Obamacare program generates 'substantial' Medicare savings

An Obamacare program designed to hold down Medicare costs and improve patient outcomes generated more than $384 million in savings in its first two years of operation, Health and Human Services Secretary Sylvia Burwell said Monday.

The savings realized from participants in Pioneer Accountable Care Organizations—groups of medical providers that coordinate patient care in return for lump-sum Medicare payments—represents about $300 per Medicare beneficiary per year during 2012 and 2013, Burwell said, citing an independent evaluation report.

Montefiore Medical Center, Bronx, New York
Source: Montefiore Medical Center
Montefiore Medical Center, Bronx, New York

That study also found that Medicare beneficiaries in Pioneer ACOs on average "report more timely care and better communication with their providers," "use in-patient hospital services less and have fewer tests and procedures," and "have more follow-up visits from their providers after hospital discharge," HHS noted.

The department called savings that have been realized so far "substantial" for a program that currently serves more than 600,000 beneficiaries in Medicare, the federally run health-care coverage system that primarily serves senior citizens.

Officials also said the results provide evidence that elements of the program should be applied to a much larger population of Medicare beneficiaries as part of the Obama administration's effort to reform the way that massive federal program pays for health care. Another report released Monday by the Office of the Actuary of the Centers for Medicare and Medicaid Services said that expansion of the Pioneer ACO model would reduce net Medicare spending.

However, the independent report also showed that significant savings were not necessarily realized to the same extent in every participating Pioneer ACO, two of which lost millions of dollars, and others which did not book significant savings or losses.

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Still, Burwell said that overall, "The report shows that the model has delivered high-quality patient care without limiting coverage or benefits."

"This is a crucial milestone in our efforts to build a health-care system that delivers better care, spends our health-care dollars more wisely and results in healthier people," Burwell said. "The Affordable Care Act gave us powerful new tools to test better ways to improve patient care and keep communities healthier. The Pioneer ACO model has demonstrated that patients can get high-quality and coordinated care at the right time, and we can generate savings for Medicare and the health-care system at large."

Dr. Lawrence Casalino of Weill Cornell Medical College, in an editorial published Monday in the Journal of the American Medical Association about the report, noted that the amount of money saved in the first year, about $280 million, may "seem small."

"But if this rate of savings could be sustained, and achieved throughout a large part of the U.S. health-care system, it would be more than enough to 'bend the cost curve' so that health-care expenditures do not continue to increase as a percentage of the gross domestic product and the federal budget," Casalino wrote.

How it works

ACOs are made up of groups of health-care providers, such as hospitals and doctors, who agree to accept lump-sum payments from the Medicare program in exchange for taking care of groups of beneficiaries, as opposed to charging for that care on a fee-per-service basis. ACO members hope to keep health-care costs below the amount they are receiving from Medicare, while maintaining quality in performance, and keep the money that is saved.

In the Pioneer version of ACOs, participants can keep a greater share of the savings they realize, but also may have to pay a share of any losses they have. In other words, if the care costs are more than the lump sum they receive for the patient population, the ACOs lose money in the program.

ACOs are one of the initiatives HHS has to move the U.S. health-care system from the dominant fee-for-service model to a pay-for-performance model. The fee-for-service model has been blamed for the fact that health-care costs have risen well beyond the rate of inflation for years, and for encouraging health-care providers to perform services that generate income even if they do little or nothing to improve overall patient health.

Earlier this year, HHS set a goal of linking 30 percent of Medicare payments to "quality and value through alternative payment models" such as ACOs "by 2016, and 50 percent of payments by 2018," the department noted Monday.

The amount of savings Pioneers booked dropped from $279.7 million in 2012 to $104.5 million in 2013, according to the independent evaluation report on Pioneer ACOs prepared for HHS.

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Asked about the drop-off in savings, Dr. Patrick Conway, acting principal deputy administrator of the Centers for Medicare and Medicaid Services, said he "would not read to much into a single data point," and noted that the savings seen in both year one and year two of the program "were statistically significant savings."

"We're monitoring the year three data," Conway said, referring to 2014.

Mixed results

The Pioneer ACO model has also lost a significant number of organization participants since it began with 32 in 2012. As of last fall, the number had fallen to 19 groups. One reason is that Pioneer ACOs are exposed to losses if they fail to keep health-care costs for the populations they are serving below the amount of money they are receiving from Medicare. Some hospitals no longer wanted to run that risk.

The report issue Monday looked at all 32 original Pioneers.

It found that 10 of the Pioneers "had statistically significant savings in both performance years." Ten of them had statistically significant savings in just one of the two years, and "two of these Pioneers had significant losses the other year," the report said.

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And 12 of the Pioneers "had not statistically distinguishable savings or losses," the report said.

In his editorial about the report in JAMA, Casalino rhetorically asked, "Can this rate of savings be sustained?"

"The Pioneer ACOs produced savings in year two that were one-third of year one savings," Casalino wrote. "It is possible that during the first year these ACOs were able to 'grasp the low-hanging fruit'—to address relatively easy ways to control costs—and that the savings they generate will be much smaller, at best, in subsequent years."

"Alternatively, it may be that it will take time for ACOs to develop better processes to improve the care of their patients and that they will be able continue to lower costs for years to come."

Casalino also wrote, "Savings generated by ACOs will have little effect on U.S. health care unless a large number of ACOs can do so."

"For ACOs to be broadly successful, they will need stronger incentives, closer ongoing connections with patients, better logistical support from Medicare and regulatory relief," he wrote.