“We’re absolutely thrilled with our success the last few years, but the reality is there’s a lot to learn about population-based management,” she said.
The largest bonus in dollars, $23 million, went to Memorial Hermann Accountable Care Organization in Houston, which was 11% below Medicare’s cost expectations. Christopher Lloyd, the CEO of Memorial Hermann’s ACO, credited its success to a decade’s worth of changes that improved cooperation among physicians and the hospital, as well as the creation of systems to share medical details of patients.
“The ACO when we formed it in 2012 was just an extension of what we were already doing,” Mr. Lloyd said. He said committed ACOs could make the same improvements in 3-4 years. “What took us 10 years to build does not take 10 years to replicate,” he said. Still, Memorial Hermann, like Winchester, is not yet accepting risk.
Difficulties in implementing the program
To wring overall savings for Medicare, the government faces a bind, analysts said. If Medicare makes the potential of repayments mandatory, many existing ACOs may drop out of the program and new ones are less likely to join. If the majority of ACOs continue to risk no financial repercussions, they have less incentive to save the government money. And without showing savings, it will be hard for Medicare to expand the program.
Clif Gaus, president of the National Association of ACOs, said Medicare should be making it easier for ACOs to earn bonuses as they assemble their operations. “Any start-up company, I don’t care who they are, never makes profits in the early years,” Mr. Gaus said. “Starting a health care delivery system is just as hard, if not harder, than starting a Facebook or an Amazon.”
Because Medicare sets its expectations based on national spending averages, “it’s really hard to save money in some parts of the country,” said David Muhlestein, an executive at the consulting firm Leavitt Partners based in Salt Lake City. “We’ve talked to ACOs that have joined the program, started to make changes, and decided that it’s really too much work right now.”
Sharp HealthCare, a well-regarded five-hospital system in San Diego, dropped out of the program last year after concluding it might not be able to avoid penalties. In a financial statement, Sharp said that because Medicare’s assessments are “based on national financial trend factors that are not adjusted for specific conditions that an ACO is facing in a particular region (e.g., San Diego), the model was financially detrimental to Sharp ACO.”
Jeff Goldsmith, a health industry analyst and professor at the University of Virginia who is a longtime ACO critic, said the ACO model is flawed. Consumers do not actively opt to participate in the ACOs and do not share in any savings, so they lack financial incentives to help keep costs down, he said. ACOs also have limited leverage to control the costs incurred by highly paid specialists such as surgeons and cardiologists. Patients in ACOS can still go to any doctor who accepts Medicare’s regular method of paying, in which they receive a set fee based on the nature of the service without regard to its outcome.
“Faux managed care is actually harder to do than real managed care,” Goldsmith said. The ACO program, he said, “has a bad enough reputation in the provider community that is not going to grow sufficiently to replace regular Medicare.”
The Obama administration is more optimistic. The administration said patients are benefiting with better care, as most quality measures Medicare is using to track ACO performance improved between 2013 and 2014.
CMS’s actuaries believe the ACOs are performing better than they appear when compared with the historical benchmarks that the health law established, which CMS has been using. The actuaries employed an alternative method in a report issued last spring, comparing Medicare spending trends in places with ACOs and those without, and concluded that, overall, ACOs were saving money.
Still, ACOs’ appetite for taking risk remains small. The number of ACOs opting for the largest potential bonuses and penalties has shrunk from 32 at the start of the program to 19. Rob Lazerow, an Advisory Board consultant, said, “In a world where ACOs are still optional, CMS still has to make it attractive for providers to want to participate.”
Kaiser Health News is a nonprofit national health policy news service that is part of the Henry J. Kaiser Family Foundation.