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Cracking The Shared Savings Code

Shared Savings is a payment strategy implemented to change the structure of today’s healthcare system from a fee-for-service (FFS) model to a new value-based care model. As payment reform expert Michael Bailit explains, Shared Savings “is a type of payment reform strategy that offers incentives for providers to reduce healthcare spending for a defined patient population, by offering those providers a percentage of net savings realized as a result of their efforts.”

Why was the Shared Savings model initiated?

In the traditional healthcare environment, physicians are reimbursed based on the number of services they provide, or the number of procedures they order. This is known as the “fee-for-service” (FFS) reimbursement model. This system of payment is considered to be a major factor in driving up the cost of health care because it encourages and incentivizes the use of more services. Healthcare providers get paid for the amount of services they perform, which invites them to order more tests and procedures, as well as to manage more patients, for the reward of getting paid more. 

With the implementation of the Affordable Care Act (ACA) of 2010, The Centers for Medicare and Medicaid Services (CMS) created a number of Alternative Payment Models (APM’s) that were designed to shift the state of health care from fee-for-service to value-based care. The CMS initiated the Shared Savings payment strategy to encourage groups of doctors, hospitals, and other healthcare providers to voluntarily form Accountable Care Organizations (ACO’s) to provide cost-effective care delivery, coordination, and experiences; more importantly, ACO’s were tasked with reducing unnecessary spending. In exchange for meeting quality performance standards and reducing costs, ACO’s would receive a share of the percentage of achieved savings, which could be distributed to its constituent members. 

How does Shared Savings work?

Although there are multiple alternative payment models aimed at reforming the healthcare payment system, the Medicare Shared Savings Program (MSSP) is the CMS’s largest ACO program. As of January 2017, the CMS has used the MSSP to incentivize the establishing of 480 ACO’s in all fifty states, including Washington, D.C. and Puerto Rico. 

Within the Medicare Shared Savings Program, there are four options, or “Tracks,” available, each having different levels of shared risk arrangements and financial rewards. The goal is for each ACO to progressively take on more risk as it gains more experience on the road to payment reform. For example, Track 1 is the “on ramp” for ACO’s. There is no “downside” for the ACO’s to participate in Track 1. If the ACO can save money focusing on value-based care, it gets rewarded with a small percentage of those savings. In other words, there is no downside risk. The financial risks and possible losses are Medicare’s only (“one-sided”), not the ACO’s. The ACO agrees to be held accountable for the quality, cost, and experience of care of an assigned Medicare fee-for-service beneficiary population, but it’s not penalized if it falls short of established benchmarks. However, if the ACO can make progress toward reducing costs, then it shares in a small percentage of the net savings over that year.

All Tracks are a three-year commitment, and starting in Track 1 allows organizations the opportunity to gain population management experience before being required to transition to one of the remaining three tracks, which are “two-sided” risk arrangements. Two-sided agreements mean that ACO’s share in the savings and the losses associated with performance. In Tracks 1+, 2, and 3, ACO’s share different levels of the risk responsibility to receive a greater percentage of financial reward when successful. The risks could and do involve some of the following:

  • ‍Possible decreases in fee-for-service dollars
  • Associated costs with changing business infrastructure, redesigning care processes, acquiring new technology, sharing data, providing training, and securing provider participation
  • Penalties for not meeting quality measurements and performance
  • Inaccurate contract designs involving patient populations and prospective care methodology
  • Skewed year-beginning financial benchmarks

Overview of How The CMS Outlines Each Track:

  • Track 1 - One Sided - ACO’s do not assume downside risk (shared losses) if they do not lower growth in Medicare expenditures.
  • Track 1+ - Two Sided - ACO’s assume limited downside risk (less than Track 2 or Track 3).
  • Track 2 - Two Sided - ACO’s may share in savings or repay Medicare losses depending on performance. Track 2 ACO's may share in greater portion of savings than Track 1 ACO's.
  • Track 3 - Two Sided - ACO’s may share in savings or repay Medicare losses depending on performance. Track 3 ACO's take on the greatest amount of risk, but may share in the greatest portion of savings if successful.


North Texas Clinically Integrated Network, Inc. (dba TXCIN) is a non-profit ACO that began in late 2014. A small group of independent physicians aligned to initiate clinical integration and value-based contracting. Partnering with RevelationMD and its state-of-the art information platform, TXCIN has become the largest independent network of physicians in North Texas.

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