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Can Value-Based Payment Improve Health Care and Lower Costs?

The Issue

The goal of accountable care organizations (ACOs) and other plans that shift financial risk from insurers to those delivering health care is to provide better, more coordinated patient care while saving money through the elimination of unnecessary services, like duplicated tests or treatments of little value.

A new study in the American Journal of Managed Care by Commonwealth Fund–supported researchers compares the effectiveness of a Medicare ACO with traditional Medicare, which has been confirmed in earlier research, as well as with a private Medicare Advantage (MA) plan. The researchers used data from one large delivery system — Banner Health, headquartered in Phoenix, Arizona — between 2010 and 2014.

What the Study Found

  • For each year during this period, MA hospitalization rates for the MA plan were below those for the ACO and traditional Medicare comparison groups. The differences narrowed over time, but in the final year the MA rate remained about 10 percent below the other two groups.

From 2010 to 2014 at one large delivery system, hospitalization rates for the Medicare Advantage (MA) plan were below those for the system’s ACO and traditional Medicare plans.

  • Rates of skilled nursing facility days in both the ACO and traditional Medicare groups were about twice the rate for the MA plan. However, the MA plan rate rose steadily over the four years, while the rates in the other two fell.
  • There were no noticeable trends in office visits or emergency department visit rates.
  • The MA group had the lowest risk-adjusted spending in all years, although its spending rose consistently throughout the period. Spending in the traditional Medicare and ACO groups did not vary nearly as much.

The Big Picture

Adjusted rates of hospital and skilled nursing facility stays, as well as spending rates, were notably lower in Banner Health’s MA plan compared to its Medicare ACO. But there was some narrowing of these differences over the observation period.

The Bottom Line

The findings of lower utilization and spending rates in the MA plan support efforts by the Center for Medicare and Medicaid Services to shift Medicare reimbursement away from traditional fee-for-service payment.

Publication Details

Publication Date: January 8, 2020
Contact: Bethanne Fox, Vice President, Outreach and Strategy, The Commonwealth Fund
Summary Writer: Deborah Lorber

Joseph P. Newhouse et al., “Delivery System Performance as Financial Risk Varies,” American Journal of Managed Care 25, no. 12 (Dec. 2019): e294–e300.


Joseph P. Newhouse
John D. MacArthur Professor of Health Policy and Management, Harvard University
Mongan Institute Health Policy Center, Massachusetts General Hospital
John Hsu
Director of the Program for Clinical Economics and Policy Analysis, Mongan Institute for Health Policy, MGH; Associate Professor of Medicine, Massachusetts General Hospital; Associate Professor of Health Care Policy, Department of Health Care Policy
Professor of Health Care Policy, Harvard Medical School
J. Michael McWilliams
Warren Alpert Foundation Professor of Health Care Policy, Department of Health Care Policy, Harvard Medical School; Professor of Medicine, Harvard Medical School; Practicing General Internist, Brigham and Women's Hospital, Harvard Medical School