One of the primary ways that the Affordable Care Act seeks to reduce health care costs is through the formation of Accountable Care Organizations (ACO). ACOs are still a relatively new concept in the healthcare world, as they emerged in 2011 as a result of an initiative by the Centers for Medicare & Medicaid Services (CMS).

ACOs are generally groups of doctors, hospitals, and other health care providers, who voluntarily join forces for the purpose of providing coordinated care to Medicare patients (see other Foster Swift articles on ACOs). ACOs were established as a means of coordinating care in order to ensure that patients, especially the chronically ill, receive effective care while avoiding unnecessary duplication of services and preventing medical errors. ACOs that achieve cost saving from providing timely and accurate care that meet quality benchmarks share in Medicare savings. In short, ACOs are intended to encourage quality of care, not quantity of care, and ACOs that deliver care more efficiently are eligible for bonuses.

According to Kaiser Health News, an estimated 23.5 million Americans are now being served by an ACO. ACO coordinated care is likely to grow in coming years. The U.S. Department of Health and Human Services (HHS) has set a goal of tying 30 percent of all traditional Medicare payments to quality by 2016, and 50 percent by 2018. Moreover, private third party payors are exploring similar payment methods – paying for coordination of care and the cost savings associated with it.

The ACO initiative is still in its infancy, but data is emerging that begins to tell the story of how the change in emphasis from quantity to quality is working.

CMS released 2014 quality and financial performance data on Aug. 25, 2015 showing that Medicare ACOs “continue to improve the quality of care for Medicare beneficiaries, while generating financial savings.” Overall, according to  Crain’s Detroit Business,  only about 35 percent of the nation’s 4,700 hospitals made money treating Medicare patients (according to the March 2015 Medicare Payment Advisory Commission report). Moreover, according to the article, hospitals have “improved efficiency and quality over the past decade, but payment reductions, financial penalties for inappropriate hospital readmissions and overbilling still have caused Medicare hospital margins to drop to negatives nationally from an average positive 2 percent margin in 2002.”  While these hospitals may not be part of ACOs, the government and other third party payors may have a hard time convincing hospitals and health care providers to join ACOs given this trend.

PIONEER ACO 2014 RESULTS

According to CMS, the 2014 results for Pioneer ACOs, which are a group of early adopters to the program, demonstrate “continued strong performance and improvement across financial, quality of care, and patient experience measures.” CMS noted that “ACOs with more experience in the program tend to perform better over time,” suggesting that as the program matures cost savings and quality of care may improve. The Pioneer ACO results seem to bear this out.

In terms of financial performance, in 2014, Pioneer ACOs generated total savings of $120 million, an increase of 24 percent from 2013. Of 15 Pioneer ACOs who generated savings, 11 generated savings qualifying them to share saving payments of $82 million.

Not all Pioneer ACOs fared as well, however, as five generated losses.

In terms of quality of care and patient experience data, the mean quality score among Pioneer ACOs increased to 87.2 percent in 2014 from 85.2 percent in 2013. There was improvement in 28 of 33 quality measures in 2014, and improvements of 3.6 percent across all quality measures compared to 2013.

Other experts, according to Crain’s Detroit Business, assert that hospitals that are successful in managing Medicare patients have the following items in common:

  • They are usually part of a larger health care system.
  • They closely track Medicare services delivered to patients, making sure overuse is minimized.
  • They make sure that employees are meeting productivity targets, including average hourly labor rates, staff overtime pay, per-capita Medicare costs and net patient revenue per equivalent discharge.

Therefore, the new health care payment trends may favor only certain health systems.

SHARED SAVINGS PROGRAM ACOS 2014 RESULTS

Results for Shared Savings Program ACOs with 2012, 2013 and 2014 start dates were also released. The results show that 92 Shared Savings Program ACOs held spending $806 million below their targets and earned performance payments of more than $341 million. The total net savings to the Medicare Trust Funds was $465 million.

In terms of qualitative data, Shared Savings Program ACOs that reported in both 2013 and 2014 improved on 27 of 33 quality measures.

UNINTENDED CONSEQUENCES?

Despite the strength of the statistics released by CMS, Medicare’s new quality over quantity focus is not without controversy. As reported by The Washington Post, researchers from Harvard University found that many hospitals that are experiencing high readmission rates are being penalized to a large extent based on the patients they serve. In other words, readmissions may have less to do with quality of care than with variables such as patients’  “education, income and ability to bathe, dress and feed themselves.” The researchers assert that these variables explain nearly half of the difference in readmission rates between the best- and worst-performing hospitals.

Many hospitals that serve lower income and education have pushed back against what they see as a one-size-fits-all penalty program.

CMS stated that it is looking into the impact of socio-economic status. According to CMS’s chief medical officer Patrick Conway, CMS “will continue to work with all stakeholders to seek feasible ways to encourage hospitals to reduce hospital readmissions while addressing any unintended consequences, particularly for those hospitals serving dual-eligible and low-income beneficiaries.”

So what does all this mean? The data released by CMS seems to show slow and steady improvement in terms of financial and quality of care results for most ACOs. Time will tell if progress continues, but CMS’s observation that the longer ACOs are in the program, the better they do, is promising. Getting healthcare providers to join ACOs in order to eventually achieve desirable results may also be an issue. We also expect further unanticipated bumps in the road for the ACO initiative. Just as the Harvard study revealed unintended consequences related to the hospital readmission penalty program, there are bound to be other unanticipated issues that arise in a program so complex.