ACO spending benchmarks have unintended consequences

Current rules for setting accountable care organization (ACO) spending targets diminish ACOs’ incentives to generate savings and may even encourage higher Medicare spending, according to a study published in Health Affairs.

Researchers from CPB Netherlands Bureau for Economic Policy Analysis, Harvard Medical School and Brigham and Women’s Hospital found that spending in the three years before ACOs enter or renew a contract is weighted unequally in the benchmark calculation, with a high weight of 0.6 given to the year just before a new contract starts. The ACOs thus have incentives to increase spending in that year to inflate their benchmark for future years, which makes it easier to obtain shared savings from Medicare in the new contract period, according to the study.

If existing rules remain in effect, for every dollar the ACO spends in the last year before a new three-year contract, it will get back between $1.48 and $1.90 during the contract period, the researchers found. 

“We suggest strategies to improve incentives for ACOs, including changes to the weights used to determine benchmarks and new payment models that base an ACO’s spending target not only on its own past performance but also on the performance of other ACOs or Medicare providers,” the authors concluded.

“These policies could help produce genuine shared savings as ACOs become an increasingly common payment model.”