Medicare shared savings program

What Is the Medicare Shared Savings Program?

The Medicare Shared Savings Program (MSSP) is a federal initiative designed to promote accountability for the overall quality and cost of care for Medicare beneficiaries. As a key component of Value-based care within Healthcare finance, the Medicare Shared Savings Program incentivizes healthcare providers to form Accountable Care Organizations (ACOs) that deliver coordinated, high-quality Patient care while reducing unnecessary expenditures. When an ACO successfully lowers healthcare costs below a predetermined benchmark while meeting specific Quality of care standards, it becomes eligible to share in the resulting Cost savings with Medicare. Conversely, some ACOs may take on financial risk and be responsible for a portion of losses if costs exceed the benchmark.

History and Origin

The Medicare Shared Savings Program was established by Section 3022 of the Affordable Care Act (ACA), which amended the Social Security Act. The ACA, enacted on March 23, 2010, laid the groundwork for this shift from a traditional Fee-for-service model to a system that rewards value and outcomes¹⁰. This legislative action aimed to address rising Healthcare costs and improve the fragmentation often found in healthcare delivery. The program officially began operations in 2012, encouraging diverse groups of doctors, hospitals, and other healthcare professionals to collaborate voluntarily and enhance coordination of care for Medicare recipients. The Patient Protection and Affordable Care Act, which created the MSSP, is accessible through the official legislative records on Congress.gov.

Key Takeaways

• The Medicare Shared Savings Program is a voluntary initiative under Medicare that encourages healthcare providers to form Accountable Care Organizations (ACOs).
• ACOs participating in the MSSP aim to improve the quality of care for Medicare beneficiaries while simultaneously reducing unnecessary healthcare spending.
• Successful ACOs that meet quality targets and generate savings are eligible to receive a share of those savings from Medicare, known as Performance payments.
• The program emphasizes care coordination, Preventive care, and avoiding duplicate services or medical errors.
• Since its inception, the MSSP has demonstrated significant savings for Medicare, with reported net savings exceeding $2.1 billion in 2023⁹.

Formula and Calculation

The calculation of shared savings in the Medicare Shared Savings Program involves comparing an ACO's actual healthcare expenditures for its assigned beneficiaries against a predetermined benchmark. The benchmark represents the expected cost of care for that beneficiary population, adjusted for factors such as patient characteristics and regional spending.

The general concept can be represented as:

If the actual expenditures are below the benchmark, and the ACO meets predefined quality metrics and a minimum savings rate (MSR), it may share in the savings. The shared savings amount is typically a percentage of the difference between the benchmark and actual costs. Conversely, if actual expenditures exceed the benchmark in certain Risk-sharing tracks, the ACO may be responsible for a portion of the losses.

The specific methodology for establishing the benchmark and determining the sharing rate can be complex, involving historical spending, regional adjustments, and considerations for new vs. established ACOs. This process often involves Benchmarking against prior performance periods or regional spending levels.

Interpreting the Medicare Shared Savings Program

Interpreting the Medicare Shared Savings Program primarily involves understanding its intent: to shift healthcare reimbursement from volume to value. For healthcare providers, successful participation means strategically managing resources, focusing on preventative measures, and coordinating patient journeys to improve health outcomes efficiently. When an ACO generates shared savings, it indicates that the organization has delivered high-quality care at a lower cost than anticipated, reflecting effective clinical management and population health strategies. Conversely, an ACO that incurs losses or fails to meet quality standards may need to re-evaluate its care delivery models, data analytics, or patient engagement efforts. The program aims to foster integrated care delivery, where hospitals and physicians work collaboratively, often through enhanced Primary care services, to maintain beneficiary health and prevent costly acute events⁸.

Hypothetical Example

Consider a hypothetical Accountable Care Organization, "Harmony Health ACO," participating in the Medicare Shared Savings Program. Harmony Health is assigned 10,000 Medicare beneficiaries for a performance year. Based on historical data and risk adjustments, Medicare sets a benchmark expenditure of $100 million for this patient population.

Throughout the year, Harmony Health ACO implements several initiatives:

1. They establish a robust care coordination team that proactively manages patients with chronic conditions.
2. They emphasize annual wellness visits and preventive screenings to catch health issues early.
3. They streamline referrals and reduce unnecessary specialist visits or hospital readmissions.

At the end of the year, Harmony Health ACO's actual expenditures for its assigned beneficiaries total $92 million. This represents $8 million in savings compared to the $100 million benchmark. Assuming Harmony Health ACO also met all its required quality metrics and exceeded the minimum savings rate, they would be eligible to share in these savings. If their sharing rate is 50%, the ACO would receive $4 million as a performance payment. This payment incentivizes Harmony Health ACO to continue its focus on delivering efficient and high-quality Patient care while optimizing Healthcare costs.

Practical Applications

The Medicare Shared Savings Program primarily applies to the realm of federal healthcare policy and the operational strategies of healthcare providers. It serves as a significant mechanism for the Centers for Medicare & Medicaid Services (CMS) to manage Medicare expenditures and improve health outcomes for beneficiaries. Healthcare systems and physician groups leverage the Medicare Shared Savings Program to develop more integrated care models, investing in infrastructure for data analytics and care coordination.

For example, ACOs participating in the program often implement advanced electronic health record systems to track patient health, manage chronic diseases, and ensure seamless transitions between different care settings. The program's framework also influences how providers engage in Risk-sharing arrangements, moving beyond traditional fee-for-service models to adopt accountability for patient populations. The official website for the Centers for Medicare & Medicaid Services provides extensive information and data on the program's structure and performance. The program has demonstrated significant impact, with CMS reporting over $2.1 billion in net savings for 2023, representing the largest annual savings in the program's history⁷. This demonstrates its practical application in achieving broad-scale Cost savings for the Medicare program.

Limitations and Criticisms

Despite its successes in generating savings and improving care quality, the Medicare Shared Savings Program faces several limitations and criticisms. One notable challenge revolves around its Benchmarking methodology. Critics argue that the way savings targets are reset can penalize high-performing ACOs over time, making it increasingly difficult for them to achieve new savings in subsequent contract periods⁶. This "race against oneself" can discourage sustained long-term participation, as ACOs that have already achieved significant efficiencies may struggle to find further substantial Cost savings.

Another concern is the administrative burden and financial risk associated with participation, especially for smaller or less integrated healthcare entities. Establishing the necessary infrastructure for data collection, quality reporting, and care coordination can be costly and complex. Some observers have also raised concerns about potential "adverse patient selection" or inadequate risk adjustment, where ACOs might inadvertently or intentionally avoid sicker patients, or where the risk adjustment methodologies don't fully capture the complexity of patient populations, leading to skewed savings calculations⁵. These issues highlight ongoing challenges in balancing the program's goals of cost reduction and quality improvement with the practical realities faced by participating healthcare providers.

Medicare Shared Savings Program vs. Medicare Savings Programs

The Medicare Shared Savings Program (MSSP) and Medicare Savings Programs (MSPs) are distinct initiatives, despite their similar names, serving different purposes within the broader Medicare system.

The core confusion often arises from the term "savings." In the Medicare Shared Savings Program, the "savings" are generated by healthcare providers through improved efficiency and care management, and a portion is shared with those providers as Performance payments. In contrast, Medicare Savings Programs refer to state-run benefit programs that help qualifying individuals save on their personal Medicare expenses⁴.

FAQs

What is an Accountable Care Organization (ACO) in the context of the MSSP?

An Accountable Care Organization (ACO) is a group of doctors, hospitals, and other healthcare providers who come together voluntarily to give coordinated, high-quality care to their Medicare patients. In the context of the Medicare Shared Savings Program, ACOs are the entities that participate in the program, aiming to deliver efficient and effective Patient care³.

How does the Medicare Shared Savings Program benefit Medicare beneficiaries?

While the Medicare Shared Savings Program does not directly reduce individual beneficiaries' premiums or deductibles, it aims to improve their care by promoting coordination, preventive services, and overall higher Quality of care. This focus on value can lead to better health outcomes and a more streamlined healthcare experience for Medicare recipients².

What happens if an ACO doesn't save money in the MSSP?

If an ACO does not achieve the set savings target or fails to meet quality standards, it may not receive shared savings payments. In certain advanced tracks of the Medicare Shared Savings Program, ACOs also take on financial Risk-sharing, meaning they may be responsible for repaying a portion of the healthcare costs if they exceed their spending benchmark¹.