The evolution of Accountable Care Organizations (ACOs) will be a big factor this year as the Obama Administration continues to focus on curbing health care spending and Congress ramps up its efforts to address physician payment and delivery system reform.   

On Thursday, January 30, the Centers for Medicare and Medicaid Services (CMS) announced top line savings projections from the initial 114 ACOs participating in the Medicare Shared Savings Program (MSSP) – the Medicare program set up by the Affordable Care Act with varying levels of upside and downside risk.  CMS reported that nearly half of those ACOs generated $128 million in Medicare savings.  The Pioneer ACO program, a pilot run through the CMS Innovation Center for providers willing to take on more upside and downside risk, has already reported savings of $147 million in their first performance year.

These savings are impressive more for the potential of the ACO model to achieve substantial Medicare savings than their actual Medicare savings performance to date. The majority of ACOs in both the MSSP and Pioneer programs did not achieve savings that yielded shared savings bonuses, and, in some cases, were required to reimburse Medicare for going over their spending target.  As ACOs consider whether to remain in the program and others consider applying in the future, realistic expectations and capabilities will have to be examined to weigh the ACO’s ability to lower Medicare spending against the costs of redesigning care, considering that ACOs incur an average of $3.5 million in startup and information technology costs (National Association of ACOs, National ACO Survey, November 2013).

As we discussed in an earlier post, CMS is already considering substantial changes to the Pioneer ACO program that could also affect the MSSP.  The Innovation Center requested stakeholder comments on everything from how ACOs could be more like Medicare Advantage plans to whether the Medicaid population should be included in ACOs.  Further, Congressional activity has increased around delivery system reform, ranging from bi-partisan legislation designed to reform post-acute care using global capitation—led by incoming Finance Committee Chair, Senator Ron Wyden (D-OR)—to a bill that would implement additional bundled payment approaches, which was introduced byRepresentatives Diane Black (R-TN) and Richard Neal (D-MA).  Several other high profile bills have been introduced in the past month and many more are expected over the coming months focusing on alternative payment models and improvements to existing ones.

While ACOs as we know them may be the current model, the structure of what is to come is likely to evolve through several iterations as a result of regulatory and legislative efforts.  The fact that some ACOs, which may not have been very experienced with the integrated health care delivery model, were able to achieve substantial savings only reinforces policymakers’ desire to accelerate delivery system reform initiatives in 2014.