Medicare Accountable Care Organizations Continue to Underwhelm

Confident DoctorsMedicare’s Accountable Care Organizations (ACOs), which launched in 2012, were supposed to introduce a significant shift away from paying for “volume” to paying for “value.” Critics of Fee-For-Service medicine claim this system causes physicians to do more to patients so they get paid more, notwithstanding benefits to patients. Those critics seldom identify the moral hazard associated with third-party payment (by insurers or governments) as a cause of too many medical tests or procedures.

So, they introduced ACOs, which would increase quality and cut costs by getting rid of straight Fee-For-Services and putting more financial risk on physician groups. If the physician groups pass certain thresholds of cost and quality, they can pocket some of the savings. The 2015 results for Medicare’s ACOs have been reported, and the results are underwhelming:

According to the results, over 400 Medicare ACOs generated more than $466 million in total program savings in 2015, accounting for all ACOs’ experiences. Of these, 125 qualified for shared savings payments by meeting quality performance standards and their savings threshold.

First, if over two thirds of ACOs (275) did not get to pocket any profits from their participation, they will surely drop out. Second, $466 million is a trivial share of Medicare spending: Less than one sixth of one percent of Medicare part B (physician) spending of $279.0 billion and less than one fourteenth of one percent of all Medicare spending of $647.6 billion.

This flawed doctrine is also embedded in the 2015 Medicare physician payment reform legislation, which committed Medicare to sweeping away most Fee-For-Services payments within a few short years, in favor of new payment models designed by the Centers for Medicare & Medicaid Services.

Instead of maintaining third-party payment and getting rid of Fee-For-Service, Medicare should get rid of third-party payment, let seniors spend their Medicare dollars directly, and let the physicians re-design their payment systems in response to patients’ demand.

Comments (16)

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  1. Lee Benham says:

    How do you propose getting the money to the seniors?
    People have paid Medicare insurance premiums there whole working lives. they should still receive something for there payments. After all its not there fault the Gov can manage money properly.

    • Ron Greiner says:

      After the election President Trump should repeal Obamacare and give everybody larger tax-free HSAs, including those over 65-years-old.

      President Trump should combine Part A and Part B deductibles in Medicare, phase out employer-based health insurance and Medicaid with aged-based tax credits.

      Tax-free HSAs in Medicare will target wealth to the elderly.

  2. Big Truck Joe says:

    Not to be called a nattering nabob of negativity, I actually commend the mission & purpose of these ACOs in performing medicine in a more cost effective manner. I may not believe they will ultimately be successful as the ACOs have been drawn up to work, but I think it’s a step in the right direction. Kudos – if only $466 million.

  3. Barry Carol says:

    Just how many Medicare dollars does each senior get to spend directly under your suggested approach? Some seniors need hundreds of thousands of dollars or more worth of care and others need next to nothing. It doesn’t make any sense to me. People need health insurance at least to pay for the expensive stuff.

    • Lee Benham says:

      Barry you said

      “People need health insurance at least to pay for the expensive stuff.”

      That’s all health insurance is supposed to cover!
      Coverage for an unforeseen illness or injury that can not be personally financed.

      Anything more is a bill paying service.

    • Allan says:

      If the senior felt the money was his he would be spending a lot less useless dollars then he does today. TTP means someone else is spending the money so spend away senior someone else’s children are paying the bill.

      There are many ways to increase the senior’s skin in the game without simply cutting off Medicare that they have paid for, but the ACO is a failure doomed to fail worse each year it exists.

      TPP is the culprit.

  4. Devon Herrick says:

    I am increasingly becoming aware that to get a handle on medical costs, we have to focus on the sickest people. For the average healthy senior, cost-sharing is a way to encourage them to watch their spending. For some seniors, they are at risk of being hospitalized and that is where ACA could help. But HHS has not done a good job of designing them. For one thing, the ACO is not assigned a patient until the end of the year. Who they are assigned to depends on where a patient sought care. If there was prior assignment, the ACO could work with the senior to really manage their health needs. How can an ACO be accountable when the senior is not accountable for working with the ACO?

    • Barry Carol says:

      “If there was prior assignment, the ACO could work with the senior to really manage their health needs.”

      I suspect that there would be enormous pressure to keep as much care within the system as possible especially if the ACO was owned and run by a hospital system whether or not the doctors within that system could best provide the care that the patient needs.

      My own NYC based cardiologist’s five physician practice was sold to a major NYC hospital system three years ago. Last year, I needed a sophisticated heart rhythm procedure. He felt that for what I needed it was in my best interest to refer me outside of his hospital’s system which is what he did and he was willing to fight the system’s management to do that not just for me but for all of his patients which is to his credit. Since he’s within a few years of retirement, he probably finds it considerably easier to stand up to the system’s management than a doctor who still has 20-25 years of practice ahead of him.

      My local primary care doctor is part of a hospital owned ACO. However, as a Medicare patient, I have the right to go anywhere I want for care and for my cardiac issues I go to my trusted cardiologist in NYC and the doctors he refers me to when I need a cardiac intervention. It’s not fair, feasible or practical to hold my local primary care doctor accountable for that care that he has no control over.

      I think there is more gold to be mined by intensively managing the sickest patients who are the most expensive for the system including patients with CHF, ESRD, mental illness, advanced diabetes, etc. This means intensive case management, home monitoring, home visits to assess needs for support and the like in order to minimize visits to the ER. Referring these patients to the most cost-effective high quality providers would also be helpful as would ensuring that they all have a living will or advance directive that lays out what care they want and don’t want at the end of life.

  5. Lee Benham says:

    The sick and the money spent at the end of life will always come down to ones own perspective. My personal feelings is I would like to avoid the diper years. I am hoping to be on this planet a good 80 years …I have a little less than 30 to go. But if I make it to 80 the plan is to buy a 60 foot catamaran and make one payment then SEE YA, Repo it if you can catch me I’m gone!

  6. John Rocky says:

    Thanks for taking the time to talk about this, I feel strongly about it and really like mastering more on this subject. If feasible, as you acquire experience, would you mind updating your blog with much more information and facts? It is very helpful for me.

  7. Steve Swank MD says:

    In my experience, management at the hospital level tends to greatly increase costs. Hospitals seem to be the least capable of drafting reasonable fee schedules.

  8. Larry Wedekind says:

    John, your conclusion that the ACO system is not working is incorrect. The Net Savings achieved of $400+ MM in 2015 by the 400+ ACOs is actually unprecedented because, although small, all of these Medicare Patients are between 4-6 years older in 2015 than their Baseline measurement period of 2009-2011. This means that the ACOs actually prevented any growth in total expenditures for these patients even though these patients were significantly older and actually achieved cost savings for these patients. In other words, the ACOs actually reversed normal annual cost increases that occur through inflation and through the normal aging process. Remember that we are aging as a nation…the average age is steadily increasing for the next 10 years. Remember also that Medicare age starts at 65 and we all get more frail the older we get.

    Eliminating the third party payment system for healthcare would guarantee a One Payer government run system that would bankrupt our country, decrease healthcare benefits for everyone, decrease quality and innovation, and would ruin the very positive catastrophic insurance system that is developing from the third party system. The catastrophic insurance system that is rapidly taking over the major medical system that we have had for many years is actually a positive development for the country as long as HSA and FSA accounts are further empowered through new legislation. Healthcare costs are astronomical and the third party payment system, while often corrupt due to stupid government policies, is the best free market solution.

    • Thank you. According to CMS (

      “This benchmark is adjusted for beneficiary characteristics and updated by the projected absolute amount of growth in national per capita expenditures for Parts A and B services under the original Medicare Fee- For-Service Program for each performance year within the agreement period.”

      Do the actuaries who calculate the benchmark not understand that the population in 2015 is five years older than it was at the baseline and include that adjustment factor? It would be remarkable for professional actuaries to overlook such an obvious factor.