Why one Medicare Pioneer ACO failed to save money

(This story was corrected on July 18, 2013.)

Atrius Health, an alliance of several physician practices in eastern Massachusetts, is one of nearly two dozen accountable care organizations that agreed to stick with Medicare's test of the promising but unproven model.

Atrius is also one of two organizations to see a financial loss during the experiment's first year, according to preliminary results.

Beginning in the second year, all Pioneer ACOs in the CMS Innovation Center's Pioneer ACO Model must pay Medicare back if spending accelerates beyond a target. Some Pioneer ACOs opted for payments in year one with no risk for losses. Atrius, though, may owe Medicare $2 million for the first year, according to an estimate, said Emily Brower, executive director for Atrius' accountable care programs.

Atrius found savings more difficult to come by than others because of Medicare's extremely low budget” for the ACO to begin with, said Dr. Gene Lindsey, president and CEO for the network of multispecialty physician groups. Atrius had already adopted cost-control measures that left the organization without easy savings.

Financial results were mixed for Medicare's first test of accountable care, known as the Pioneer ACO Model and administered by the CMS Innovation Center. The effort began in January last year with 32 organizations deemed by the CMS to have the right infrastructure and expertise in place. This week, nine said they would exit, including some that said the risk of future financial losses under the model was too great.

Some did see gains. In results released today, the CMS said 13 of the ACOs saved Medicare enough to earn bonuses that totaled $76 million. Another five generated some savings, but not enough to earn bonuses.

Financial payouts are determined by how much ACOs save Medicare and whether they meet certain quality performance criteria. ACOs earn bonuses when Medicare spending for enrollees slows against a target enough to exceed a target that also factors in expected yearly changes in spending growth.

Atrius' financial hit in the short term obscures the progress it made to improve healthcare quality and efficiency, he said. More recent performance better reflects those gains, said Lindsey, and in coming years, early and unprofitable investments are expected to deliver a financial return.

“Our objectives were not to do well in a particular financial cycle,” Lindsey said. “We believe the payoff is going to be the accumulated clinical transformation.

Meanwhile, other patients have also benefited from Atrius' efforts to prevent costly hospital care and better coordinate primary care and home-care services, he said. Brower said the ACO has seen improved quality and lower costs among patients at high risk for costly acute care.

Before the Medicare Pioneer contracts end, Atrius is expected to recoup any losses and investments that were made to launch accountable care. Lindsey said he was pleased with quality gains and the ACOs improving fortunes in the second year. “It looks as though approaching this as an investment will pay off.”

Follow Melanie Evans on Twitter: @MHmevans

(This story has been updated to indicate that the Atrius alliance doesn't include a hospital.)