ECONOMIC REPORT OF THE PRESIDENT

educe the growth rate of Medicare spending to a similar extent in the years
to come.
In addition, recent research has concluded that reductions in
Medicare’s payment rates lead to corresponding reductions in the payment
rates that private insurers are able to secure from medical providers, as
discussed earlier in this chapter. If the magnitude of these spillover savings
matches the prior literature, then the ACA’s provisions reducing annual
payment updates have reduced growth of private insurance spending by
between 0.6 and 0.9 percentage point per year from 2010 through 2016,
generating a cumulative reduction in private insurance spending of between
3 and 5 percent in 2016.32 These spillover effects on private insurance can
account for half or more of the reduction in the growth of the prices private
insurers pay for hospital care that was reported in Figure 4-30; they can
explain between an eighth and a fifth of the reduction in the growth of
private insurance spending per enrollee relative to the pre-ACA decade that
was reported in Figure 4-32. Moreover, because the underlying Medicare
provisions permanently reduce the growth of Medicare payment rates, these
spillover effects on growth in private insurance spending would be expected
to continue indefinitely as well.
While assessing the aggregate effects of the ACA’s provisions to
deploy alternative payment models is more challenging, early evidence
is encouraging. Research examining the first three years of the Medicare
Shared Savings Program, Medicare’s largest ACO program, has estimated
that ACOs have reduced annual spending for aligned beneficiaries by 0 to 3
percent, with early evidence suggesting that ACOs start at the bottom of that
range and move toward the top as they gain experience (McWilliams et al.
2016; McWilliams 2016). Research examining the first two years of CMMI’s
smaller Pioneer ACO model found savings of a broadly similar magnitude
(Nyweide et al. 2015; McWilliams et al. 2015), while evidence from the first
two years of CMMI’s Bundled Payments for Care Improvement initiative,
CMMI’s largest bundled payment program, found savings of around 4
percent of episode spending among participating hospitals relative to nonparticipating
hospitals (Dummit et al. 2016).
These results are encouraging, but they also suggest that APMs have
generated only modest direct savings to the Medicare program to date.
Importantly, the estimates reported above reflect the gross reduction in
Medicare spending under the APMs, before accounting for performance
32 The lower bound of this range reflects the White (2013) estimate that each dollar reduction
in Medicare payment rates reduces private payment rates by $0.77, while the upper bound
reflects the Clemens and Gottlieb (forthcoming) estimate that each dollar reduction in
Medicare’s payment rate reduces private payment rates by $1.12.
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