Are Medicare ACOs Gaining A Foothold?

This blog has never gotten very excited by Medicare’s Accountable Care Organizations (ACOs). ACOs are risk-sharing arrangements between Medicare and providers, which are supposed to save money through efficiency. As a concept, they are fine – certainly an improvement over the incumbent, Soviet-style fee schedule. However, it is unlikely that the government has the incentives to get the risk-sharing incentives right.

I had anticipated that ACOs might end “with a whimper.” The Centers for Medicare & Medicare Services (CMS) have released results of Pioneer ACO’s third year of operation and 2014 results for Medicare Shared Savings Program (MSSP) ACOs which launched in 2012 through 2014. While ACOs are hardly taking off like the administration hoped, they seem to have gained a foothold.

The number of organizations participating as ACOs has increased, as have the savings. After paying out bonuses, MSSP ACOs have saved taxpayers $383 million in 2013 and $465 million in 2014. Does that growth indicate success? It depends on how you look at it. Total Medicare benefit payments amounted to $577 billion in 2013 and $597 billion in 2014. So, MSSP ACO’s savings are effectively irrelevant to current Medicare spending – less than one tenth of one percent. On the other hand, net savings grew by 21 percent while Medicare spending grew by only 3 percent. That might count for something.

Nevertheless, it is highly questionable that ACOs can spread their grasp throughout the Medicare population. Over one fifth of ACO beneficiaries reside in Boston, MA – hardly the home of one fifth of Medicare beneficiaries!

Robert Lowes of Medscape Medical News suggests physician-led ACOs have better incentives:

Dozens of independent primary care physicians in Houston, Texas, will receive Medicare bonuses this fall as a reward for delivering high-quality care — think of medication reconciliation after a hospital discharge — while reducing healthcare costs.

These physicians belong to an accountable care organization (ACO) that participates in Medicare’s Shared Savings Program for such groups, created by the Affordable Care Act. If an ACO can keep Medicare spending under a target for a given number of beneficiaries, it gets a cut of the savings in addition to regular fee-for-service revenue. In 2014, the Houston ACO and its 75 physicians were entitled to $4.8 million of what it saved.

The Houston ACO, appropriately dubbed Physicians ACO, stands out from the pack, and not only because it succeeded in the shared savings program. Unlike some ACOs anchored by a hospital or health system, Physicians ACO consists entirely of physicians who also happen to belong to an independent practice association long versed in the ways of managed care. Although many of their colleagues have opted for the security of hospital employment, these physicians appear to be making it on their own in the dizzying world of pay-for-performance.

Lowes makes a credible argument: Hospitals have very high fixed costs and an objective of filling beds. This likely results in a conflict of interest with hospital-employed physicians facing an incentive to keep patients healthy.

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