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When he was leaving his post as the Centers for Medicare & Medicaid Services (CMS) administrator, Donald M. Berwick, MD, shared in an interview with the New York Times that 20 to 30 percent of healthcare spending is waste that yields no benefit to patients. Given that large amount of waste, surely, then, one would have thought that almost all of the original 32 Pioneer accountable care organizations (ACOs)—many of which are generally considered the most sophisticated healthcare organizations in the nation—should have been able to shave a few percentage points off their costs during their first year in the program and, thereby, meet or beat their expenditure benchmarks.
As we know from a July 16 press release from CMS, that was not what happened. Although every one of the Pioneer ACOs successfully reported the required quality measures, a majority—60 percent—failed to produce shared savings, missing their cost-reduction (or more accurately, cost curve bending) targets. Moreover, two of the Pioneer ACOs incurred sufficiently large losses requiring penalty payments to CMS.
Because CMS’s complicated process for establishing expenditure benchmarks incorporates the last three years of per beneficiary costs for each ACO’s population, one could contend that heretofore high-performing provider organizations are placed at a disadvantage, because they may find it increasingly difficult to wring out more savings—the diminishing returns phenomenon. In that same vein, one could say that the Medicare ACO programs are skewed in favor of poor-performing organizations and/or ACOs with high-cost populations with a lot of room for improvement. For example, according to the Kaiser Family Foundation, New Hampshire ranks ninth highest in both healthcare expenditures per capita and annual growth in health care, spending $7,830 per person in 2011. The Dartmouth-Hitchcock ACO, centered in Lebanon, New Hampshire, successfully generated $1 million in savings for CMS in the first year of the Pioneer ACO program.
Historical cost handicaps and advantages aside, is it realistic to expect ACOs to achieve their cost-reduction targets in the first year of the program, and if not, why is that the case? A majority of the Pioneer ACOs failed to meet their financial objectives, which is consistent with the experience of the Physician Group Practice Demonstration (2005-10), a precursor to the current Medicare ACO programs, in which only two of 10 participating physician groups generated shared savings in the program’s first year. Also, as Advocate Physician Partners CEO Lee Sacks and chief medical officer Mark Shields shared in a presentation at the AMGA 2013 Annual Conference in March, in terms of sequence of impact, the AdvocateCare ACO’s quality metrics were put in place in six months, but it took longer to impact the major levers of cost: length of stay (6-12 months), readmissions (12-24 months), admissions/1,000 (12-24 months), and emergency department visits/1,000 (24-36 months). The lesson: Successful cost reduction in year one is the exception, not the rule, and look for brighter days to come in year two and beyond in ACO programs.
Any parent taking children on a long car trip has fielded the question, “Are we there yet?” The most common reply is, “No, but we’re on the right road.” And so it is with the ACO journey to bend the cost curve and improve quality.
Ken Perez is a healthcare policy and IT consultant in Menlo Park, Calif.
Publication Date: Thursday, August 29, 2013
Tom Myers, chief strategy officer, The SSI Group, discusses the shifting payment environment and how it affects providers' patient access and claims management processes.
Jeff Chester, senior vice president and chief revenue officer at Availity, shares his thoughts on "Revenue Cycle 2.0" and how to best meet its challenges.
Mitch Morris, vice chair and global leader, healthcare, Deloitte, and Michael O'Rourke, senior vice president and chief information officer, Catholic Health Initiatives (CHI), share perspectives on the need for transformational IT in health care today.
Brian Kueppers, founder and CEO, Apex, discusses the importance of a robust patient payment strategy in boosting organization revenue and enhancing patient satisfaction.
Brian Grazzini, CFO, HealthPort, describes the importance of efficient and compliant information exchange and audit management in helping HIM staff spend less time on paperwork and more on mission-critical projects.
Cindy Matthews, executive vice president, Community Hospital Corporation, discusses how rural and community hospitals can use collaborative partnering to position for success through tough market conditions.
Rick Heise, senior vice president, revenue cycle, at Cerner Corporation, discusses the importance of integrating clinical and financial data to excel in health care’s changing payment environment.
Russ Graney, founder and CEO for Aidin, and John Laursen, head of business development for Aidin, share insights on how to improve care transitions between acute and post-acute care settings and incentivize high-quality patient outcomes.
Scott Elston, strategic accounts manager, GE Healthcare Services, describes how substantial cost reduction in health care requires rethinking business strategy and asset use.
Robert Williams, MD, director, Deloitte Consulting LLP, and Arielle Freiberger, product strategist, ConvergeHEALTH by Deloitte, explain how sophisticated retrospective, real-time, and predictive data analytics can inform decision making to reduce costs and improve care.
Stuart Hanson, director of business development (healthcare solutions) at Citi Retail Services, discusses how improving the payment experience can benefit consumers and healthcare providers.
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