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Health Care

Cutting Through the Cloud on Obamacare Savings

One of the law’s programs is generating big savings, but that doesn't mean it’s working across the board.

A Medicare beneficiary receives home care. Accountable care organizations, which coordinate care for some Medicare beneficiaries, are starting to save money for the entitlement program, CMS reports.(Photo by John Moore/Getty Images)

photo of Clara Ritger
January 31, 2014

A program created under Obamacare is saving Medicare hundreds of millions of dollars, but only a few participants are responsible for the lower costs.

Accountable-care organizations—new networks designed to improve health care quality and lower costs—saved more than $477 million last year, according to an official at the Centers for Medicare and Medicaid Services.

Of that total, $204 million was generated in direct savings to the Medicare program, with the remaining $273 million going back to the ACOs.

 

ACOs were created under the Affordable Care Act, with the goal of better coordinating care and shifting the health care system toward a payment system based on outcomes, rather than the number of procedures performed.

In order to entice providers to take a chance on the new payment model, Medicare allows them to share a portion of the savings they generate for the Medicare program.

Of the 114 organizations designated as ACOs, 54 had lower spending last year than expected. Only 29 ACOs saved enough money and met care-quality requirements to qualify for shared savings. Those ACOs saved Medicare $128 million and were able to keep $126 million in savings themselves.

Pioneer ACOs, a second and more aggressive model, generated $76 million in savings for Medicare and kept $147 million, the CMS official said. Of 23 Pioneer ACOs, eight achieved "significant" savings over traditional Medicare.

The total savings from standard ACOs and Pioneer ACOs adds up to far more than the $380 million CMS reported last week, but the agency did not offer a comment about the discrepancy. It also declined to offer further information about how it calculated the Medicare ACO data.

But the Pioneer ACO report created for CMS identifies how they generated savings for the Medicare program. The analysts at L&M Policy Research determined the savings by comparing the average spending per beneficiary by the ACO with the average spending per beneficiary in the ACO's local Medicare fee-for-service market.

The report--created in November and embargoed until Thursday--had slightly different numbers from CMS: Eight of 32 ACOs generated significant savings, they concluded. A CMS official explained that six Pioneer ACOs have switched to the shared savings program and three have dropped out altogether.

CMS has not heard of any ACOs dropping out of the shared-savings program, the official said, which would mean only three ACOs overall have dropped out since the program's inception.

While on average the Pioneer ACO program saved Medicare roughly $20 per beneficiary—a "small collective impact in slowing total Medicare spending growth," the report says—23 ACOs did not differ significantly in total Medicare spending per beneficiary compared with the standard care of their local market.

Eight ACOs had significantly lower growth in total spending per Medicare beneficiary. Those eight spent on average between $32.58 and $102.21 less per month per beneficiary than if the beneficiary had received similar care in the local market. In total, those eight Pioneer ACOs generated $155.4 million in savings to the Medicare program in their first year.

But that savings was offset by the particularly poor performance of one Pioneer ACO, which cost the Medicare program $8.5 million more than if those beneficiaries had received similar care in the local market, the report says. With that included, the Pioneer ACO program saved Medicare $146.9 million.

The report did not directly identify the winners and losers in the program. But it said the eight ACOs that achieved significant cost reductions "varied in geographic location, size, organizational structure and average Medicare spending in their markets, suggesting that ACOs can achieve lower spending growth under a range of market conditions and organizational structures."

Significant reductions in outpatient and physician spending accounted for much of the savings, the report found. Nearly half of the Pioneer ACOs reduced outpatient spending growth. All eight ACOs that saved money overall outperformed their local market in lowering physician spending growth, and an additional three--located in Boston--saw slower rates of growth in physician spending but not in their overall spending totals.

Slower spending in 2012 could also be the result of higher per-beneficiary spending in 2011 compared with the local market, the report says, with six of the eight that achieved savings having higher spending levels than the local market in the previous year.

The ACO program is still young, and many groups indicated in the report that they were still working to coordinate services and make the transition smooth for beneficiaries. CMS said on a press call Thursday they would release further details on the program, and specific information about the Medicare ACO data, later this year.

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