ACO Program Fails To Generate Savings for Federal Government

The Accountable Care Organization program has not yet saved the government money, according to federal records, Kaiser Health News reports.

Background

In an ACO, a group of providers work together to coordinate care for Medicare beneficiaries. The program rewards efforts to keep patients healthy, whereas Medicare payments traditionally have incentivized providers toward treatment. ACOs that save a certain amount of money are able to keep part of the savings.

Program Results in Net Loss

Medicare paid 353 ACOs a total of $60 billion for about six million beneficiaries. Of the 353 ACOs:

• 196 saved Medicare money; and
• 157 exceeded cost projections.

Further, 97 ACOs received bonuses, while just three ACOs had to repay Medicare for losses their patients incurred, according to KHN.

The program resulted in a net loss of about $3 million to the Medicare trust fund after the bonuses, according to government records. The government in 2011 had estimated that the ACO program would save the government $10 million to $320 million in 2014.

Medicare officials have said ACOs are relatively new and ultimately will yield significant savings.

One reason the program has not resulted in savings yet is because few ACOs have accepted financial responsibility for patients, KHN reports. In 2014, just 7% of ACOs selected the high-risk/high-reward option, in which they could earn higher bonuses but would have to reimburse the government for higher-than-expected patient costs. Further, even some of the ACOs that had the greatest savings have opted not to accept financial risk, according to KHN.

Challenges Ahead

Analysts have noted that the government faces challenges in realizing Medicare savings with ACOs. For example, if the government requires ACOs to take on risk, many current participants might leave the program and other groups would be reluctant to join. However, without financial consequences, ACOs do not have much of an incentive to save Medicare money.

David Muhlestein, an executive at the consulting firm Leavitt Partners, noted that Medicare sets savings expectations based on national spending averages, meaning that "it's really hard to save money in some parts of the country." For example, Sharp Healthcare in San Diego left the program last year, saying in a statement that "the model was financially detrimental to Sharp" because the assessments are "based on national financial trend factors that are not adjusted for specific conditions that an ACO is facing in a particular region (e.g., San Diego)."

Jeff Goldsmith, a health industry analyst and professor at the University of Virginia, argued that the ACO model is flawed, pointing out that consumers are not motivated to help keep costs down because they do not actively choose to participate in a ACO and do not share in any potential savings. He also pointed out that ACOs have limited power in controlling costs from specialty care.

Meanwhile, CMS actuaries believe that ACOs are performing better than is apparent, compared with benchmarks established by the Affordable Care Act, according to KHN. For example, they have noted that a report in April that compared spending trends in locations with ACOs with locations that do not have ACOs found that ACOs overall were saving money.  

Further, the Obama administration has said patients in ACOs are receiving better care, noting that most Medicare quality measures for tracking ACO performance improved between 2013 and 2014 (Rau/Gold, Kaiser Health News, 9/14).