The Medicare Shared Savings Program (MSSP) is a voluntary program that provides incentive payments to healthcare providers that form integrated healthcare organizations, known as Accountable Care Organizations (ACOs). The MSSP rewards ACOs for keeping average per capita spending below a benchmark. I provide reduced-form and model-based evidence that the current benchmark design adversely affects ACOs’ participation and performance in the MSSP. First, the benchmark rebasement, which updates the benchmark over time to reflect observed ACOs’ spending, causes the ratchet effect: ACOs delay spending reductions to avoid lowering future benchmarks. Second, the region-specific adjustment applied to the rebased benchmark induces adverse selection: ACOs that are most likely to enroll are those with initial spending below the benchmark. Moreover, I propose a revised benchmarking methodology to address these inefficiencies. Counterfactual analyses demonstrate that this alternative policy mitigates adverse selection without introducing ratchet effect and significantly increases Medicare savings.

The healthcare sector has become increasingly vertically integrated, with hospital systems integrating healthcare financing by launching their own health plans. This paper investigates the causal effect of hospital health–plan vertical integration on healthcare utilization and health outcomes using data on Medicare Advantage beneficiaries. We distinguish two causal objects: (i) the effect on patient outcomes of being enrolled in a provider-sponsored MA plan (PSHP), and (ii) the effect of receiving care at a vertically integrated (VI) hospital, along with (iii) the interaction of the two. For the plan channel, we adopt an instrumental variables approach that combines quasi-random differences in PSHP availability across adjacent counties with variation in PSHP enrollment driven by the relative proximity of integrated and non-integrated hospitals to the patient location. For the hospital channel, we exploit an ambulance-based instrument for hospital assignment. Using MA enrollment and claims, hospital characteristics, and ambulance claims, we estimate the impacts of plan–provider integration on different measures of healthcare utilization.

Vertical integration between insurers and healthcare providers creates strong incentives to circumvent federal regulations designed to limit insurer profit margins and enhance patient welfare. This paper focuses on the minimum Medical Loss Ratio (MLR) requirement, which mandates that Medicare Advantage plans allocate at least 85% of their revenue to medical care. We examine whether the introduction of the MLR rule led to increased vertical integration and investigate whether vertically integrated insurers are concealing profits through the manipulation of internal transfer prices.