Performance of risk-based models in value-based healthcare: Evidence from accountable care organizations

Prior studies on pay-for-performance programs in healthcare have yielded mixed results with respect to organizational performance. We study the rollout of Accountable Care Organizations (ACOs) under the Medicare Shared Savings Program (MSSP) and evaluate whether ACOs that switched from one-sided to two-sided risk models exhibit better performance based on cost savings and quality outcomes. Based on longitudinal analysis of data from ACOs that participated in the MSSP between 2013 and 2022, our results indicate that ACOs that switched to two-sided risk models exhibit 4.2 % greater generated savings, 1.7 % higher quality score, and 1.5 % greater shared savings, compared to ACOs that remained in the one-sided risk model. These improvements persist for at least two years after switching. Our results are robust to the potential for self-selection of ACOs into two-sided risk models and endogeneity concerns due to unobserved heterogeneity. We also observe improvements across four major quality sub-domains. Specifically, ACOs that switched to two-sided risk models exhibit significant improvements in preventive care, at-risk care, and beneficiary safety dimensions of patient health. In contrast, improvements in the quality of beneficiary care are relatively modest.