Does Longevity Help or Hurt When Evaluating an ACO?

An ACO, or Accountable Care Organization, is a group of doctors, hospitals, and other providers who take on responsibility for the cost and quality of care for a defined group of Medicare patients. MSSP, the Medicare Shared Savings Program, is the CMS program that most ACOs operate under, and it is the one this post is about.

If you're a provider considering joining an ACO, it's natural to weigh how long that ACO has been around. A track record feels safer. A newer ACO can feel like an unproven bet. That instinct is understandable, but it isn't the full picture, and in MSSP specifically, it may lead you to the wrong conclusion.

Here's the piece that often gets left out in that analysis: MSSP benchmarks are modified (rebased) periodically using an ACO's own recent spending history. When an ACO succeeds in lowering spending, that lower spending becomes part of the baseline for its next benchmark. Industry groups call this the “Ratchet Effect,” and CMS itself has acknowledged it by that name when describing the policy changes it has made to address it. In practice, it means a mature ACO that has already generated strong savings is, in a real sense, competing against its own prior success in subsequent years.

To be clear, this isn't a story about mature ACOs failing. Established, profitable ACOs exist across the program, and CMS has taken steps to soften the Ratchet Effect. Starting with agreement periods beginning in 2024, a Prior Savings Adjustment allows ACOs to add back a meaningful portion of their recent savings when their benchmark is rebased, specifically to address the Ratchet Effect. A mature ACO brings real advantages too: an operational track record, established provider relationships, and infrastructure that's already built and paid for. Neither age nor youth make an ACO categorically better. They come with different implications and advantages.  What does matter is the population size, characteristics, geography, and experience of the ACO operators as well as that of providers in the ACO.  Analytics alone will not lead to success.  A history of low expenditures also does not guarantee success.  A consistent methodology of preventive activity, managing transitions of care, coordinating care, and chronic condition management is key to long-term success.  Education of providers and office staff is crucial. All of these factors help an ACO and its participating providers achieve the goals of the ACO and the MSSP – coordinated care, better quality care, lower costs, and shared financial benefits for both CMS and the participating providers.

A newly-established ACO may arguably be better positioned, not worse, than one several agreement periods into managing its own ratchet. A young ACO hasn't yet had its own performance baked into a lower, rebased benchmark. It's still working from a comparatively clean target, which means more of the benchmark headroom that produces early shared savings is still available, rather than partially closed off by a prior agreement period's success. That's not a knock on established ACOs. It's simply a factor that cuts the other way from how “longevity equals safety” intuition usually runs.

None of this is an argument to leave an ACO you're already in and happy with. If your current arrangement produces improved health care outcomes for your patients and lower costs related to their care, that's a good outcome, full stop. All ACOs and their participating providers are working toward this shared goal of better patient care and lower costs. This is simply a case for not treating a young ACO as the riskier option by default. Longevity is one data point. It isn't a proxy for opportunity.

Nothing in this post constitutes financial or legal advice. No specific financial outcome is guaranteed or implied. References to benchmark dynamics or shared savings potential are illustrative and based on publicly available CMS data. Actual results will vary by ACO and provider.