Healthcare Revenue Cycle Management, ICD-10, Claims Reimbursement, Medicare, Medicaid

Is the Medicare Shared Savings Program Cutting Costs?

The Medicare Shared Savings Program has not worked out as well as the federal government had hoped because providers are declining from participating in risk-based contracts.

The Medicare Shared Savings Program has not, as of yet, reduced healthcare spending for the federal government. Along with the lack of cost savings within the Medicare-sponsored program, Kaiser Health News reports that approximately 50 percent of accountable care organizations have Cost more than the federal government anticipated.

Accountable Care Organizations

The way accountable care organizations work through the Medicare Shared Savings Program is by offering savings to healthcare providers who have met quality benchmarks and followed population health management protocols. Hospitals and Clinicians capable of keeping their patients healthy, preventing disease, and managing chronic medical conditions effectively will be more likely to share in cost savings through the federal program, according to Kaiser Health News.

The Medicare Shared Savings Program and the development of accountable care organizations are a direct result of the provisions within the Patient Protection and Affordable Care Act. In addition to ACOs, the Department of Health and Human Services (HHS) has set a goal of bringing 50 percent of Medicare spending toward value-based reimbursement by the end of 2018.

Linking reimbursement to quality of care shows how determined HHS is in moving away from fee-for-service payments. However, the Medicare Shared Savings Program and accountable care organizations have not worked out as well as the federal government had hoped because most providers are declining from participating in risk-based contracts, the news source states.

“Changing the behavior of doctors from fee-for-service to a value-based environment involves changing in some cases 30, 40 years of behavior and doesn’t happen overnight,” Richard Barasch, Chairman and CEO of Universal American Corp, said in a public statement.

“It’s very, very hard work. The doctors who embrace it find it very challenging. Think about how it affects their entire practice. For these things to work, it has to be not just a value-based conversation but it also has to be about how the practice is actually managed.” 

In 2014, Medicare reimbursed 353 accountable care organizations, which serve 6 million beneficiaries, with $60 billion. While many ACOs did reduce healthcare spending and cut costs in hospital inpatient care, nearly one out of two or 45 percent of accountable care organizations cost the federal government more than originally anticipated.

Despite these findings, results also show that experienced accountable care organizations especially Pioneer ACOs, which have been operating for several years longer, tend to share in cost savings at higher rates than brand new organizations.

For example, the Brookings Institution found that Pioneer ACOs obtained $96 million in cost savings in their second year while, in their first year of operation, these accountable care organizations brought in only $87 million in savings.

Despite these findings, it was expected that the Medicare Shared Savings Program and accountable care organizations would save at least 10 million in 2014, but the actual outcome fell short of this goal.

Since many accountable care organizations decline to participate in risk-based contracts and take on greater financial responsibility for patient care, and the Medicare Shared Savings Program has not reached its full capacity of cost reduction.

Kaiser Health News out lines that only 7 percent of ACOs decided to participate in risk-based contract in 2014, which would allow them to gain greater reward for quality care but also risking financial penalties from Medicare if costing more than anticipated.

“The recent results on ACO performance indicate that it hasn’t been successful,” Robert Murray, President of Global Health Payment, told the news source. “A lot of people have characterized the results as lackluster at best, and I think things are even worse than that. Medicare’s performance data ignores the fact that each of these ACOs made very substantial investments in infrastructure: new data systems, care management and care coordination systems that probably run anywhere between 1 and 2 percent of their target budget. If you apply that to the results of the ACOs, you would find that even a significant proportion of those meeting Medicare’s goals would be underwater financially.”

“The problems are largely based on design flaws. Because the formation of an ACO requires substantial levels of risk and large up-front infrastructure costs, they have been largely dominated by deep-pocketed health systems, hospital networks, large multi-specialty physician groups or other combinations of specialists and hospitals.  However, these providers are unlikely to make aggressive attempts to control costs because the hospital and specialists are still being reimbursed under traditional fee-for-service payment model.”

Healthcare providers who pursue risk-based payment contracts when working within an accountable care arrangement are more likely to reduce healthcare spending and meet quality patient care standards. While accountable care organizations are expected to cut healthcare costs, some fear that ACO's will lead to more consolidation within the industry, Kaiser Health News reported in a different story.

While the Medicare Shared Savings Program was established as a way to cut spending and reduce unnecessary, duplicative testing within the healthcare industry, it seems that the model actually resulted in a net loss of $2.6 million in 2014.

Mark Wagar, President of the Heritage Provider Network, told HealthPayerIntelligence.com that accountable care organizations will need to “be more aggressive” and potentially take on more financial risk in order to increase their potential for cost savings.

To boost the quality of care, improve care coordination, and ensure better patient health outcomes, healthcare providers to participate in value-based care arrangements and ACOs.

It seems that, in order for the federal government, providers, and the patient community to reduce healthcare spending, accountable care organizations will need to pursue risk-based contracts and take on more financial risk with patient care.

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