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The American Journal of Accountable Care March 2018
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Medicare Accountable Care Spending Patterns: Shifting Expenditures Associated With Savings
David B. Muhlestein, PhD, JD; Spencer Q. Morrison, BA; Robert S. Saunders, PhD; William K. Bleser, PhD, MSPH; Mark B. McClellan, MD, PhD; and Lia D. Winfield, PhD
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Craig Tanio, MD, MBA, FACP; and Arnold R. Eiser, MD, MACP
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Medicare Accountable Care Spending Patterns: Shifting Expenditures Associated With Savings

David B. Muhlestein, PhD, JD; Spencer Q. Morrison, BA; Robert S. Saunders, PhD; William K. Bleser, PhD, MSPH; Mark B. McClellan, MD, PhD; and Lia D. Winfield, PhD
From 2013 to 2016, successful Medicare Shared Savings Program accountable care organizations reduced spending by shifting expenditures from the inpatient and postacute care setting to the physician office setting.
Table 1 displays these findings. Model 1 is our baseline model, using savings rate as our dependent variable. Model 2 excludes ambulatory and DME expenditures to address issues of multicollinearity; these beta coefficients and CIs are displayed in Figure 2.​

Model 3 is a logistic regression using the same independent variables as Model 1, where the dependent variable is a binary indicator of whether an ACO saved or did not save. Model 4 uses the same logistic regression excluding the 2 variables as previously discussed (Figure 3).

The results of our sensitivity analysis showed that, on average, ACOs that saved, holding all else equal, spent 0.36% less on inpatient, 0.31% less on SNF, and 0.16% less on home health expenditures.


We found that MSSP ACOs were shifting their expenditures and care utilization patterns. Between 2013 and 2016, MSSP ACOs made modest but nonetheless meaningful changes to where money was spent. MSSP ACOs are spending a smaller proportion of their money on inpatient services and PAC services, such as SNFs and home health, and a greater proportion of their money on services in the physician office setting and on hospice.

Although inpatient spending among MSSP ACOs increased in absolute terms from 2013 to 2016, inpatient spending as a percentage of total ACO spending decreased during that time, as seen in Figure 3. SNF spending decreased in both absolute terms and as a proportion of spending from 2013 to 2016. Future research is needed to assess if and how ACOs continue to shift expenditures.

We also found that although all MSSP ACOs are shifting their expenditures, the ACOs that improved their savings rate most rapidly were those that had shifted SNF and inpatient expenditures more dramatically. This finding indicates that the degree to which ACOs shift their expenditures matters and that significant additional savings can be gained by shifting inpatient and SNF spending toward physician services.

Our findings are consistent with the argument that some services may provide more value, leading to reductions in the cost of delivering healthcare.17 Increasing care in the physician office setting may reduce hospitalizations and the increased costs associated with inpatient stays,18 while focusing on well-structured care transitions between the hospital and the PAC setting may reduce unnecessary costs.19-21

Although we can observe that ACOs are changing the proportion of money that is spent on different types of care and that these changes are associated with modest savings, the data do not show us how or why ACOs are making these changes. Research using richer data on ACO experiences, such as ACO case studies, is needed to determine why ACOs are making these decisions and what actions they are taking to increase money spent on physician office care and decrease money spent on inpatient care and SNFs.

An in-depth exploration of the individual quality metrics and the composite quality score of MSSP ACOs between 2013 and 2016 can be found in our companion study, which investigates whether ACOs have improved quality over time. Our companion study found that, on average, MSSP ACOs have improved most quality measures.22 Importantly, this suggests that there is no association between shifting expenditures away from the hospital setting and a reduction in quality outcomes.

Policy Implications

Given healthcare’s rising costs, it is important to understand the tactics that ACOs are using to reduce spending. Due to the broad changes that occur relatively consistently across ACOs, our findings suggest that MSSP ACOs may be making deliberate and different choices over time about where they are spending their money and that these choices are associated with modestly improved financial savings. Although the overall early spending effects are modest, this evidence suggests, first, that ACOs can shift spending in ways that reduce overall costs, and second, a need for further understanding of how ACOs have made these changes, which could help the healthcare system rein in costs.

MSSP ACOs, we observed, increased their savings rate and potential for earning the model’s bonus payments by reapportioning money to different, lower-cost sites of care. Sustainable changes to our healthcare system require more than just paying differently for care. They also involve delivering care in a different way, including prioritizing lower-acuity, lower-cost settings. New payment models, such as the alternative payment models encouraged under the Medicare Access and CHIP Reauthorization Act, represent an important avenue to incent such changes. Continuing to refine and adopt new payment models may enable faster changes in practice, including care management pathways that reduce hospital use.

Finally, our research adds to the literature that suggests reducing spending on SNFs presents an opportunity for ACOs to lower costs.6,22,23 Although further work is needed to determine how ACOs may be able to shift some money away from SNFs, policy makers should continue to develop programs that incentivize care coordination, well-planned care transitions, and strategic partnerships between hospitals and PAC settings that have been shown to lower spending.24


The methods and data used for this analysis present several limitations.3 First, lack of a suitable counterfactual outside the MSSP program makes comparisons with what would have happened if these providers were not included in the MSSP ACO program impossible. Due to this limitation, our analysis relied on comparing changes based on benchmark expenditures within ACOs. Second, the MSSP benchmark itself is subject to critiques and limitations. Chernew and colleagues have persuasively argued that because policy goals drive the development of the benchmark, it is not a reliable counterfactual.3 Another limitation of our paper is that we define ACOs that saved as those that spent less than their benchmarks, which may not be the most accurate measure of savings. Although we examine within-ACO changes over time, we cannot know decisively whether these changes were unique to ACOs or representative of more general trends.25 In addition, the savings rate may be influenced by changes to the case mix experienced by ACOs. Although we believe that holding ACO-specific characteristics fixed likely eliminated some of this issue, it should be acknowledged that large changes in case mix within an ACO from one year to the next may lead to erroneous estimates.

The PUF data present several challenges. Not all expenditures are captured and tracked in the PUFs. For example, hospital outpatient spending data were not available in 2013 and were added in 2014. Because not all expenditures are tracked, the omitted expenditures may have a small relationship to the savings rate or may change over time, but this is a limitation presented by the available data. The main variables of interest were the various types of expenditures, which often have a collinear relationship. To verify the results, we used a sensitivity analysis to ensure the results were robust when they were evaluated using differing specifications (Table 2).

Because the MSSP program allows ACOs to enter and exit the program from one year to the next, the panel data assembled are unbalanced. This raises questions regarding which ACOs are likely to drop out and which characteristics are typically found within these organizations. A separate study using survival analysis would be more suitable for addressing this question. This analysis focuses on variation in expenditures and leaves the question of which ACOs are likely to drop out for a separate analysis.


We observed that, over time, MSSP ACOs are changing the proportion of money that is spent on different care settings. However, the ACOs that are achieving the most savings are making more dramatic shifts in expenditures. Our finding, that shifting more money to the physician office setting and away from SNF and inpatient spending is correlated with greater overall savings, suggests that this tactic may be pursued by other ACOs as a strategy to achieve greater reductions in overall spending without compromising quality.

Author Affiliations: Leavitt Partners (DBM), Washington, DC; Leavitt Partners (SQM, LDW), Salt Lake City, UT; Robert J. Margolis, MD, Center for Health Policy, Duke University (RSS, WKB, MBM), Washington, DC.

Source of Funding: None.

Author Disclosures: Dr Muhlestein, Mr Morrison, and Dr Winfield are employed by Leavitt Partners, which consults about ACOs and works with providers and ACOs. Dr Muhlestein has given speeches that included ACO research, some of which provided travel expenses or small honoraria, and has attended multiple ACO conferences. He has received grants from the Commonweath Fund and the Gordon and Betty Moore Foundation for work on ACOs. Dr Saunders, Dr Bleser, and Dr McClellan are employed by Duke University, which has an ACO that was not involved with this research, nor did it fund the research in this paper. They have attended meetings of the Health Care Payment Learning and Action Network and the Accountable Care Learning Collaborative. They have a grant unrelated to this manuscript from the Moore Foundation to study ACOs, and Dr McClellan also has a grant unrelated to this manuscript from the Commonwealth Fund to study global best practices in accountable care. Dr McClellan is co-chair of the Health Care Payment Learning and Action Network and co-chair of the Accountable Care Learning Collaborative. The authors report no other relationship or financial interest with any entity that would pose a conflict of interest with the subject matter of this article.

Authorship Information: Concept and design (DBM, SQM, RSS, WKB, MBM); acquisition of data (DBM, SQM, RSS, WKB); analysis and interpretation of data (DBM, SQM, RSS, WKB, MBM, LDW); drafting of the manuscript (DBM, SQM, RSS, WKB, LDW); critical revision of the manuscript for important intellectual content (DBM, SQM, RSS, WKB, MBM, LDW); statistical analysis (DBM, SQM, RSS, WKB); administrative, technical, or logistic support (RSS, WKB, LDW); and supervision (RSS).

Send Correspondence to: Lia D. Winfield, PhD, Leavitt Partners, 299 S Main St, Ste 2300, Salt Lake City, UT 84111. Email:

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