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Medicare Touts Success of Demonstrations That Paved the Way for ACOs

By Jane Norman, CQ HealthBeat Associate Editor

August 8, 2011 -- Health and Human Services (HHS) officials on Monday reported “positive” results from a five-year demonstration project that has laid the groundwork for Medicare accountable care organizations (ACOs) that the agency wants to create throughout the system.

Centers for Medicare and Medicare Services officials said that the Physician Group Practice Demonstration showed there can be success in a pay-for-performance concept when it comes to improving the quality of care, coordinating services and saving money in Medicare. The lessons learned “provide great insight into how to use Medicare’s payment systems to improve quality while reducing costs,” CMS Administrator Donald M. Berwick said.

Berwick also clearly appeared to be responding to criticism leveled against the agency’s regulatory proposal for ACOs, which has been slammed as too complex and not generous enough in its financial rewards. About 1,200 comments poured in earlier this year and the agency is now mulling them over. Change takes time, he said.

“We have learned to invest in sustained improvement over time, and that short-term comparisons between startup costs and measurable results may fail to realize the long-term value of these results,” Berwick said.

The demonstration ended in March 2010. In January, a second demonstration began that is intended to give Medicare officials more data on how success in the demonstration can be sustained. Berwick said that he is “optimistic” that the groups that took part in the pilot and in this transition project “will continue to show improved quality and generate shared savings for the Medicare program.”

However, many of the physician practices participating in the Medicare demonstration program on ACOs have already said in a letter to Berwick that they have “serious reservations” about the economics and complexity of the proposed rule.

They also objected to the “downside risk”—the financial penalties that teams of providers would face if they exceed spending targets set for them under the program. “Such downside risk is compounded by significant investment cost on the part of the ACO,” they said.

Medicare and HHS officials have repeatedly said they welcome criticism and comments about the ACO rule and will take them into account.

The 10 physician groups taking part in the demonstration project set out in 2005 to see if they could meet 32 performance measures and save money, which would earn them incentive payments. The performance measures tied to quality were phased in over five years.

Mark McClellan, administrator of CMS at the time the demonstrations were launched, has said that he expects Medicare officials to sign the first ACO contracts next spring despite the criticism the proposal has endured.

According to Medicare, physician groups in the demonstration earned performance payments of up to 80 percent of the savings produced. Medicare kept the other 20 percent.

Among the 10 groups, two are free-standing physician group practices; two are faculty group practices within academic medical centers; five belong to health care systems that include at least one hospital; and one is a physician network sponsored by a hospital affiliate and made up of 60 small practices.

The deal proved profitable for them. Over the five-year life of the demonstration, Medicare paid out $110 million in shared savings.

Medicare officials said that by the fifth year of the demonstration, seven of the 10 physician groups hit all 32 of the performance measures: Billings Clinic in Billings, Mont.; Everett Clinic in Everett, Wash.; Forsyth Medical Group in Winston-Salem, N.C.; Geisinger Health System in Danville, Pa.; Middlesex Health System in Middletown, Conn.; Park Nicollet Health Services in St. Louis Park, Minn.; and St. John’s Health System in Springfield, Mo.

The other three groups made 30 of the 32 performance measures. They were the Dartmouth-Hitchcock Clinic in Bedford, N.H.; the University of Michigan Faculty Group Practice in Ann Arbor, Mich.; and the Marshfield Clinic in Marshfield, Wis.

For all 10, this was a “significant” improvement from the first year of the demonstration, when only two of the physician groups hit all of the benchmarks, Medicare officials said. The 10 physician groups represent 5,000 physicians and 220,000 Americans enrolled in traditional fee-for-service Medicare.

Jane Norman can be reached at [email protected].  

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