Reform Update: Higher-risk Medicare Shared Savings program pays off for some

Heartland Regional Medical Center had more to lose than most when it gambled and joined Medicare's experiment with accountable care in 2012. For the first year at least, that risky bet paid off. The St. Joseph, Mo., hospital owes Medicare nothing and instead will be awarded $2.9 million for its efforts.

Heartland Regional was one of four out of 114 organizations that opted for the riskier of two payment options under Medicare's broad test of accountable care, known as the Shared Savings Program, during its inaugural year. That choice meant that failure to curb medical expenses for Medicare patients under Heartland Regional's care would put the hospital at risk for potentially significant financial penalties. The hospital would be required to pay Medicare for a share of costs that exceeded set targets.

But with a willingness to risk losses, Heartland Regional also stood to earn bigger rewards. (The remaining 110 organizations agreed to smaller bonuses with no risk for loss.)

Early results show Heartland Regional's first annual bonus will total roughly $2,861,000, which amounts to 60% of what the hospital's quality and cost-control strategies saved Medicare.

However, as reported in January, that success was not universal. Overall, three out of four organizations failed to earn Medicare bonuses in the first year of their programs. Twenty-nine organizations, including Heartland Regional, will share $128 million in bonus awards.

Despite limited and mixed results, the Medicare program continues to grow and now includes more than 350 organizations. The Shared Savings Program is one of several Affordable Care Act provisions that experiment with new ways to pay doctors and hospitals and is intended to promote efficiency and quality. In late March, the CMS announced deadlines for medical groups and hospitals to enter the next round of ACO contracts, which will begin in January 2015.

Heartland Regional's earnings will cover the hospital's roughly $2 million first-year investments in new care management, data analytics staff and new software to aid clinicians, said Heartland Regional's administrator, Linda Bahrke. Returns are expected to increase as earlier investments pay off and new strategies do more to reduce spending, but Bahrke added that it was the hospital's decision five years ago to employ nurse and social-worker care managers to work with patients outside the hospital that first positioned Heartland Regional to succeed.

Even before the accountable care organization was created, more than a dozen care managers met with patients in their homes and communities under Heartland Regional's existing program, she said. Entry into the Shared Savings Program expanded that effort to include another 18 care managers working with doctors and patients in outpatient clinics, as the ACO began to target efforts to the 15% of its patients who are high-risk and complex.

Additionally, information technology investments—including three new employees who exclusively analyze patient data—created new electronic medical record alerts that doctors see immediately when they first treat ACO patients.

Now the system is developing criteria to identify the most high-quality, cost-efficient specialty and post-acute providers. That information will be distributed to primary care doctors who make referrals. “It will be selection of the fittest, in terms of the high-quality providers,” Bahrke said.

Another Medicare ACO that assumed downside risk in its contract was the Rio Grande Valley Accountable Care Organization Health Providers, a group of independent providers. Rio Grande also succeeded, despite launching without a care coordination program, and in spite of working with multiple EMR systems across several independent medical groups.

Rio Grande's leadership chose to pursue the larger potential Medicare bonus after identifying operational changes that it believed could yield sufficient savings. Edwin Estevez, the ACO's administrator and chief operating officer during its first two years, likened the process to a patient considering diet and exercise changes to shed pounds. “I don't think there's any risk aversion in our group,” he said. “We went after it.”

Two other organizations, the Physicians of Cape Cod ACO and the Dean Clinic and St. Mary's Hospital ACO also entered into Medicare Shared Savings contracts with risk for both bonuses and losses. Both organizations ended the year with losses, CMS said. Neither responded to a request for comment.

This fall, the Physician Payments Sunshine Act, included in the Affordable Care Act, is expected to reveal pharmaceutical and medical-device industry payments and gifts to doctors and teaching hospitals.

The first round of reporting under the law ended in March. Records will be released later this year, but may not include everyone in healthcare delivery, medical education and research with a potential conflict of interest. New research published in the Journal of the American Medical Association identified 41 academic leaders who served on pharmaceutical company boards in 2012, where they received an average compensation of $312,564 and had a fiduciary responsibility to shareholders. Academics who are not physicians may not be subject to the new sunshine disclosure rules.

New data offers mixed messages on the durability of the industry's record slowdown in health spending growth, which policymakers are watching closely for signs that reform efforts have fundamentally curbed the upward spiral in U.S. medical expenses. One analysis by the Altarum Institute, based on updated federal data, shows an unexpected acceleration in health spending during the last three months of 2013. Meanwhile, private insurance companies reported slower growth in spending for 60 million customers who account for 40% of the nation's non-managed care business.

Follow Melanie Evans on Twitter: @MHmevans