Obamacare's Medicare Experiment Is Working

Medicare’s big experiment in changing how it pays doctors and hospitals appears to be paying off. A voluntary program started three years ago to reward health-care providers for keeping people healthy rather than delivering more care has saved the federal government more than $380 million, officials announced today.

Health economists and policymakers widely agree that we should pay doctors for keeping people healthy, rather than the current fee-for-service model, in which health-care providers have an incentive to perform more tests and treatments. But changing those incentives is difficult.

The idea behind Accountable Care Organizations is that groups of doctors and hospitals team up to coordinate how they treat patients. They focus on preventive care and managing chronic disease to keep people healthy. The goal is to reduce unnecessary medical costs, especially expensive treatments such as trips to the emergency room. If they save Medicare money, the organizations get to keep some of the savings.

More than 360 groups of health-care providers have formed ACOs. The voluntary program, created by the Affordable Care Act, now covers 5.3 million people on Medicare, the federal health insurance program for older Americans, or about one in eight people on Medicare, according to Jon Blum, principal deputy administrator at the Centers for Medicare & Medicaid Services (CMS). “This number is far higher than what we had guessed would happen three years into the program,” he said on a call with reporters today.

The program allows for two types (pdf) of ACOs, depending on how much risk health-care providers want to take on. Under the lower-risk program, known as Medicare Shared Savings, 114 ACOs signed up in 2012, and 54 spent less than projected to treat patients in the first year, CMS reported. Of those, 29 reduced costs for Medicare enough to keep some of the savings—$126 million in total.

The record for the higher-risk program—known as Pioneer ACOs—has been spottier. Nine of the 32 original Pioneer ACOs have left the program or converted to the lower-risk track. But the 23 that remained saved Medicare $147 million in their first year, the agency reported.

The savings didn’t compromise the care patients got, Blum said. Measures of quality, such as patient satisfaction and safety, are improving even as costs go down, meaning “we are getting better value for our Medicare resources.”

There are plenty of caveats to Medicare’s announcement. The program is voluntary, and the groups of doctors and hospitals that signed up in the first year were the most eager to try new ways of delivering medicine. Even so, more than half of them didn’t beat their cost-savings targets for the first year.

Most medical care in the U.S. is still bought and sold in a fee-for-service marketplace—sometimes with bad results. The current legal battle over allegations that hospital chain Health Management Associates’ pressured doctors to increase revenue by admitting more patients shows just how perverse the incentives still are for health-care providers. Health Management Associates has not commented on the allegations but told the New York Times that it is cooperating with the Justice Department’s investigation.

If the experiment shows that ACOs can save money and improve care, and if the government can find a way to switch more health-care providers to that system or something like it, the implications for Medicare patients, the health-care industry, and America’s fiscal outlook would be profound. Those are big ifs. Still, Blum said the early results from ACOs are promising. “This is not a small step,” he said. “We’re in this for the long term. What I think is impressive is that so many organizations did save in its first year.”

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