title: Avoiding unintended incentives in ACO payment models.
abstract: One goal of the Medicare Shared Savings Program for accountable care organizations (ACOs) is to reduce Medicare spending for ACOs' patients relative to the organizations' spending history. However, we found that current rules for setting ACO spending targets (or benchmarks) diminish ACOs' incentives to generate savings and may even encourage higher instead of lower Medicare spending. 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. Thus, ACOs have incentives to increase spending in that year to inflate their benchmark for future years and thereby make it easier to obtain shared savings from Medicare in the new contract period. 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.
authors.affiliation: Rudy Douven (R.Douven@cpb.nl) is a health economist at the CPB Netherlands Bureau for Economic Policy Analysis, in The Hague, and at Erasmus University Rotterdam, both in the Netherlands.
authors.forename: Rudy
authors.initials: R
authors.lastname: Douven
authors.affiliation: Thomas G. McGuire is a professor of health economics at Harvard Medical School, in Boston, Massachusetts.
authors.forename: Thomas G
authors.initials: TG
authors.lastname: McGuire
authors.affiliation: J. Michael McWilliams is an associate professor of health care policy and medicine at Harvard Medical School and Brigham and Women's Hospital, in Boston.
authors.forename: J Michael
authors.initials: JM
authors.lastname: McWilliams
mesh_terms: D060866:Accountable Care Organizations / Q000191:economics* / Q000639:trends*; D019985:Benchmarking / Q000191:economics / Q000639:trends; D003363:Cost Control / Q000191:economics / Q000639:trends; D017046:Cost Savings / Q000191:economics / Q000639:trends; D003695:Delivery of Health Care / Q000191:economics / Q000639:trends; D018588:Fee-for-Service Plans / Q000191:economics / Q000639:trends; D005544:Forecasting; D006801:Humans; D006278:Medicare / Q000191:economics* / Q000639:trends*; D012052:Reimbursement, Incentive / Q000191:economics* / Q000639:trends*; D014481:United States
keywords: Financing Health Care; Health Economics; Health Spending; Medicare; Organization and Delivery of Care