Shared Savings Program for ACOs Part II

March 11, 2011, 12:19 PM

The previous post set forth the current state of the shared savings program that will be utilized by Accountable Care Organizations (ACOs). As a follow-up, this post will expand upon the previous posts nuts and bolts explanation of the system, by use of two examples so that the readers can have a better real-world understanding of the systems benefits.

By way of a general example, if, for a particular ACO, (i) the benchmark is set at $100 million, (ii) the target savings percentage is set at 2%, (iii) the savings shared percentage is 80%, and (iv) the ACO during the relevant time period reports a total expenditure of $94 million, then the ACO would be entitled to a shared savings payment equal to $4,800,000. In this example, the ACO achieved a 4% cost savings (2% target savings required to qualify for the shared savings). The amount of the savings under the benchmark was $6 million (i.e. $100 million - $94 million). Therefore, this ACO would be entitled to shared savings payments equal to the savings ($6 million) multiplied by the savings shared percentage (80%), for a total of $4,800,000.

The Medicare Physician Group Practice Demonstration mentioned in our previous post (Changes to the Delivery Side of Health Care Under the PPACA) provides a further concrete example. In that demonstration, 10 practice groups were examined over a 4 year period. The practice groups were each given individual benchmarks that were determined by comparison to each respective groups local market area. Each group had a 2% target savings percentage, meaning that, in order for that individual group to recover any savings, it needed to be at least 2% under the local market benchmark set by the Secretary. The practice group received 80% of the amount that each group was below that 2% local market benchmark for a performance year. Therefore, in the third year of the demonstration, 5 of the 10 groups combined to be $32.3 million below the local market benchmark and, thus, those 5 groups split $25.3 million in savings payments (80% of 32.3 million). In the final year of the demonstration, those same 5 practice groups earned $31.7 million in performance payments for improving the quality and cost efficiency of care as their 80% share of a total of $38.7 million in Medicare savings. To read the complete fact sheet on this demonstration visit: http://www.cms.gov/DemoProjectsEvalRpts/downloads/PGP_Fact_Sheet.pdf .

As the final regulations applicable to ACOs and the shared savings program are expected to be released in the near future, it is unclear if the program will exactly reflect these examples or not. However, the regulations will be based on the above demonstration and those mentioned in our previous blog entry so there should not be much variation in the final regulations. Stay tuned to our future posts as we will keep you up to date on the final regulations as soon as they are issued. --Christopher L. McLean