three implications about their success to date.

1. Fewer Pioneers reduced cost growth than originally estimated
In contrast to the 13 Pioneers who qualified for savings based on the CMS methodology, the new analysis found that only eight of the 32 Pioneers achieved slower cost growth—three of which did not qualify for bonuses under the official program methodology. Furthermore, two of the Pioneers accounted for 41% of all savings.

2. Early savings came from reduced outpatient spending, not inpatient demand destruction
Only four of the 32 Pioneers saw slower inpatient cost growth, while two actually saw faster growth. Instead, most savings came from slowed outpatient and physician cost growth: 15 Pioneers successfully reduced outpatient cost growth and 11 reduced physician cost growth.

These early findings are consistent with a theory that the low-hanging fruit for cost savings lies in reducing unnecessary outpatient tests and procedures. We saw strikingly similar results from the Blue Cross Blue Shield Alternative Quality Contract in Massachusetts, in which 75% of the savings in the first two years came from reduced outpatient spending.

Meaningfully reducing inpatient demand through care management will likely take more than one year, even for experienced population health managers.

3. Market- and ACO-level characteristics do not dictate ACO success
The analysis tested a number of market-level and ACO-level characteristics, and found that none of them were significant predictors of slowed spending growth.

These characteristics include the number of ACOs in the market, population size, adjusted Medicare spending per beneficiary, Pioneer composition (e.g. health system, medical group, or individual practices), and whether the Pioneer was health system- or physician-led.

These results suggest that “ACOs can achieve lower spending growth under a range of market conditions and organizational structures,” which is exactly what we found when we studied over a dozen best-in-class population health managers.

Learn From Best-in-Class Population Health Managers

Notably, the new Pioneer analysis did not examine the success of operational aspects of population health, such as ACOs’ care management investments or clinical care models. But we did.

Health Care Advisory Board members can check out our study, Playbook for Population Health, to learn how the best population health managers—including some of the top-performing Pioneer ACOs—successfully improve quality and reduce costs.


Where the ACOs Are

CMS recently released the first results from the Medicare Shared Savings Program. Find out how the 2012 participants did—and why their performance reinforces the feasibility of population health. View the map »


Why You Should Focus on Cost Growth, Not Cost Cutting

You can't continue to cut costs to balance your books—but you can invest in innovations that will reduce the growth rate of your expenses instead. Watch the clip »


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