The Medicare Shared Savings Program provides financial rewards to Accountable Care Organizations (ACO’s) that successfully manage overall health care costs for a defined population of beneficiaries while meeting quality of care standards.    An ACO’s performance each year is based on comparison to the ACO’s financial benchmark.   One challenge facing the Shared Savings Program has been criticism of the methodology utilized to establish and update the financial benchmark for each ACO.

Under the current methodology, CMS establishes an initial financial benchmark for each ACO based on the historical healthcare costs for the ACO’s population of beneficiaries.   The ACO is then evaluated based on its ability to reduce cost of care from the benchmark number.   The benchmark number is revised on an annual basis  to reflect (i) updates in the demographics of the ACO’s assigned beneficiaries, (ii) an adjustments based on Medicare’s actual increase in per capital expenditures each year measured on a national basis, and (iii) for years after the first agreement period, adjustments based on the amount of savings generated by the ACO in the prior period.

CMS recently proposed changes to the methodology for adjusting/updating the ACO’s benchmark.   The changes are intended to improve the financial incentives for ACO’s by (i) comparing costs of care within the ACO to care provided outside of the ACO in the same geographic region, and (ii) limiting the link between the ACO’s past shared savings and its future benchmark (i.e., addressing the issue that ACO’s are currently  penalized in future years based on successful cost savings in prior agreement periods).   More information regarding the proposed changes can be found at:  https://www.cms.gov/Newsroom/MediaReleaseDatabase/Fact-sheets/2016-Fact-sheets-items/2016-01-28-2.html