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New Savings Figures Buoy Hopes for Potential of Medicare ACOs

By John Reichard, CQ HealthBeat Editor

January 30, 2014 -- Federal officials delivered an upbeat report Thursday on experiments launched under the health care law to re-engineer health care, reporting a “strong start” to programs to establish accountable care organizations (ACOs) and “bundled payment” contracts in which doctors and hospitals coordinate to deliver more efficient care.

A top Centers for Medicare and Medicaid Services official said the preliminary savings figures of about $400 million in the first year were so strong they show that ACOs are an excellent long-term strategy for controlling spending in Medicare.

At least one independent analyst also responded positively. The results are encouraging enough to begin pursuing refinements to the ACO model, said Paul Ginsburg, former president of the Center for Studying Health System Change.

The ACO concept aims to begin bringing organized treatment to the traditional fee for service side of Medicare. Beneficiaries in the traditional part of the program have unfettered choice of providers. Those in the private plans that make up the Medicare Advantage side of the program face more restrictions on where they get treatment.

Medicare began contracting with ACOs—groups of providers that team up to deliver more efficient, higher quality care —two years ago. Each year the number of ACOs has grown. They either participate in the “shared savings” program at CMS, or may be designated as “pioneer ACOs” if they are more experienced and better able to deliver efficient care.

The level of savings pale in comparison to the magnitude of savings that entities such as the Congressional Budget Office project Medicare will need to make the program sustainable in future decades.

But Jon Blum, the top deputy administrator to Centers for Medicare and Medicaid Services, was emphatic in telling reporters about the promise shown by ACOs.

A total of 5.3 million Medicare beneficiaries, or about 12 to 13 percent of all of its enrollees, now receive care under ACO arrangements, said Blum.

“This number is far higher than what we had guessed would happen three years into the program,” he said in a press call Thursday morning.

Results from the first year show that more than half of the initial group spent less on care than they had projected.

And 29 of the 114 ACOs that were in the first group that contracted with Medicare in the shared savings program were able to deliver large enough reductions to be able to share in the savings with the federal government. Collectively, those 29 ACOs are getting $126 million as a result.

They “demonstrated that their care models have produced greater Medicare savings than the underlying dramatic low trend rate” for Medicare spending, Blum said.

Another 23 pioneer ACOs get to keep $147 million of the savings they have produced for Medicare.

Under the ACO program, savings are divided between the provider organizations and the U.S. Treasury. The Medicare trust fund has been able to keep $128 million in savings thanks to the ACOs, Blum said.

The cumulative savings for both the providers and the government is $401 million.

Blum says ACOs that delivered savings did so by using medical imaging more wisely, reducing unnecessary visits to the emergency room, and doing a better job of preventing hospital readmissions, for example.

Budget analysts say Medicare in the long run needs to reduce its projected spending growth by hundreds of billions of dollars.

Blum was asked what potential ACOs have for eventually generating far higher level of savings than the figures announced Thursday.
He replied that they are only one part of the strategy.

“One thing I think [we] have seen in the last four years is unprecedented slowdown in total Medicare cost on a per capita basis,” he said. There are “many things driving that result—new care models, new payment models, more vigilance on fraud and abuse, and putting in place a menu of different tools and programs,” he added.

Blum suggested that many more beneficiaries will fall under ACO arrangements in the future.

“We are tremendously surprised with the overall growth of the program,” he said. “We are adding about a hundred new ACOs each year.” Blum said if “these growth trends continue, then it’s going to be a continued phenomenal story for the Medicare program.”

Ginsburg said there is such a broad consensus among policymakers that payment changes are a promising way to tackle Medicare spending “that I felt a sense of relief that the results looked positive. I say relief because we have to get this to work.”

“It means we’ll be able to move forward without hesitating” on use of the ACO model, Ginsburg said. “Medicare getting out front and doing this on a fairly large scale has been very important. It’s so important for long term success for there to be consistency across the payers in any area so that the providers have similar incentives for most of their patients.”

“I think it’s time to start talking about evolving the model,” Ginsburg added

The next step is to get beneficiaries more directly involved with ACOs so the entities might better direct patients to providers, he said. Right now, beneficiaries are assigned to ACOs but do not have to actually enroll in them and aren’t steered in any way in where they have to go for care.

Getting beneficiaries more directly involved will be a heavy lift, he said. “It seems as though both parties in Congress don’t want to ask beneficiaries to do anything.”

Former CMS Administrator Mark McClellan, who heads a health care innovation program at the Brookings Institution and has led efforts there to foster ACO growth, said in an interview that “the results are promising.” But “I think there’s a lot more to do both in terms of figuring out why some have been more successful than others and figuring out what the Medicare program can do to encourage and support more successes and perhaps terminate ACOs that haven’t been working.”

McClellan said it’s also important to watch innovation among Medicare Advantage programs in assessing potentially promising changes in Medicare. “There are a lot of Medicare Advantage plans that are doing things like the Medicare shared savings program in terms of changing payments to providers in a way that supports better care,” he said. “In many cases, they are going further.”

John Reichard can be reached at [email protected].

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