Practice Economics

Medicare yet to save money through ACO model



The Centers for Medicare & Medicaid Services offers the lure of bonuses to health care practitioners who band together as accountable care organizations, or ACOs, to take care of patients. The financial incentives are intended to encourage these doctors, hospitals, nursing homes, and other institutions to keep patients healthy rather than primarily treat illnesses, which is what Medicare payments traditionally have rewarded. ACOs that save a substantial amount get to keep a share of the savings as a bonus.

The Obama administration touts ACOs as one of the most promising reforms in the 2010 federal health care law. The administration set a goal that by the end of 2018, half of Medicare spending currently based on the volume of procedures a doctor or hospital performs will instead be linked to quality and frugality. But so far, the ACO program generally has been a one-way street, with most doctors and hospitals happy to accept bonuses while declining to be on the hook for a share of any excessive costs run up by their patients.

Last year, Medicare paid $60 billion to 353 ACOs to take care of nearly 6 million Medicare beneficiaries. Some ACOs made significant strides in reducing use of hospitals and other costly resources. But patients at 45 percent of groups cost Medicare more than the government had projected based on their patients’ historic costs, records show. After paying bonuses to the strong performers, the ACO program resulted in a net loss of nearly $3 million to the Medicare trust fund, government records show.


“It’s turning out to be tougher to transform care and realign delivery than people had expected,” said Eric Cragun, an analyst with the Advisory Board Company, a consulting group based in Washington.

Medicare officials said most ACOs are still in their infancy and that performances will improve with experience and ultimately save significant sums for Medicare while improving care for beneficiaries. “In the long run we’re shooting to achieve those goals,” Sean Cavanaugh, CMS deputy administrator, said in an interview.

Nonetheless, the results are short of what Medicare projected in 2011 as it launched the program. Those estimates anticipated the government would save between $10 million and $320 million during 2014.

‘Bearing risk is a big leap’

The ACO program’s bottom line has been hurt by the reluctance of most ACOs to accept financial responsibility for their patients. Only 7% of ACOs opted last year for a high-risk/high-reward deal in which they had the potential to earn larger bonuses but would have to reimburse the government should their patients instead cost Medicare more than expected.

The rest of the ACOs opted to avoid the potential of financial punishment even though it meant their potential bonuses would be smaller. The risk aversion proved so widespread that Medicare has given ACOs up to 6 years to participate without fear of penalties, instead of phasing out that option.

“Many of these ACOs are newly formed groups of doctors and hospitals, and bearing risk is a big leap,” Cavanaugh said.

Last year, 196 ACOs saved Medicare money, while 157 ACOs cost more than expected. Medicare ultimately did not realize any savings because it paid out bonuses to 97 ACOs, but only 3 of the costly ACOs had to repay Medicare for losses their patients incurred.

In Oregon, North Bend Medical Center ACO patients cost Medicare $9 million. Spending for those patients was 12% more than projected, the largest gap of any ACO. In Los Angeles, the government spent $20 million, or 11%, more than expected for ACO patients at Cedars-Sinai Medical Care Foundation. That was the largest amount in dollars. Both ACOs had chosen to be exempt from financial penalties.

North Bend dropped out of the program earlier this year.

Cedars-Sinai said its ACO patients ended up more expensive than other previous patients because the hospital added new physician practices specializing in cancer and heart disease, which are among the most costly conditions to treat. In a statement Thursday, Cedars said it unintentionally failed to include those patients in the comparisons it sent to Medicare and was now revising its calculations.

Even some of the ACOs that saved the most money have yet to accept financial risk. Costs for patients at Winchester Community ACO in Massachusetts were 16% less than Medicare estimated. The ACO earned a bonus of $5 million. Catharine Robertson, an executive with Winchester Hospital, said their cost-saving initiatives were created when the ACO was formed. One team at the ACO identified patients as high risk of getting sick and sought to intercede before they ended up requiring hospitalization.


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