« Cases

Determining the Feasibility of a State Medicaid ACO Program


A 900-bed, two hospital health system, in the Northeast, serving a large Medicaid population


Assess the feasibility of forming a Medicaid ACO for 15,000 Medicaid patients, as part of a state Medicaid Delivery System Redesign Incentive Payment (DSRIP) initiative.


Veralon determined the expected operating results and financial net impact of the ACO on the health system.

First we projected ACO operating results, starting with the costs to be managed by the ACO. Then, using internal and external data, we estimated utilization reductions and total ACO cost savings. Adjustments were made for the revenue impact of performance on quality of care, and shared savings revenues were projected. Veralon then deducted total estimated ACO operating expenses (e.g., care management, information technology) and ACO repayments to the health system for start-up expenses, to arrive at the estimated ACO operating surplus/deficit.

We determined the impact of the ACO on health system operations based on how declines in utilization would affect hospital revenue and the extent to which that reduction would be offset by shared savings retained by the health system.


As a result of the planning process, the health system applied to become a Medicaid ACO. It will negotiate with payers for care coordination fees and shared savings, and approach foundations for grant funding to supplement shared savings.