We will be performing site maintenance on AAOS.org on February 8th from 7:00 PM – 9:00 PM CST which may cause sitewide downtime. We apologize for the inconvenience.


Published 6/1/2012
D. Joshua Miller, MD, MBA; Manish K. Sethi, MD; William T. Obremskey, MD; Hassan Mir, MD; A. Alex Jahangir, MD

ACOs: New Payment Models Present Opportunities, Risks

Understanding the Medicare Shared Savings Program

Although many prognosticators are expecting the Supreme Court to strike down some, if not all, of the Patient Protection and Affordable Care Act (PPACA), the problems and influences that led to the proposed healthcare reform will undoubtedly persist. Foremost among these is the steady escalation of healthcare costs, particularly for Medicare beneficiaries.

Even if some or all components of PPACA are ruled unconstitutional, efforts to limit healthcare costs and improve the value of care will continue. For physicians, the impact will likely go far beyond simply affecting Medicare reimbursement rates—it will also include greater focus on performance and quality measures.

Formed under the Medicare Shared Savings Program (MSSP), Accountable Care Organizations (ACOs) are designed to reduce the cost of health care and improve the quality of care provided to patients. Proponents claim that ACOs will be a major driver for improving value in health care. However, although PPACA mandated the establishment of ACOs, it included little detailed information about ACOs.

Fortunately, subsequent documents and rulings by the Centers for Medicare & Medicaid Services (CMS) provided further insight into both the structure of these organizations and the MSSP payment. Although the MSSP may be repealed with PPACA, understanding its structure and details can provide valuable insight into the focus of future programs and may be a model for other programs.

Shared savings
Through the MSSP, ACOs can share in a percentage of savings created by improved efficiency and cost-cutting measures. Specifically, the MSSP provides ACOs with two shared-saving options, each requiring a 3-year agreement. Key components to both options include meeting cost benchmarks and specific quality standards.

The first option, designed to encourage participation by minimizing risk, is available to ACOs during their initial sign-up. It enables them to earn a percentage of the cost savings (up to 50 percent)—without any downside risk—if their costs are below the benchmark by more than a set percentage. It also gives ACOs time to make the changes necessary to successfully transition to the second option.

The second option provides ACOs with a greater share of savings (up to 60 percent), but also incorporates loss sharing when ACO costs surpass their benchmark. In both options, the amount of shared savings is contingent upon reporting and meeting 33 specific quality measures.

Cost benchmarks
The cost benchmark determines whether a particular ACO qualifies for savings or is responsible for losses. Each ACO receives its own unique benchmark, proposed as a representation of the Medicare costs for the ACO’s beneficiaries if no cost-saving efforts were made. The MSSP defines this benchmark as the average total annual per-capita cost of the ACO’s assigned Medicare beneficiaries for the past 3 years, adjusted on a time-weighted basis (ie, the most recent year accounts for 60 percent, the previous year accounts for 30 percent, and the year before that accounts for 10 percent). Additionally, this figure will be adjusted for the patient population risk to account for cost differences associated with ACOs with large populations of high- or lower-risk patients.

The MSSP totals Medicare Part A and Part B costs for the beneficiary, including any costs incurred outside the ACO’s care when determining the total ACO’s per-beneficiary average. Thus, not all costs will necessarily be within the direct control of the ACO. This beneficiary average will then be adjusted annually based on the projected national increase in Medicare Part A and Part B per-beneficiary expenditures. The ACO’s benchmark will then be reassessed at the beginning of each 3-year agreement period.

Quality performance measures
The second qualifying component for shared savings incorporates quality performance standards. CMS has adopted 33 individual quality measures in four distinct domains to evaluate the performance of an ACO (
Fig. 1). The measures incorporate not only clinical and patient claims data, but also patient care experience surveys.

The ACO will be responsible for submitting much of the clinical data online, although some data will be included in submitted claims. CMS will initially administer and report the patient care experience surveys; however, beginning in 2014, ACOs will be responsible for paying an outside vendor to administer and collect the surveys.

During the first year, ACOs can meet the performance benchmark by simply reporting on all 33 measures. This allows ACOs to become accustomed to the process and identify areas of needed improvement without penalty. In subsequent years, the ACO will be required to surpass a specific benchmark to qualify for the shared savings. These benchmarks will be based on national averages and are currently set at the 30th percentile. Once this minimum standard is achieved, points will be awarded on a sliding scale up to the 90th percentile, beyond which full points will be awarded. The total points in each domain will be tallied and divided by the total possible points for that domain. The ACO’s performance score will be an average of the domain scores.

Potential problems
Proponents of the program believe the benchmarks and potential financial rewards can be a major instigator for improved value; critics argue the program has potential problems that will likely limit its acceptance. With cost benchmarks based primarily on the ACO’s previous performance, those benchmarks should continually decline as ACOs becomes more efficient. Achieving savings would more difficult as ACOs approach maximum efficiency.

As the upside risk shrinks, the downside risk grows because any inefficiency in the system would lead to potential losses. This becomes particularly troublesome because not all patient costs may be controlled by the ACO. Smaller ACOs, locations with high concentrations of non-ACO-affiliated physicians, or ACOs with few specialists will be at particular risk for losses because a significant portion of a beneficiary’s costs may come from physicians and facilities outside the control of the ACO. Beyond changes in the ACO or its community that could dramatically impact savings, modifications in the MSSP program such as further expansion of the quality standards (the original bill included 65) or adjustments to the minimum percentile could further substantially affect cost savings for ACOs.

Failure to meet new measures or adapt to increased administrative burden could make involvement by ACOs unsustainable. Although the risk-free, initial 3-year term might seem enticing, high implementation and administrative costs associated with joining the program may undermine any potential financial gains through cost sharing.

In conclusion, as ACOs begin to take their place in the healthcare delivery system, orthopaedic surgeons need to understand the purpose of ACOs and how they are designed to operate. With this understanding, orthopaedic surgeons can then make informed decisions regarding the impact of an ACO on their practices and choose whether or not to participate in an ACO.

D. Joshua Miller, MD, MBA, is a resident at the Campbell Clinic. Manish K. Sethi, MD; William T. Obremskey, MD; Hassan Mir, MD; and A. Alex Jahangir, MD, are all associated with the Vanderbilt Orthopaedic Institute Center for Health Policy.