Shared savings program
Written by Patricia King, JD   

Section 3022 of PPACA calls for the establishment of a Medicare shared savings program by January 1, 2012.  The shared savings program would reward accountable care organizations (ACOs) that lower average per capita Medicare expenditures while continuing to meet quality performance standards.

An ACO is a group of providers and suppliers which have established a mechanism for shared governance.  The ACO can be a group practice; a network of individual practices; a joint venture between one or more hospitals and physicians; one or more hospitals with employed physicians; and other groups as recognized by HHS.  The ACO must meet several requirements:

      • Be accountable for the quality, cost and overall care of Medicare beneficiaries assigned to the ACO;
      • Enter into an agreement with HHS for at least 3 years;
      • Have a formal legal structure;
      • Include primary care professionals sufficient for the number of assigned Medicare beneficiaries.  The ACO will have at least 5,000 assigned beneficiaries;
      • Provide information to HHS to support the assignment of beneficiaries, the implementation of quality and other reporting requirements, and the determination of shared savings payments;
      • Have a leadership and management structure including clinical and administrative systems;
      • Define processes to promote evidence-based medicine and patient engagement, report on quality and cost measures, and coordinate care; and
      • Meet criteria for patient-centeredness.

HHS will establish cost benchmarks for the ACO based on the most recent available three years of per-beneficiary expenditures for the beneficiaries assigned to the ACO.  If an ACO meets quality performance standards and achieves actual per capita expenditures for their assigned beneficiaries below the specified benchmark, the ACO will receive a share of savings.

Where have we seen this before?  The requirements for ACOs look a lot like standards that have been used for many years by IPAs paid on a capitated basis.  Even more than for IPAs, a major challenge for an ACO will be controlling out-of-network utilization, because the assigned beneficiaries will be Medicare fee-for-service enrollees and will have no obligation to stay within the ACO – they will need to be motivated by the ACO’s quality and patient-centered practices.

Will value-based purchasing and shared savings programs, along with the other innovations introduced by PPACA, be effective in changing the cost curve?  Whatever the ultimate outcome, our industry is in for a bumpy ride.

About the Author

Patricia King, JD
Patricia King is a health care attorney in Illinois, and principal of the web-based business Digital Age Healthcare LLC ( 

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