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Fee-For-Service, Accountable Care Organizations, And Medicare Advantage: Why?

Michael E Chernew¹

¹Michael E. Chernew (Chernew@hcp.med.harvard.edu), Harvard University, Boston, Massachusetts.

Health Affairs (Project Hope)

|July 30, 2025

Summary

This summary is machine-generated.

Medicare faces fiscal challenges. Fee-for-service payment models are inefficient, while Accountable Care Organizations (ACOs) and Medicare Advantage (MA) show promise but require design improvements for cost savings.

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Area of Science:

Health Economics
Healthcare Policy
Public Health

Background:

Medicare confronts significant fiscal challenges.
Current payment systems include fee-for-service, Accountable Care Organizations (ACOs), and Medicare Advantage (MA).
Traditional fee-for-service models require reform to enhance care delivery efficiency.

Purpose of the Study:

To analyze the fiscal challenges of Medicare.
To compare the effectiveness of fee-for-service, ACO, and MA payment systems in addressing these challenges.
To identify design improvements for MA and ACO models to reduce program spending.

Main Methods:

Perspective-based analysis of Medicare payment systems.
Discussion of fee-for-service, ACO, and MA models.
Examination of payment policies and program features.

Main Results:

Fee-for-service payment is ill-suited for improving care efficiency.
MA and ACO models offer potential but are constrained by design issues.
MA payment levels and ACO program designs require careful consideration for value and savings.

Conclusions:

Optimizing MA payment policy is crucial to assess the value of added benefits.
Reforming ACO program design can leverage demonstrated efficiencies for cost savings.
Strategic adjustments to payment systems are essential for Medicare's fiscal sustainability.