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Pioneer ACOs see modest savings in first year, with nearly one-third dropping out

By Melanie Evans
Posted: July 20, 2013 - 12:01 am ET

The closely watched Medicare Pioneer accountable care program finished its first year with modest cost savings while losing nearly one-third of its participants, underscoring the challenges that policymakers and healthcare providers face as they reform payment and delivery systems to reduce healthcare spending and improve quality of care.

The CMS last week released results for its Pioneer ACOs, a select group of 32 organizations that agreed to new financial incentives tied to quality reporting and meeting cost targets. Many made their numbers. Eighteen Pioneers held spending somewhat in check, including 13 that achieved enough savings to earn bonuses totaling $76 million. That resulted from $140 million in total Medicare savings, before some adjustments.

Costs for the nearly 670,000 Medicare beneficiaries served by Pioneer ACOs grew by just 0.3% in 2012, compared with 0.8% for a comparable patient population. After the shared savings are paid out to the ACOs, the Pioneers will have produced an estimated net savings to Medicare of $33 million for 2012.

Of course, that's a tiny fraction of Medicare's $536 billion in spending last year. But no one thought that overhauling the country's fragmented delivery system would be quick or easy. And the Pioneer savings are considered significant as an early indicator of the potential for revamping the payment system to hold providers responsible for managing population health in Medicare and beyond.

The goal of the Pioneer and other Medicare ACO programs is to more tightly integrate providers in the fragmented U.S. healthcare system and establish joint financial incentives for them to provide better, more seamless care and improve the overall health of their patient populations. But no one is sure that ACOs can deliver major cost savings, especially right away.

The savings achieved by more than half the Pioneers were “encouraging,” said Dr. Bruce Landon, a Harvard Medical School health policy professor who studies financial incentives in healthcare. “It doesn't happen overnight.”

“Taken with the quality and satisfaction measures, which all 32 ACOs moved in the right direction, early results are clearly tremendously promising,” Joseph Damore, vice president of Premier Performance Partners, which helps providers develop ACOs, wrote in Health Affairs last week.

Still, 14 of the Pioneers did not meet their cost targets. Two experienced overspending so significant that they will have to repay Medicare a combined $4.5 million, according to an early CMS estimate. Nonetheless, five Pioneers with losses during the first year will continue in the program.

The risk of losses contributed to the decision by some ACOs to leave the Pioneer program. These decisions appeared to be driven by factors particular to each organization, including willingness to accept risk and local market issues.

Two Pioneers said they would exit Medicare's accountable care efforts entirely. These were Albuquerque-based Presbyterian Healthcare Services and the Texas-based Plus ACO, sponsored by hospital system Texas Health Resources and North Texas Specialty Physicians. Another seven Pioneers said they would switch to Medicare's larger and less-risky Shared Savings Program, another test of accountable care.

DaVita HealthCare Partners said its three Pioneer ACOs, in California, Florida and Nevada, would switch to the Shared Savings Program. Others making the switch include California-based Premier Choice, Denver-based Physician Health Partners and Texas-based Seton Health Alliance. The University of Michigan Health System, which did achieve savings, also will switch.

The Pioneer departures suggest even large, sophisticated provider systems are not as ready to handle downside risk as experts thought they were, said Kavita Patel, managing director for clinical transformation and delivery at the Engelberg Center for Health Care Reform at the Brookings Institution.

Under the Patient Protection and Affordable Care Act, the CMS established the Pioneer program to test accountable care among hospitals and doctors with “extensive experience” improving care and a readiness for performance-based payments. They are expected to sign ACO contracts in the private sector to spread the model beyond Medicare; half their revenue is supposed to come from private ACO contracts by the end of 2013.

The program makes provider systems responsible for coordinating care, improving outcomes and reducing costs for beneficiaries in the traditional Medicare fee-for-service program. Providers that meet budget targets can keep some of the savings. But if the cost of care for patients exceeded the target, hospitals and doctors may owe Medicare money. The Pioneers operate across 18 states, and the sponsors include large regional health systems and medical groups.

The first year did not measure quality against performance benchmarks, though ACOs were evaluated and rewarded based on reporting quality measures. The use of benchmarks to measure quality performance began in year two, which started in January.

Dr. Robert Berenson, an institute fellow at the Urban Institute, said the problem with the Pioneer design is that provider organizations with lower historical Medicare costs will struggle to succeed under Medicare's formula for bonuses, while ACOs with higher historical costs will be rewarded. “Where you start is the whole name of the game,” he said.

A CMS spokesperson said the agency appreciates the prior success by some ACOs to reduce costs and improve quality, but the initiative seeks “to improve their performance, regardless of their starting point.”

Premier's Damore wrote that the CMS needs to reconsider some elements of the Pioneer structure, including revising the quality benchmarks, making claims data more quickly available to ACOs, and giving ACOs greater flexibility to steer beneficiaries to high-quality, low-cost sites of care and prevent patient turnover.

Todd Sandman, Presbyterian's vice president of strategy and customer engagement, said his organization's ACO struggled to squeeze savings from already-low Medicare payments. Another challenge was that the Pioneer model does not allow ACOs to keep beneficiaries from going outside the ACO network for care. “It's more helpful to be able to guide the care in the setting where you have greater quality control,” he said.

One reason the University of Michigan will switch from the Pioneer program to the Shared Savings Program is to avoid the prospect of financial losses, said Dr. David Spahlinger, senior associate dean for clinical affairs at the university's medical school and executive director of the faculty group practice.

The University of Michigan ACO shaved spending by 0.3% last year, but future losses were possible in the Pioneer program. That's despite the consistent savings its doctors have achieved since 2005 under Medicare's five-year precursor to accountable care, known as the Physician Group Practice Demonstration.

Spahlinger said his ACO has delivery system reform initiatives underway to lower costs, but they likely won't pay off before Medicare again measures Pioneer cost-saving performance at the end of this year.

“Everybody wants to fix the healthcare problems now, but if you push it too fast it blows up in your face,” he said.

Follow Melanie Evans on Twitter: @MHmevans

The University of Michigan Health System will exit Medicare's first and most ambitious test of accountable care to join Medicare's lower-risk alternative.

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