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More on accountable care organizations

Last week, we talked about how the Obama administration had released rules for the creation of accountable care organizations. In case you missed it, the idea here is that Medicare will encourage doctors and hospitals to form ACO’s, which will provide better coordinated care without restricting patient choice. Better coordination means higher quality care, and since Medicare spends so much money on unnecessary care and avoidable complications, higher quality care should mean cheaper care. If the organization meets certain quality benchmarks, they’ll get to keep some of the money Medicare saves.

Recently, Medicare released the results of a five-year ACO demonstration project. According to The Washington Post, the experiment, involving ten established medical groups, didn’t save much money:

In 2010, the final year, just four of the 10 sites, all long-established groups run by doctors, slowed their Medicare spending enough to qualify for a bonus, according to an official evaluation not yet made public. Two sites saved enough to get bonuses in all five years, the evaluation shows, but three did not succeed even once.

A few things about this story. First, it’s poorly reported, relying on unnamed “health policy experts” with few details about the experiment itself, so it’s extremely difficult to draw any useful conclusions. But more importantly, ACO’s were never expected to save much money in the short run. According to a policy brief in the journal, Health Affairs:

The Congressional Budget Office estimates that the new Medicare ACO initiative will save about $5 billion in its first eight years. This represents a tiny fraction of total projected Medicare savings from the health reform law, most of which come from reductions in payments to providers and private Medicare Advantage plans. However, the CBO estimate assumes that the program will grow slowly and that most initial savings will go to the ACOs rather than being kept by the Medicare program. […] Longer-range savings will come if ACOs and other initiatives can help to change the culture of the medical care system.

Really ACO’s are about improving the quality of care in the hope of cost savings down the road, especially when combined with other payment system reforms in the new law. And in that aspect, the program was a success. The Washington Post notes that all ten medical groups met the demonstration’s requirements for improving quality and “the program fostered innovations in care.”

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