The New Jersey Medicaid ACO Demonstration Project: Seeking Opportunities for Better Care and Lower Costs among Complex Low-Income Patients

A small but growing number of states are turning to accountable care concepts to improve their Medicaid programs. In 2011 New Jersey enacted the Medicaid Accountable Care Organization (ACO) Demonstration Project to offer local provider coalitions the opportunity to share any savings they generate. Impetus came from initiatives in Camden that aim to reduce costs through improved care coordination among hospital high users and that have received considerable media attention and substantial federal and private grant support. Though broadly similar to Medicare and commercial ACOs, the New Jersey demonstration addresses the unique concerns faced by Medicaid populations. Using hospital all-payer billing data, we estimate savings from care improvement efforts among inpatient and emergency department high users in thirteen communities that are candidates for participation in the New Jersey demonstration. We also examine their characteristics to inform Medicaid accountable care strategies. We find substantial variation in the share of high-user hospital patients across the study communities and high rates of avoidable use and costs among these patients. The potential savings among Medicaid enrollees are considerable, particularly if Medicaid ACOs can develop ways to successfully address the high burden of chronic illness and behavioral health conditions prevalent in the prospective demonstration communities.