Good News for Obamacare: Pilot Programs Improve Care and Reduce Costs

This article originally appeared at Project Millennial, a site focusing on American health policy.

After a slew of disheartening press releases from the Center for Medicare and Medicaid Services (CMS) about the Affordable Care Act’s growing pains, the Obama administration is probably quite happy to see the initial results of one of the law’s most important provisions: Accountable Care Organizations (ACOs). You should be too.

But the framing of the results may give the typical reader a false impression of what’s actually transpired. From an article by Melinda Beck in the Wall Street Journal titled “Mixed Results in Health Pilot Plan”:

“All of the 32 health systems in the so-called Pioneer Accountable Care Organization program improved patient care on quality measures such as cancer screenings and controlling blood pressure, according to data to be released Tuesday by the Centers for Medicare and Medicaid Services. But only 18 of the 32 managed to lower costs for the Medicare patients they treated — a major goal of the effort. Two hospitals lost money on the program in the first year. ”

Does that sound mixed to you? Let’s restate it a bit: All of the 32 health systems in the so-called Pioneer Accountable Care Organization (PACO) program improved patient care on quality measures such as cancer screenings and controlling blood pressure. Eighteen (56% of PACOs) managed to lower costs for the Medicare patients they treated, saving $140 million in costs. Of that, they’ll receive $76 million, and $33 million will be returned to the Medicare Trust Fund. Only two of the 32 PACOs lost money in the first year.

Or, in charts:

Put that way, the program sounds a bit more successful, right?

Partners Healthcare, the Boston-area hospital conglomerate, was one of the winners, and will get a check for $7 million from CMS. Of the two PACOs to lose money, one did so, its executive director said, because its cost baseline was artificially low. It will cut a check to CMS for $2 million. Even so, it isn’t one of the nine that are reported to be leaving the program — it’s sticking around.

Make no mistake: These aren’t mixed results. These are unambiguously positive results for one of the most important provisions in the Affordable Care Act.

Should we have expected all 32 PACOs to save money in the first year of a nascent program? Probably not. And they didn’t — 44% either failed to reduce costs or lost money on the program. But, as the director of CMS’s Innovation Center put it, we shouldn’t have expected all 32 to improve patient care, either: “It’s very rare that 100% of the participants outperform benchmarks.” And they did.

This is only the first year of a program that is reinventing the way the American health care system operates. And it worked. Full stop.

Three-quarters stop, actually: It’s important to keep in mind that the PACOs are, well, weird. For starters, they are Pioneer ACOs because they already had ACO-like qualities, so they have a head start on other hospital systems and are perhaps uniquely qualified to initially succeed. Then there’s the fact that they self-selected into a brand-new program that could cost them millions in missed Medicare reimbursements. Their finance departments crunched the numbers and guessed that they could make money (or at least wouldn’t lose money). Most were right. And PACOs operate under slightly different rules than the average ACO will, starting in 2014. For the first two years, for example, PACOs are playing under the old fee-for-service rules, then will move to global payments, and only PACOs have two-sided risk — they can share in savings and losses, while typical Medicare ACOs will only share in savings.

In other words, PACOs aren’t “average” health systems, and they aren’t “average” ACOs, so it’s obviously premature to say that all ACOs will work.

Still, that doesn’t invalidate these results, and it doesn’t invalidate the hope that ACOs are one policy innovation that can help bend the cost curve in a real, significant way.

More information is set to be released later today, so we’ll have a better handle on the magnitude of the savings compared to total spend, implementation costs, reporting costs, etc. Check out Project Millennial for the latest updates.