ACOs are being created to cut Medicare costs but also to help align services provided and charges incurred across the United States, regardless of whether the area historically shows low or high spending growth.  The payment mechanism behind the ACOs is to set spending targets based upon baseline Medicare spending for assigned populations and then projected forward by average increases in national Medicare spending.  This is anticipated to force higher and rapid spending growth regions to reign in their costs and allow low spending regions to earn additional savings which would allow them to support infrastructure improvements.  The reality of this approach, however, will cause ACOs in any of the regions to gain or lose financially without altering the quality or delivery of care.

This will further impact the regions and facilities that will be willing to participate in an ACO, particularly those that are the most important targets for payment reforms The Pioneer ACO demonstration will establish a baseline ACO spending level based upon the average fee for service (FFS) Medicare spending for assigned beneficiaries over the 3 years preceding the ACO, then multiply by a spending target adding 50% of the contemporaneous dollar increase in national Medicare spending plus 50% of the relative (percentage) increase in national Medicare spending.  If the actual spending differs from the target by at least 1%, the Pioneer ACO shares 0-70% of the resulting savings or losses. 

Hypothetical situations explored in the New England Journal of Medicine (J. Michael McWilliams, Z Song.   Implications for ACOs of Variations in Spending Growth  New England Journal of Medicine,  April 25, 2012 (10.1056/NEJMp/1202004) determined the potential payment impacts of Medicare's practice under the Pioneer payment agreement and how this payment policy will financially impact hospitals within an a regional basis.  Using ACO inception of 2008, ACOs in high spending, high growth areas were at a significant disadvantage, with gains and losses in many regions as much as 14% in either direction.  The study estimated that approximately half of the participating ACOs will have savings and losses offset each other over 3 year periods, but the other half may have persistent savings or losses regardless of their activities over that same 3 year period.

ACO operating fundamentals will shift incentives with new financial rewards relying upon measured performance. Cost effective pharmaceuticals provide the efficacy, efficiency and effectiveness to capitalize with these new incentives,   SMT can help you decipher how this and other demonstration project will impact your hospital.  Please contact us if you would like more information on how.