Participation and Performance in Accountable Care Organizations

This paper studies provider participation and performance in Medicare's Accountable Care Organizations (ACOs). I build and estimate a two-stage structural model in which potential ACO participants first choose which, if any, ACO to join based on the characteristics of an ACO and the net income they expect to earn from participating in that ACO. In the second stage, participants in an ACO act strategically, choosing their contribution to ACO savings and quality to maximize their payoff, hence determining overall ACO performance and the net income from participating. The model is estimated with public ACO-level performance and participation data. Estimation provides strong evidence that Medicare providers are more likely to participate in ACOs that earn more, with an additional $100,000 in ACO income increasing participation in that ACO by over 7%. I also find strong evidence that providers face a large trade-off between reducing expenditure and increasing quality of care. One counterfactual policy experiment shows that when ACOs are required to pay money back to Medicare when they spend too much, the cost-savings of the Medicare Shared Savings Program increases by a factor of 3.5, though quality scores decrease significantly. Another counterfactual experiment finds that cost-savings is maximized when 44% of savings are paid back to ACOs, which is close to current policy (50%). The final counterfactual shows that over $1 billion per year in program savings is lost to non-cooperative behavior in ACOs.