(This story was updated at 11:00 p.m. ET.)
Three out of four Medicare accountable care organizations did not slow health spending enough to earn bonuses last year, a continuation of mixed results for an initiative that federal officials have targeted for rapid expansion.
Medicare released 2014 results for 353 accountable care organizations, which include hospitals and physician groups that agreed to meet targets for quality and slow spending. Those that succeed can keep a share of money they save. In January the Obama administration announced plans to aggressively increase the share of Medicare spending under accountable care and other alternative payment models through 2018.
Last year, 97 ACOs earned bonuses totaling $422 million out of $833 million in savings they produced. Savings are awarded under formulas that account for performance on quality targets after the first year in the program. (For ACOs in their first year, organizations must report quality scores but do not have to meet performance targets.)
The CMS reported results for Pioneer ACOs, which were launched under the CMS Innovation Center, and the Shared Savings Program, one of the Affordable Care Act initiatives to test new payment models.
The CMS said results “show that ACOs with more experience in the program tend to perform better over time.”
The ratio of ACOs that earned bonuses to those that did not in 2014 is similar to results at the end of 2013. That suggests that ACOs alone likely cannot bend the trajectory of U.S. healthcare spending and deliver the quality improvement that federal officials are seeking, said Dr. Kavita Patel, managing director of clinical transformations for the Brookings Institution's Center for Health Policy.
“This shows that controlling costs is hard,” Patel said. “Delivering highly coordinated care is very difficult. An ACO is a start, but it's certainly not the ultimate solution.”
That's in part because Medicare patients can seek medical care outside the ACO's hospitals and medical groups, where ACOs' have more ability to manage care, she said.
Another reason is the limited financial incentives of Medicare ACOs, she said. Few stand to lose money if they fail to achieve savings, known as downside risk. Pioneer ACOs are at risk for losses, but Medicare's Shared Savings Program made the potential for losses voluntary. Those that agreed also receive larger potential payouts. Few volunteered.
“The ability to take downside risk is going to be a measure of how meaningful this model is,” Patel said.
Medicare is also just one payer, though a significant one. ACOs would have more incentive to change if more insurers got involved. “You can't change the way you do business and clinical operations for just Medicare,” she said.
The fact that Medicare continues to see a quarter of ACOs achieve savings payouts as the program grows suggest the model is viable, she said. But simply adding more ACOs under Medicare won't improve performance.
The results the agency published Tuesday include savings for 20 Pioneer ACOs, a small group of the most sophisticated organizations. The Pioneer program began with 32 ACOs but several have dropped out, either to join Medicare's larger and less risky accountable care effort, the Shared Savings Program, or exiting entirely. One of the dropouts was included in 2014 results, though the organization did not stay the entire year.
Eleven of the Pioneer ACOs earned savings bonuses that totaled $82 million. Another five Pioneer ACOs were required to return $9 million to Medicare. The average quality score for Medicare ACOs edged upward in 2014 from the prior year. Quality scores for 28 of the 33 measures improved.
Some Pioneer ACOs reported significant savings. Banner Health Network, one of the remaining Pioneer ACOs, accounted for $29 million in total savings. The Montefiore ACO saved $13 million.
Officials at both organizations said performance was boosted by attention to post-acute care costs and quality. Banner Health's ACO developed a preferred network of skilled-nursing facilities and recommends those facilities to patients.
Other Pioneer ACOs have developed similar networks among skilled-nursing homes, where data show variation in quality and spending. Banner vetted local skilled-nursing facilities with questions on quality and culture.
Shaun Anand, the Banner Health Network chief medical officer, said improvement in post-acute care was a significant contributor to the ACO's results.
The Montefiore ACO worked with skilled-nursing facilities to avoid hospitalization, where possible, by finding alternatives for services that could be delivered elsewhere, such as blood transfusions.
Ninety-two ACOs in the Medicare Shared Savings Program earned bonuses, but six did not receive payouts because they did not meet the quality requirements. Quality improved on 27 of 33 quality measure for those ACOs with more than one year of performance results.
“These results show that accountable care organizations as a group are on the path towards transforming how care is provided," acting CMS Administrator Andy Slavitt said in a news release. “Many of these ACOs are demonstrating that they can deliver a higher level of coordinated care that leads to healthier people and smarter spending.”
Medicare's shared savings program has struggled to push hospitals and doctors into contracts with more financial risk for hospitals and doctors. ACOs can earn bonuses but the bonuses are larger for ACOs that agree to absorb losses when patients' medical bills grow too rapidly.
Contracts with more financial risk are a more powerful motivation for providers to achieve quality and cost-control targets. But many ACOs balked at plans to increase the financial risks after three years. Medicare conceded this summer, with new rules that allow more time without potential losses.