Accountable care organizations (ACOs) participating in the Centers for Medicare & Medicaid Services’ (CMS’) Medicare Shared Savings Program reduced spending by nearly $1 billion in the first three years of the program, according to a report by the U.S. Department of Health and Human Services’ (HHS) Office of the Inspector General.

The report finds that most Shared Savings Program ACOs were able to reduce Medicare spending and improve quality of care in the first three years of the program, and a small subset of these ACOs showed substantial reductions in Medicare spending for key services.

The HHS OIG report says that Medicare spending is expected to grow to $1.4 trillion by 2027. To control this increase and promote quality and healthy populations, the CMS has implemented and is considering a number of alternative payment models that reward providers for the quality and value of services. The Medicare Shared Savings Program is one of the largest alternative payment models. As part of this program, health care providers form ACOs to coordinate care to reduce Medicare costs and improve quality of care.

OIG analyzed beneficiary and provider data from CMS to describe the characteristics of ACOs, and also analyzed spending and quality data to determine the extent to which ACOs reduced Medicare spending and improved quality in the first three years of the program. And, OIG analyzed spending and utilization data to describe how high-performing ACOs reduced spending and made changes to utilization for key services.

Over the first three years of the program, from 2013 to 2015, 428 participating Shared Savings Program ACOs served 9.7 million beneficiaries. The report notes that the number of ACOs grew over time, with 220 ACOs participating in the first year, increasing to 333 in the second year, and 392 in the third year. A total of 36 ACOs dropped out of the program in the first three years. The average number of beneficiaries that each ACO served also increased over time. Each ACO served an average 18,500 beneficiaries in 2015, compared to 16,700 in 2013.

During that time, most of these ACOs reduced Medicare spending compared to their benchmarks, achieving a net spending reduction of nearly $1 billion, OIG reports. During the first three years of the program, two-thirds of all ACOs (282 of 428) reduced spending for at least one of the years they participated in the program. The remaining ACOs (146) had spending that exceeded their benchmarks for each of the years they were in the program. These ACOs were not able to reduce spending below their benchmarks.

In its analysis, OIG found that ACOs that were in the program longer were more likely to reduce spending and by greater amounts.

The report states that 57 percent of ACOs that were in the program for three years were able to reduce spending in 2015, compared to 46 percent of ACOs that were in the program for one year. In addition, ACOs that were in the program for three years reduced spending by an average of $10.1 million per ACO in 2015, compared to $5.4 million per ACO for those that were in the program for one year. “This suggests that more established ACOs are learning how to achieve greater cost savings over time,” the report authors wrote.

In total, ACOs reduced spending by $3.4 billion in the first three years of the program. OIG found that there was significant variation in the reductions achieved by these ACOs. “About half of the spending reductions—$1.7 billion—was generated by just 36 ACOs. Three ACOs in that group generated a quarter of that amount,” the OIG report authors wrote.

At the same time, the ACOs that exceeded their benchmarks increased spending by a total of $2.4 billion in the first three years of the program. About half of that amount was generated by 38 ACOs. OIG reports that the net reduction in spending across all ACOs was nearly $1 billion in savings in the first three years. “Over time, the net spending reductions grew. Overall, ACOs reduced spending by a net amount of $234 million the first year, increasing to $429 million by the third year,” according to the report.

And, 154 ACOs (one-third of all ACOs) reduced spending enough to receive a portion of the savings in at least one year. In total, these ACOs reduced spending by $2.8 billion from 2013 to 2015, and, of that amount, the ACOs received $1.3 billion in shared savings payments.

Improvements in Quality of Care

At the same time, the OIG analysis found that ACOs generally improved the quality of care they provided, based on CMS data on quality measures.

In the first three years of the program, ACOs were required to report to CMS data on 33 quality measures. Each ACO receives an overall quality score based on its performance on the individual quality measures. ACOs’ average overall quality score increased from the second to the third year of the program. In 2014, ACOs had an average overall quality score of 86, which increased to 91 in 2015, the OIG report states.

Overall, in the first three years, ACOs improved their performance on 82 percent (23 of 28) of the individual quality measures. ACOs also outperformed fee-for-service providers on 81 percent (22 of 27) of the individual quality measures. “Notably, ACOs performed better than 90 percent of all fee-for-service providers in terms of low hospital readmissions,” the report authors wrote.

Further, a small subset of ACOs showed substantial reductions in Medicare spending for key services. “These ACOs, which we refer to as high performing ACOs, had been in the program for all three years and had both reductions in spending and high quality scores (an overall quality score of 90 or above) in 2014, 2015, or in both years,” the report authors wrote.

On average, high-performing ACOs reduced Medicare spending per beneficiary, while other Shared Savings Program ACOs and fee-for-service providers nationally (i.e., the national average) increased average per beneficiary spending. From 2010 to 2015, high-performing ACOs reduced spending by an average $673 per beneficiary for key services, while other ACOs increased spending by $707 per beneficiary, the report states.

In conclusion, OIG noted that while policy changes may be warranted, ACOs show promise in reducing spending and improving quality. However, OIG also noted that additional information about high-performing ACOs would inform the future direction of the Shared Savings Program as well as other alternative payment models.

“To help in this effort, OIG is conducting an additional evaluation of high-performing ACOs and the different strategies they employ to achieve Medicare spending reductions and quality improvements. Understanding the success of such ACOs can inform not only the future direction of the Shared Savings Program, but also other alternative payment models that seek to achieve high-quality care for lower costs,” the report authors wrote.