Win, Lose, and Push: CMS Announces First Year Results on the Pioneer ACO Program

29 July 2013 Publication
Author(s): Lawrence W. Vernaglia C. Frederick Geilfuss II

Legal News Alert: Health Care

On July 16, 2013, CMS announced results from the first performance year of the Pioneer Accountable Care Organization (ACO) Model. In the release, CMS reported that the Pioneer ACO participants held Medicare cost increases below those for the general Medicare population, netting more than $33 million of savings to the Medicare Trust Fund for 2012. At the same time, it was mentioned that nine of the 32 Pioneer ACOs will not continue in the second performance year.

Background on the Pioneer ACO Model

The Pioneer ACO program is operated by CMS’ Innovation Center and is distinct from the Medicare Shared Savings Program. Authorized under Section 3021 of the Affordable Care Act, the Pioneer ACO Model was designed for health care organizations and providers that were more experienced in offering coordinated care, including some who participated in the Physician Group Practice Demonstration project. The three-year Pioneer ACO Model utilizes a shared savings and shared risk model for the initial two years, with the risk and reward higher than is available in the Medicare Shared Savings Program. Positive performance on specified quality criteria provide enhanced savings to be shared, though in the initial year maximum credit for quality could be obtained by reporting on the indicated quality criteria. A requirement of the Pioneer ACO Model is that participants enter into shared savings or risk-type contracts with other payors so that more than 50 percent of the participant’s revenues are derived from such arrangements by the end of the second performance year. In the third year, Pioneer ACO participants who have shown savings in the first two years are eligible to move to a population-based, per-beneficiary, per-month payment arrangement with CMS. Such beneficiary per-month payment is intended to replace some portion of the fee-for-service reimbursement the organizations receive from the Medicare program.

Thirty-two organizations from across the country were selected from a competitive application process to serve as Pioneer ACOs. They started in the program on January 1, 2012. There were 669,000 Medicare beneficiaries prospectively aligned with the 32 Pioneer ACOs in the initial year of the Pioneer program’s operation.

Performance Results for 2012

In reporting on the results for 2012, the first performance year, CMS celebrated the savings generated for the Medicare program by the Pioneer ACO participants. CMS reported that of the 32 entities participating as ACOs in the Pioneer program, 13 shared in savings from CMS as a result of their performance reducing costs. The 13 Pioneer ACOs generated gross savings of $87.6 million in 2012, with a savings of approximately $33 million directly benefiting the Medicare Trust Fund. CMS reported that two Pioneer ACOs were obligated to return funds to the Medicare program under the sharing of loss aspect of the program, totaling approximately $4 million. The growth in Medicare expenditures for the Pioneer ACOs was held to 0.3 percent in 2012, materially better than for the general Medicare program. While only 13 received a share of savings, 25 of the 32 participants generated savings by reducing the risk adjusted readmission rates for their aligned beneficiaries.

CMS also reported the success achieved by Pioneer ACOs in providing higher-quality care. The Pioneer ACOs performed better on all 15 clinical quality measures than the general Medicare fee-for-service population. CMS also emphasized certain innovative approaches that Pioneer ACOs undertook to improve patient-centered care, including one ACO that dispatched hospital-trained nurses to patient homes to assist in managing prescription drugs, perform blood-sugar readings, and teach healthy eating.

At the same time as the CMS press release, it was announced that nine of the 32 ACOs have indicated they will leave the Pioneer ACO Model and not participate in the second year. It has been reported some of the nine will transition to the Medicare Shared Savings Program. One departing ACO stated that its efforts during the years prior to its participation in the Pioneer ACO Model to reduce costs and become more efficient made its ability to further reduce Medicare costs below the cost benchmark established for it under the Pioneer program more difficult and led to its inability to further reduce costs and share in any savings.

Other Governmental and Commercial Market Innovation

The Pioneer ACO Model is just one of many innovative programs introduced as part of the Affordable Care Act and by the CMS Innovation Center. These programs were designed to test changes in the reimbursement methodology to a more outcomes-based methodology and away from fee-for-service medicine. In addition to the Pioneer ACO Model, other programs intended to increase efficiency and quality while decreasing the provision of unnecessary care and saving Medicare program costs include the Medicare Shared Savings Program, the Bundled Payment Program, the Comprehensive Primary Care Initiative, and Primary Care Medical Home Programs, among others. The Affordable Care Act has also served as a catalyst for numerous commercial market programs in which providers are testing alternative delivery and reimbursement models to decrease costs and improve quality care.

Numerous health care providers have elected to participate in one or more of these governmental or commercial programs. More than 200 entities have elected to participate in the Medicare Shared Savings Program, representing well over three million Medicare beneficiaries. In commercial markets, providers are also contracting with managed care companies in innovative forms to further test different delivery and payment methods. Such contracted arrangements have providers sharing risk, participating in shared savings programs, and being paid for delivering quality care, all of which reward successful care coordination.

There also has been increased activity involving post-acute providers and ancillary providers such as ambulance companies, as they seek to participate in these various programs. Post-acute providers such as SNF’s and home care agencies are partnering with acute providers to receive rewards for helping to reduce costly hospital readmissions and otherwise to manage costs.

Device manufacturers are also seeking ways to participate. In one example of an innovative transaction, the device manufacturer Phillips has partnered with Georgia Regents Medical Center and entered into a 15-year, $300 million agreement to focus on patient-centered care, where reportedly Phillips is sharing in the risk to improve performance and reduce costs.

Managed care companies are also acquiring providers in certain markets as they attempt to prepare for changes in health care delivery and reimbursement and regulatory changes affecting health insurers.

Market Awaits Results of Programs

The Pioneer ACO Model results are among the first results issued concerning performance under these innovative programs. While the results appear mixed, there were some wins, some losses, and some that could be viewed as a “push,” with results likely to keep the providers in the program, but not returning expected financial rewards. As health care participants are testing various models and programs, they also are awaiting word on the results of these innovative structures. Depending on the results achieved, one may expect to see providers and others gravitating to the successful programs. Among the questions which may be answered once results are known, include:

  • Will the programs succeed in restricting health care costs while increasing quality?
  • Which ones will be most successful?
  • Are the benefits of participation equal to or greater than the infrastructure and other costs of participating in these programs?
  • Are the programs sustainable, that is, do they provide for changes that will lead to reduced costs and rewards for providers over the longer term?
  • How quickly will the overall market adapt to these new delivery and payment system structures?
  • Will providers continue to have a challenge in dealing with both significant fee for service business that rewards productivity while also being rewarded in other portions of their business for successfully reducing costs?

Critics have also raised questions as to whether shared savings programs such as the Pioneer ACO Model and the MSSP, which rely on bringing costs in below an established cost benchmark, can be sustainable over many years. Improvements in cost reduction in one year lead to new cost benchmarks in subsequent years, set at lower levels reflecting the cost reductions achieved in the prior year. That reduction makes it harder to meet cost benchmarks in the subsequent year. As noted above, one of the Pioneer ACOs electing to depart from the Pioneer ACO Model sighted the difficulty of continuing to reduce costs off a base reflecting its prior success in managing costs as a reason for electing to cease participating in the Pioneer ACO Model. These comments raise interesting questions about the baselines used for comparison between pre- and post-ACO implementations. The agency and provider stakeholders will need to address any unintended disincentives for provider groups that already operate compelling cost control and quality improvement programs from participating in CMS’s ACO programs. Critics have questioned whether providers will be able to continue to show cost improvement in such a model, and thus whether such model and other similar ones are sustainable over the longer term.


The initial results from the Pioneer ACO Model show some encouraging results, but many questions remain for providers as they assess alternative reimbursement and delivery models.

Legal News Alert is part of our ongoing commitment to providing up-to-the-minute information about pressing concerns or industry issues affecting our clients and colleagues. If you have any questions about this Alert or would like to discuss the topic further, please contact your Foley attorney or the following:

C. Frederick Geilfuss II
Milwaukee, Wisconsin

Jan E. Murray
Boston, Massachusetts

Lawrence W. Vernaglia
Boston, Massachusetts

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