HCA 320 Module 8 assignment: executive brief: a policy-driven business proposal with a recommendation, a full sample

Our Own ACO or the Hospital's? An Executive Brief on Medicare Shared Savings for an Independent Physician Group

Student Name

Health Care Administration Program, Aspen University

HCA 320: Healthcare Policy and Economics

Instructor Name

Month Day, Year

Our Own ACO or the Hospital's? An Executive Brief on Medicare Shared Savings for an Independent Physician Group

Summit Family Physicians, a composite independent group of 45 primary care clinicians, has about 9,200 traditional Medicare patients who would be assigned to an accountable care organization. The group has two offers: form its own ACO in the Medicare Shared Savings Program, or join the ACO run by Valley Regional Health, the local hospital system. This brief summarizes how the program works, what the evidence says about which kind of ACO saves money, estimates the finances of forming Summit's own ACO, and recommends a course of action.

Recommendation in Brief

Summit should form its own ACO, enter the program's one-sided track that shares savings without risk of repaying losses, and invest about $824,000 a year in care management and analytics, with a review after the third performance year. The evidence favors physician-group ACOs, and the group needs savings of about 1.8 percent to break even on its investment.

How the Program Works

In the Medicare Shared Savings Program, an ACO of clinicians accepts accountability for the total Medicare spending and quality of care of its assigned patients. Medicare sets a spending benchmark based on the patients' prior spending. If actual spending falls sufficiently below the benchmark and the ACO meets quality standards, the ACO receives a share of the savings; in one-sided arrangements the ACO does not repay Medicare if spending exceeds the benchmark. Patients keep full freedom to see any clinician. The model rewards reducing avoidable hospital use, emergency visits, and low-value care, which puts primary care groups in a strong position because they influence those decisions without earning revenue from hospital admissions.

Why Payment Models Like This Exist

The shared savings program is one answer to a long-running criticism of fee-for-service payment: that it pays for the volume of services rather than their value. Miller (2009) argued that neither fee-for-service nor traditional capitation rewards the right things, and proposed payment approaches that hold providers accountable for the total cost and quality of care for a condition or a population, while cautioning that many providers were not yet organized to accept such payments. The shared savings program is a mild version of that idea. Clinicians are still paid fee-for-service for each visit, but the ACO can earn a bonus for lowering total spending. For Summit, this means the ACO adds a second income stream without replacing the first, and the question is whether the group can organize itself to earn it.

What the Evidence Shows

The best evidence comes from comparisons of ACO participants with similar non-participants. In the first full year, McWilliams et al. (2016) found savings of $144 per beneficiary, about 1.4 percent, among ACOs that entered in 2012 but essentially none among 2013 entrants, and savings were consistently greater in independent primary care groups than in hospital-integrated groups. After three years, the difference had grown. By 2015, physician-group ACOs that entered in 2012 reduced per-patient spending by $474, or 4.9 percent, and those entering in 2013 by $342, or 3.5 percent, while hospital-integrated ACOs produced much smaller or no significant reductions, and their reductions were offset by bonus payments (McWilliams et al., 2018).

The likely reason is incentives. A hospital-integrated ACO that keeps patients out of the hospital loses inpatient revenue, while an independent group loses nothing. For Summit, joining the hospital's ACO would place its care management efforts inside an organization that earns money from the admissions those efforts are designed to prevent.

Financial Estimate

Summit's assigned patients cost Medicare about $12,400 each per year, a benchmark of roughly $114.1 million. Forming an ACO requires about $824,000 a year: four registered nurse care managers at $95,000 each with 30 percent benefits, or $494,000; $150,000 for data analytics; and $180,000 for administration and compliance. Assuming a 40 percent share of savings in the one-sided track, Table 1 shows the group's result at different levels of savings.

Reading the Numbers

The group breaks even at savings of about 1.8 percent of the benchmark. The evidence suggests physician-group ACOs can reach 3.5 to 4.9 percent by the third year, but the first year may produce little, as the 2013 entrants showed. Summit should therefore budget for a loss in year one, roughly the cost of the investment less any early savings, and expect returns in years two and three. The one-sided track limits the downside to the group's own investment, which is why it is the right entry point. Shared savings are also paid after the performance year closes, so the group must fund its first year of costs from reserves or a line of credit.

Risks

Three risks deserve attention. First, savings depend on changing care, not on enrolling; without effective care management, the group may simply cover its costs. Second, Medicare's rules and benchmarks change, and future rules may require moving to arrangements with downside risk. Third, the hospital system may respond by favoring its own ACO physicians in referrals. The group can manage these by tracking hospital admissions, emergency visits, and post-acute use monthly, preparing for two-sided risk only after it has shown savings, and maintaining referral relationships with specialists across systems.

What Summit Would Need to Change

Savings come from care, not contracts. The care managers would focus first on the roughly 10 percent of patients who account for the largest share of spending, those with heart failure, chronic lung disease, or multiple hospital stays in the past year, calling them within two days of any discharge and arranging a visit within a week. The analytics budget would pay for timely data on admissions and emergency visits from Medicare's claims feeds and the regional health information exchange, so that care managers learn of hospital use while it can still be acted on. Clinicians would also need to review referral patterns for high-cost imaging and specialty care, since some savings will come from choosing equally good, lower-cost options.

Metrics and Decision Point

Summit's board should review quarterly: hospital admissions and emergency visits per 1,000 assigned patients, the share of discharged patients seen within seven days, spending per patient against the benchmark, and quality scores. If after the third performance year savings have not reached 2.5 percent, the board should reconsider joining a larger ACO or partnering for shared infrastructure.

Conclusion

Medicare's shared savings program rewards primary care groups that reduce avoidable hospital use, and the evidence shows independent physician-group ACOs have done that more successfully than hospital-integrated ones. For Summit, forming its own ACO in a one-sided track requires an investment of about $824,000 a year and breaks even at about 1.8 percent savings, well within what comparable groups achieved by their third year. The group should proceed, fund the first year from reserves, and hold itself to clear measures.

References

McWilliams, J. M., Hatfield, L. A., Chernew, M. E., Landon, B. E., & Schwartz, A. L. (2016). Early performance of accountable care organizations in Medicare. New England Journal of Medicine, 374(24), 2357-2366. https://doi.org/10.1056/NEJMsa1600142

McWilliams, J. M., Hatfield, L. A., Landon, B. E., Hamed, P., & Chernew, M. E. (2018). Medicare spending after 3 years of the Medicare Shared Savings Program. New England Journal of Medicine, 379(12), 1139-1149. https://doi.org/10.1056/NEJMsa1803388

Miller, H. D. (2009). From volume to value: Better ways to pay for health care. Health Affairs, 28(5), 1418-1428. https://doi.org/10.1377/hlthaff.28.5.1418