Hospital-led ACOs raised Medicare spending 0.8% in ACO REACH

Health system-led standard accountable care organizations increased Medicare spending by 0.8% over ACO REACH’s first three years, while ACOs built around independent physician practices reduced spending by the same amount, according to CMS’s third annual evaluation of the model. The difference between the two groups amounted to roughly $285 million.

CMS said the gap was driven largely by hospital-based ACOs’ higher use of inpatient rehabilitation and long-term care hospital days, along with more emergency department visits. At the same time, independent practice ACOs moved in the opposite direction on nearly every measure described in the report.

Overall, the REACH model increased net Medicare spending by 0.8% in 2023, even though participating accountable care organizations lowered gross costs and improved care quality on nearly every measure tracked. Across the program’s three ACO types, net spending rose by about $192 million for the year. CMS said $869 million in shared savings and bonus payments to ACOs outweighed about $236 million in gross savings compared with non-participating providers.

ACO REACH is designed to pay ACOs to manage the cost and quality of care for a group of traditional Medicare enrollees. The program began in 2021 as the Global and Professional Direct Contracting Model and was later redesigned and renamed ACO REACH in 2023. Under the model, ACOs choose how much financial risk to take on and receive monthly payments in advance. They can then keep part of any savings or repay Medicare for losses, depending on how their patients’ costs and quality scores compare with a similar group of patients outside the model.

CMS plans to wind down the model at the end of 2026. It intends to replace ACO REACH with a new model called LEAD in 2027. The replacement model is expected to run for 10 years and use revised benchmarking intended to attract a broader mix of providers.

The third evaluation showed that the net spending increase was not uniform across the model’s three ACO types in 2023. High needs ACOs, which serve the most medically complex and costly patients, saw net spending jump 14.5%, or $85.2 million, the sharpest one-year increase of any group. Standard ACOs, which made up 80% of participants, had a smaller 0.5% increase, equal to $106.5 million. New entrant ACOs were flat.

Gross spending, which excludes CMS payments to ACOs, fell for every ACO type in 2023. Standard ACOs cut gross spending 0.9%, or $109 per patient, for the year. New entrant ACOs recorded the largest drop, at 6.2%, or $890 per patient. High needs ACOs also posted a small decline.

Looking at the full evaluation period, standard ACOs showed no net change in gross spending because the 2023 decline was offset by an increase in 2022. New entrant ACOs and high needs ACOs both showed significant reductions over three years, down 3.2% and 2.3%, respectively.

Standard ACOs also reported several care quality improvements. They cut potentially avoidable hospital stays by 4.7% and unplanned hospital admissions among patients with multiple chronic conditions by 2%. The report also said they increased recommended diabetes care and timely follow-up visits after a health flare.

New entrant ACOs posted the biggest single quality gain in the report, with an 11.7% drop in avoidable hospitalizations.

Health system-led ACOs saw a 3.6% rise in inpatient rehab and long-term care hospital days and a 0.5% increase in emergency department visits over the three-year period. Independent practice ACOs moved in the opposite direction on several measures, with hospitalizations down 1.3%, hospital stays 1.5% shorter, ED visits down 1%, and home health use down 2.5%.

CMS also found that ACOs taking on full responsibility for total cost of care cut gross spending 0.5% over the evaluation period, while ACOs choosing the lowest-risk option increased spending 0.6%.

Spending patterns also differed by patient group. Beneficiaries with eight or more chronic conditions, those with disabilities or kidney failure, and those enrolled in both Medicare and Medicaid saw larger spending cuts than average in 2023. Spending on the healthiest patients in the program increased.

Participation continued to grow despite the mixed financial results. A total of 132 ACOs took part in 2023, up from 99 the year before, covering more than 2 million Medicare patients in all 50 states. CMS also said participation from safety net providers more than doubled year over year, increasing from 420 to 871 sites.