Perspective:

The Medicare Accountable Care Organization (ACO) programs offer health care provider organizations contracts with Medicare whereby the organizations assume financial risk and are rewarded for providing high-quality care at lower cost. ACO spending targets will be determined on the basis of baseline Medicare spending for assigned populations, projected forward by average increases in national Medicare spending. The reason for using national spending growth factors is to exert greater downward pressure on organizations in regions with high spending and rapid spending growth, while permitting greater savings in regions with low spending and slow growth to support organizational investments in infrastructure. However, under payment arrangements that use national growth factors to set spending targets, variation in local spending growth could cause many ACOs to achieve substantial savings or experience substantial losses that are unrelated to their efforts to improve efficiency in response to ACO contracts. It appears that at least initially, using local growth factors to set spending targets may better align savings for ACOs with savings for Medicare and reduce the financial uncertainty involved in participation. Later on and as ACO programs expand, it would be reasonable to consider some blend of local and national growth rates to optimally incentivize savings.