A New Elephant is in the ACO Waiting Room: It is Following the Money

Several years ago in the early days of Accountable Care Organizations (ACOs), we worried and warned about the importance of how each organization should divide up potential savings. In a white paper published in Physician Leadership Journal and on the Salient Web site[i], co-author Stephen Sheiko and I called it an “Elephant in the ACO Waiting Room.” In fact, today a new elephant is in the waiting room, and he is trumpeting a different warning message. The message is still about money; however, the elephant is warning about how much money is saved for the payer rather than how it is divided in the ACO. In 2018 ACOs generated net savings of $739.4 million during the year. In the most recently measured year, 2019, ACOs generated $1.2 billion net savings.[ii] While this is an improvement, it still begs the same question–is it enough?

The Medicare Program is the second-largest social insurance program in the United States with total expenditures of $739.4 billion in 2018.[iii] A ten-percent savings would have generated $74.1 billion. The $739.4 million savings generated in 2018 is a 0.1 percent savings for the system annually. This translates to Medicare costs of $2.03 billion each day, so the heralded ACO savings in 2018 would have covered only about 8 hours and 45 minutes of Medicare’s expenses. Total Medicare costs for 2019 were $785.6 billion, which translates into support for the Medicare spend for only 13 hours and thirty minutes.[iv]

Medicare continues to grow with new “boomers” added each day. In 2019, 541 ACOs in the Medicare Shared Savings Program generated $1.2 billion in total net savings to Medicare, the largest annual savings for the program to date. This is also the third year in a row that the program has achieved net program savings. Consistent with prior years, ACOs with shared savings continued to make good progress in reducing post-acute-care spending, along with hospitalizations and emergency department visits.[v]

While we should celebrate this continuing progress, it is important to note that in 2018 the savings created only a 0.1 percent savings for the Medicare system annually.[vi] The 2019 savings are a measurable 61 percent improvement, but that is still only a small fraction of what is necessary to clear the waiting room of elephants. In 2019, a 10 percent savings would have been over $78.5 billion. 

As we criticize the results, it is important to keep in mind that cost per beneficiary has leveled off over the last few years.[vii] If this trend continues, the system will start showing significant savings in a few years.   The question is–can we wait? In the meantime, we must focus on the positive data showing that quality scores are also continuing to improve. This translates into fewer emergency room visits, hospitalizations, and clinical “train wrecks” which send costs soaring. In fact, the data shows that the expensive hospital care is flattening as reflected by Part A claims. There is an expected steady rise in less expensive outpatient and office care.[viii] This is a desirable trend as complicated patients are being seen more frequently by physicians and other outpatient providers, thus preventing an expensive hospitalization.

On the other hand, when we place these savings and expenses against the bigger picture of the “out of control” federal spending and an expanding $27 trillion federal debt, the imperative is pushing even more for greater savings. If this frightening financial crisis is not moderated, we should expect the elephants to stampede. The economic disruption caused by our COVID-19 policies have advanced the depletion of the Medicare trust fund to 2026.[ix]  If the trust funds are exhausted, the entire cost of the Medicare program falls to the general fund. Currently, only 56 percent of Medicare’s costs are funded by payroll taxes, premiums, and other sources of revenue. This means that 44 percent is covered by the general fund.  When the trust funds fail, the difference will totally fall to the general revenues to cover the costs.[x] One can only imagine the compelling imperative for cost-cutting, rationing care, and more drastic changes to our health delivery system under these adverse circumstances. When the elephant trumpets and stomps on the ground, only the foolhardy will continue moving toward him. Do you think it is time to be really serious about healthcare delivery, quality, and financial efficiency?

[i]  Fairness in Shared Savings Distribution: The Elephant in the ACO Waiting Room

[ii] Medicare Shared Savings ACOs Saved $2.6B in 2019

[iii] Trustees Report & Trust Funds

[v]  2019 Medicare Shared Savings Program ACO Performance: Lower Costs And Promising Results Under ‘Pathways To Success’

 [iv] 5 things you might not know about Medicare

[vi] CMS Headlines:  ACOs Generate Savings, but Is It Enough?  Blog published on LinkedIn and Salient Web site: https://salienthealthcare.com/blog-cms-headlines-acos-generate-savings-but-is-it-enough/, Nov. 20, 2019.

[vii] 5 things you might not know about Medicare

[viii] ibid

[ix] How Much Does Medicare Cost and What Does It Cover?

[x] ibid

Craigan Gray

About the Author

Craigan Gray, MD, MBA, JD

Dr. Craigan Gray, Salient Healthcare’s Chief Medical Officer, brings rich experience from private practice, hospital leadership, and governmental health-benefit programs. Prior to joining Salient, Dr. Gray was director of North Carolina’s $12 billion Medicaid program. His time as VPMA at Bon Secours Our Lady of Bellefonte Hospital in Kentucky was distinguished by moving the facility into the top-quality performance tier for Health Grades and CMS health quality indicators. Dr. Gray is a Stanford University trained Obstetrician/Gynecologist. In addition to an MD degree, Dr. Gray holds an MBA degree and a JD degree. He is a Certified Physician Executive and is published in various medical journals.

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