ECONOMIC REPORT OF THE PRESIDENT

payments made to providers. These performance payments have offset
much of the gross savings reported above, at least in the Medicare Shared
Savings Program (McWilliams 2016). In addition, while APMs have spread
rapidly in the Medicare program since 2010, they still account for a minority
of Medicare payments, so the savings estimates reported above apply to only
a portion of program spending.
While the direct savings to the Medicare program may be relatively
modest so far, these initiatives may be generating more substantial savings
in the rest of the health care system. As discussed earlier in this chapter,
research has suggested that providers use a common “practice style” with all
of their patients, causing payment interventions implemented by one payer
to generate savings for other payers whose enrollees see the same providers.
If that evidence applies in this case, then Medicare’s APM initiatives are
already generating meaningful savings for private payers. Notably, unlike
the savings that APM participants generate for Medicare, spillover savings
are not offset by performance payments to providers. For this reason, it is
conceivable that Medicare’s APM initiatives have generated larger net savings
for private payers than for the Medicare program itself so far.
In addition, as noted earlier in this chapter, private payers appear to
have been making efforts to deploy APMs in parallel with Medicare, and it
is unlikely that these efforts would have occurred in the absence of efforts to
deploy these models in Medicare. While there is little systematic evidence on
how successful these private sector efforts have been at reducing costs, these
savings could be substantial. Furthermore, as also noted earlier in this chapter,
one long-term benefit of transitioning to APMs is fostering the development
of technologies and treatment approaches that generate the most value
for patients, rather than the technologies and treatment approaches that are
most profitable under fee-for-service payment. While changes of this type
are likely to take years or even decades to reach their full effect, if even small
shifts in this direction have already occurred, it would have large implications
for total health care spending because these types of shifts would affect
all providers, not just those participating in APMs.
Finally, whatever has happened so far, there are several reasons to
believe that the savings generated by Medicare’s APM initiatives will grow
over time. First, as noted above, ACOs in the Medicare Shared Savings
Program appear to achieve greater gross savings as they gain experience;
similarly, research examining an earlier private ACO-like contract found
that savings grew steadily as providers gained experience with the contract
(Song et al. 2014). Second, the Administration has been making continual
improvements in its APMs, such as by improving the methodologies used to
align beneficiaries to ACOs and to set ACOs’ spending benchmarks. These
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