Accountable Care Organizations and Skilled Nursing: What Providers Should Know

Though the term was coined in 2006, Accountable Care Organizations (ACOs) started gaining prominence in 2010 when the initiative was introduced to Medicare through the Affordable Care Act (ACA). ACOs are a means to improve care to beneficiaries and transition from the traditional fee-for-service model to a population-based payment system. 

ACO advocates state that eliminating unnecessary services and reducing hospital admissions/readmissions generates the best wellness results at the lowest cost. The core idea of the ACO model is to incentivize health care providers through a shared savings model that not only takes into account cost but also a number of quality measures. Given the importance of Medicare as a payor source, the financial success of health care providers throughout the continuum of care will depend on their ability to adapt and thrive in an ACO reality. 

ACO Types and Prevalence

There are three primary accountable care models utilized in the Medicare domain: 

  • Medicare Shared Savings Program (MSSP). A program that helps Medicare fee-for-service program providers become an ACO. There are over 200 participants in this program.

  • Advance Payment ACO Model. A supplementary program for selected participants in the MSSP, this model is designed for physician-based and rural providers. It allows participants to receive payments, which can be used for coordination infrastructure (e.g., EHRs). There are 35 participants in this model.
  • Pioneer ACO Model. A program designed for early adopters of coordinated care. This program offers the greatest potential reward to participants, but it has the greatest risk as well. There were originally 32 Pioneer ACOs, but many dropped out of the program, and it is now down to 19 participants. This model is prevalent in certain markets, such as Boston and Los Angeles. 

Recent estimates place the number of Medicare covered individuals with access to an ACO at 5.3 million (approximately 10% of all Medicare beneficiaries), compared to Medicare beneficiaries enrolled in Medicare Advantage plans estimated at 30%. 

The map below shows locations of the Pioneer ACOs and Advance Payment ACOs. While the prevalence of each model varies widely, it is safe to say that some form of accountable care will eventually reach every state. Noting the prevalence of these models and the need for CMS to reduce costs, credit underwriters, investors, and other financial stakeholders will increasingly consider the ability of skilled nursing operators to align with ACOs and/or demonstrate operational and quality metrics consistent with the goals of providers in a shared savings plan system. 


The details of the shared savings programs are beyond the scope of this article, but essentially it rewards “ACOs that lower their growth in health care costs while meeting performance standards on quality of care and putting patients first.”1  Physicians are the key players for ACOs to achieve their targets, but all other care providers can affect the outcome. Skilled nursing can represent a disproportionate share of post-acute care costs. Since ACOs are rewarded for lowering costs of care for its Medicare population, there is a strong incentive to improve efficiency at every stage of the process.

Effect for Skilled Nursing Occupancy

The balance between performance on quality measures and control of costs requires a coordinated effort throughout the supply chain. ACOs are measured on 33 quality metrics, which have a broad range of criteria. The measure most directly related to post-acute care providers is the rate of hospital readmission, as skilled nursing facilities (SNFs) can limit readmissions through proactive efforts and communication with the other links in the care supply chain. On the other hand, skilled nursing providers contribute to the overall cost of care, which provides an incentive for the ACO to push for a shorter average length of stay (LOS). Cooperation between physicians and other stakeholders in the ACO with skilled nursing providers is vital to balancing these two seemingly competing goals. Fortunately, there are several examples where ACOs have worked with SNFs in their preferred provider network to reduce LOS without sacrificing quality. By working with a local ACO, one SNF in the Boston area saw its LOS for Medicare patients drop from 17 days to 14 days overall and from 10 days to 7 days for orthopedic rehab patients. The reduction in LOS does not appear to have resulted in adverse care outcomes, as the 30-day readmission rate for the facility declined from 14% to 10.2%. 

The downside for a SNF to lowering the LOS on some Medicare residents is that occupancy and/or payor mix may be negatively affected. Until recently, the low-acuity orthopedic rehab case was the “bread and butter” for many SNFs, but the increased role of Medicare shared savings programs has applied pressure to discharge these patients earlier. 

The challenge of a shorter LOS can be offset, however, by greater alignment with local hospitals and physician groups that participate in an ACO by focusing on reduced hospital readmission rates and improving rehab initiatives, which can improve care outcomes. In addition, many SNFs are seeking more complex cases—which tend to have longer LOS’s—as a way to increase Medicare utilization.

One oft-cited perverse consequence of the emphasis on readmission rates is the notion that hospitals sometimes put patients into observational status without admitting them, leading to a delay in Medicare reimbursement eligibility. While this may not be eliminated, CMS has recently introduced a three-day waiver program that allows Pioneer ACOs to admit patients directly from observational status to a SNF. Clearly, partnering with ACOs that participate in the three-day waiver program provides a comparative advantage for a SNF. 


Any major disruption of the status quo is going to create challenges for entrenched businesses. The traditional fee-for-service Medicare model has driven profitability for SNFs for years, so it is understandable that many in the industry will resist. However, progressive providers recognize opportunities. ACO managers are acutely aware of the Medicare funding that goes to post-acute care providers. As such, ACOs are incentivized to identify and recruit SNFs that meet certain criteria.

  1. Quality of care. In order to partner with a Pioneer ACO, SNFs must be rated CMS three-star or higher. In addition, hospital readmission rates, which have a strong correlation to quality of care, is one of the metrics on which ACOs are evaluated. Of course, quality of care goes beyond risk management. Playing a proactive role in the treatment and rehab process is also vital for skilled nursing care. The primary goal of all post-acute care efforts is to get the patient active immediately so as to restore the person to his/her condition prior to the care event as quickly as possible.

  2. Communication. ACOs will look for partners throughout the continuum of care that can provide value in treating each patient. The nursing home that demonstrates a commitment to communicate with physicians, all nurses involved in the healing process, hospitals, patients, and their families will be positioned to attract ACOs. 

  3. Technology. Electronic medical record (EMR) protocols are a work in process, but it is obvious that all health care providers need to be ready to adopt this technology. SNFs that can facilitate communication with a local ACO through EMR infrastructure will likely benefit both the patients and ACO.

  4. Flexibility. Skilled nursing providers should recognize that the short-term hit from reduced Medicare days vis-à-vis shorter LOS’s can easily be overcome through increased resident admissions via a higher number of referrals. The positive traffic achieved as a preferred provider can more than compensate for the temporary loss of orthopedic rehab residents that could be completing their rehab at home.

Initial anecdotal observations indicate that the increased prevalence of ACOs lead to lower occupancy for long-term care. However, data in the first review of the Pioneer ACO model suggest that spending for Medicare beneficiaries in the program actually increased slightly at SNFs.2  The data is not sufficiently robust to draw any meaningful conclusions; however, one might suggest that ACOs are pushing higher acuity patients into the lower cost SNF earlier than under the conventional Medicare model. This offers potential good news for SNFs equipped to both treat a wide range of patients with a high standard of care and communicate effectively with the ACO. 

The overarching observation is that shared savings programs are here to stay. Skilled nursing providers can adapt or likely see their profitable Medicare payor base evaporate. Creditors, investors, and other financial stakeholders are starting to consider a SNF's shared savings preparedness in their due diligence and analysis.

2. EL&M Policy Research, LLC prepared for Jesse Levy, Ph.D. Contracting Officer Representative Centers for Medicare & Medicaid Services CMS/CMMI/RREG/DRPA, Contract HHSM-500-2011-0009i/HHSM-500-T0002
Effect of Pioneer ACOs on Medicare Spending in the First Year, Evaluation of CMMI Accountable Care Organization Initiatives, by Lisa Green (Washington, DC: L&M Policy Research, LLC) with partners Abt Associates, Avalere Health, Social & Scientific Systems, and Truven Health Analytics, 5 and 7.

Go back