Between 2005 and 2008, Medicare tested the shared savings model in a demonstration project with 10 of the nation’s most integrated large group physician practices. The groups set out to implement 32 quality measures generally thought to achieve better clinical outcomes (such as routine eye and foot exams for diabetics and follow up to make sure patients were taking blood pressure and cholesterol medications) to determine whether doing so would also lower costs.  If the groups improved performance on the measures each year and held their costs below other Medicare providers in their regions, they would receive 80 percent of Medicare’s savings. 

By the end of the third year, all ten groups had achieved benchmarks for 28 of the quality measures. However, only five groups qualified to share in the collective savings of $32 million to Medicare by lowering costs.

Now, Medicare is trying the same model again in a three-year experiment known as Accountable Care Organizations. However, this time there is a two-track model that allows a group practice participant that achieves the performance measures to either share a percentage of savings only or to share a greater percentage of savings if the group also agrees to bear a share of cost overruns.

In the ACO final rule published in the Nov. 2, 2011 Federal Register (76 FR at 67964), the CMS Office of the Actuary (Actuary) predicts that between 50 and 270 group practices will participate and serve between 1 and 5 million of Medicare’s approximately 47 million current beneficiaries.  The Actuary estimates these groups will collectively generate $470 million in savings over four years – a savings per beneficiary of between $24 to $118 per year.

The $470 million estimate is based on the “median” from 5000 computer simulations the Actuary conducted. The simulations found that savings could range as high as $2 billion (between $100 and $500 per beneficiary per year) or costs could actually increase by $1.1 billion over the same four years.