Why Realizing Shared Savings Should Not Be the Ultimate Goal of an ACO

Accountable Care Organizations (ACOs) have been sprouting up across the country in one form or another. Although ACOs have been highly touted for their ability to coordinate and improve the quality of patient care, the opportunity for providers to realize shared savings has been the key motivator for the adoption of the ACO model. Decreasing the inappropriate utilization of high cost health services, reducing readmissions, avoiding ambulatory sensitive admissions and improving the management of patients with chronic diseases are the “low-hanging fruit” as ACOs look to reduce the healthcare expenditures associated with a defined population of patients.

What the leaders of developing ACOs must remain acutely aware of is that ACO math is more complex than the shared savings equation would suggest. In general, the most intuitive means for an ACO to realize shared savings is to decrease the utilization of traditionally high margin healthcare services (i.e. high cost imaging) while potentially increasing the utilization of traditionally low margin healthcare services (i.e. cholesterol screening). If one believes in this logic, then one is likely to become concerned that any realized shared savings may not cover the fee-for-service revenues that were lost in order to realize the shared savings.

Some, including myself, argue that the shared savings offered by the Medicare Shared Savings Program are not actually intended to be an incremental revenue stream for high performing hospitals or health systems, but are merely meant to keep their doors open while the healthcare industry’s cost structure is reset (at lower rates). Should this be the case, then healthcare organizations who truly want to “win” as ACOs in the long-term should focus less on generating shared savings by picking the aforementioned “low-hanging fruit” and diligently work to lower their per unit cost structures (through initiatives to increase operational efficiencies and reduce input costs) and capture market share (through superior and transparent quality and customer service performance). - Dr. John Redding

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