Aging Services and Senior Living Organizations Are Already Creating the Value that a Successful Value-Based Payment Strategy Captures
Aging services and senior living organizations are designed to keep frail older adults with complex, chronic needs healthier, more independent, and out of the hospital and emergency room. This work generates economic value by lowering the total cost of caring for the populations served. Most organizations are paid through a fee-for-service model that was not built to reward that value; when residents avoid a hospitalization or ER visit, the savings show up as reduced Medicare spending for hospitals, physicians, and specialty care, rather than revenue for the organization responsible for decreasing utilization. A robust value-based payment strategy turns that value into revenue the organization keeps.
Capturing value is difficult in this operating environment, especially for organizations with skilled nursing facilities. Staffing shortages have proven stubborn. Medicare Advantage (MA) plans now cover most Medicare beneficiaries nationwide while typically paying well below traditional Medicare rates. Medicaid faces cuts at both the federal and state levels. Under this mix of pressures, aging services and senior living organizations tend to absorb rising costs and reimbursement pressure.
At the same time, these organizations are producing real savings with a business model that is well-positioned for value-based payment. A significant portion of Medicare spending is tied to the populations they serve, and occupancy is recovering as the demographic wave builds. Currently, almost all of that spending sits outside accountable care.
Spending on Medicare Beneficiaries Living in Long-Term Care Settings Is Largely Managed Outside Accountable Care
The residents receiving care through aging services and senior living organizations are among the highest-cost, highest-need individuals in Medicare. ATI Advisory analysis of the 2023 Medicare Current Beneficiary Survey shows that average Medicare spending climbs sharply as beneficiaries move into residential settings associated with higher clinical complexity: total medical and prescription spending per fee-for-service beneficiary per year averaged $48,541 in nursing homes—roughly four times the $12,057 for those in traditional private housing. Keeping long-term care residents stable and out of high-cost acute care settings is how these organizations generate savings.
Also in 2023, Medicare beneficiaries living in nursing facilities without being aligned to an accountable care organization (ACO) represented roughly $18.9 billion in Medicare fee-for-service spending, compared to roughly $6.1 billion for those who were aligned to an ACO. In assisted living, unaligned beneficiaries represented roughly $2.1 billion in spending, compared to roughly $1.0 billion for those who were aligned. Altogether, about 70 percent of fee-for-service spending on long-term care residents is not managed in an accountable arrangement, meaning providers are not being paid for the value they generate.
Providers Operating in Value-Based Payment Arrangements Share in Savings and Losses
The spectrum of value-based payment arrangements includes pay-for-performance, shared savings, and bundled arrangements, as well as full global capitation, where complete accountability and downside risk is shifted to the provider. CMS is building new pathways within this ecosystem, including the Long-term Enhanced ACO Design (LEAD) Model and the Ambulatory Specialty Model (ASM), among others. Each offers greater payment predictability and lower barriers to entry.
For most aging services and senior living organizations, accountable care is the key entry point to value-based payment. LEAD extends the ACO model directly to high needs, complex populations, and long-term care. ACOs earn a share of savings when actual spending is under the established benchmark, and may owe back a share of losses when it runs over. This structure rewards organizations that keep people healthy and out of avoidable, high-cost care settings, mapping closely to how aging services and senior living organizations already operate.
ATI Advisory analysis of 2023 and 2024 Medicare Shared Savings Program and ACO REACH results shows that long-term care-focused ACOs generate outsized savings per aligned beneficiary relative to the broader ACO landscape. At the same time, investors and value-based payment organizations are moving quickly to partner with large operators to build risk-bearing, long-term care-focused platforms, capturing value that these organizations could be capturing on their own.
Where to Start
A value-based payment platform brings together three components:
- Residential setting and care infrastructure: Nursing facilities or senior living settings like assisted living, where care delivery efficiency is measurable and Medicare beneficiaries are aggregated.
- Defined clinical model: Chronic care management, transitional care, or integrated onsite primary care.
- Risk-based payment contract: ACO or MA plan.
A provider does not need to own all three to participate; for example, an organization with strong clinical infrastructure but no contracting experience might partner with an established ACO. Others have established payer relationships but need a clinical partner to coordinate care. The right configuration depends on the organization’s services, capabilities, risk appetite, and partnerships.
With the right platform, aging services and senior living organizations can build a value-based payment model that captures the value they already provide.
ATI Advisory works with aging services and senior living organizations to assess their readiness for value-based payment and to design the partnerships, clinical models, and contracting arrangements that turn the value they already create into sustainable revenue.