Quality gains alone won’t generate ACO bonuses

A simulation demonstrates that just hitting quality targets would produce modest savings and leave accountable care organizations well short of projected savings of $800 million.

By Charles Fiegl amednews staff — Posted Oct. 22, 2012

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Doctors and hospitals seeking bonuses through shared savings programs should not expect large returns on their investments if all they accomplish is meeting minimum quality targets, according a study published in the November issue of Health Affairs.

A simulation developed by the health care data modeling company Archimedes, based in San Francisco, shows that achieving benchmarks for better quality actually could increase net costs in some cases. However, health analysts said the simulator’s results should not be surprising, and that most doctors in shared-savings programs know they must look elsewhere to lower costs.

“Health policymakers didn’t think savings would be achieved solely through the mechanism of improving quality,” said Robert Berenson, MD, a senior fellow at the Urban Institute, a think tank in Washington.

The simulation should not dissuade physicians and facilities from participating in programs such as Medicare accountable care organizations, said David Eddy, MD, PhD, the Archimedes founder and co-author of the study. Medicare ACOs, networks of health professionals that can be physician- or hospital-led, are expected to coordinate patient care better and boost quality outcomes in exchange for the opportunity to share in any savings generated by keeping patients healthy. Analysts had sought to determine the extent to which the performance measures being used by the Centers for Medicare & Medicaid Services could reduce costs on their own.

For their study, researchers used a proprietary mathematical model to simulate savings from an ACO with a patient population representing the characteristics and costs of the general Medicare beneficiary population. It calculated the effects of improving care for type 2 diabetes patients and achieving quality measures set by the shared-savings program. Goals set by federal officials include improving hemoglobin A1c and LDL cholesterol levels, lowering blood pressure, and getting patients to quit smoking and take prophylactic aspirin.

One outcome assumes a 10 percentage point improvement on all of those quality measures. Doing so would save Medicare money through reduced spending for cardiovascular disease, but once the costs of the additional tests and visits required to boost quality scores are taken into effect, those savings are reduced or eliminated. The largest net savings to the Medicare inpatient and outpatient parts of the program on any one of these measures would be only about 1%. Medicare will require a total net savings of more than 2% before ACOs can get any money back in the form of bonuses.

CMS has estimated that ACOs would save Medicare $800 million in the first three years. Each participating network is expected to earn an average of $2.5 million per year, but the study suggests that those savings could not come from improving quality alone.

“Our analysis indicates that the savings needed to generate these payments will have to come from activities other than improvements in the clinical quality measures,” the authors wrote.

In addition, the study says, there is an expectation of significantly higher drug costs associated with boosting quality. Although those costs will not be factored in when determining the availability and size of any shared savings, a portion of them still will cost the program additional money in the form of higher Medicare drug spending.

Other ways for ACOs to save money

There is no one-size-fits-all model for groups to use to lower spending, Dr. Eddy said. For instance, an organization with an inefficient emergency care suite could work to improve that department, while another organization with poor operating room performance could take steps to improve the situation there.

The results from the simulation were in line with what most observers would expect, said Bruce Bagley, MD, medical director for quality improvement for the American Academy of Family Physicians. The main cost savings will come in the long term from reducing emergency department visits, hospital readmissions, utilization of imaging services and unnecessary procedures.

Improving quality has a modest impact on spending, but ACOs potentially could save more by leveraging their market power when purchasing devices and drugs in a way that generates lower costs from vendors, Dr. Berenson said.

One problem with new payment models such as ACOs is that they still largely rely on fee for service, and thus the disincentive to control the volume of patient services could pose a problem, Dr. Bagley said. In addition, inefficient organizations have the most to gain from ACO-type models, and bonuses will be more difficult for efficient organizations to achieve because they already have trimmed the waste, he said.

“They know that there are not much savings to be had,” Dr. Bagley said. “In shared savings, time is limited. What do you use when you’ve wrung out all the savings?”

Dr. Berenson said the shared-savings models as currently structured do not provide enough incentives for ACOs, but that could change when networks must take on more financial risk in the push to achieve lower spending while maintaining quality.

The American Medical Association has supported shared-savings programs and new payment models led by physicians. The Association also has formed an Innovators Committee that develops resources to help doctors participate.

“With active physician engagement and leadership, ACOs have the potential to coordinate care, improve quality and curb costs,” said Steven J. Stack, MD, chair of the AMA Board of Trustees, in a statement. “To get shared savings, physicians participating in ACOs will need to employ multiple strategies to reduce hospital admissions, readmissions, complications and postacute care while also working to better prevent, manage and coordinate patients’ chronic and acute conditions.”

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A difficult road to ACO bonuses

The Archimedes simulation model estimated the impact of improving performance on diabetes quality measures by 10 percentage points. Preventing cardiovascular disease events saves Medicare some money, but total Medicare Part A and B savings are reduced or reversed when the costs of additional patient care are factored in. The figures show annualized costs in millions of dollars for 100,000 patients over five years. When determining shared savings, Medicare will consider a composite figure of the first five measures, as well as a separate measure for hemoglobin level control. Total Part A and B savings must exceed a 2% threshold before ACOs can share in any of them.

Performance measureCardiovascular
disease costs
Care costsTotalChange
Hemoglobin levels-$2.127$3.726$1.5990.15%
Cholesterol levels-$0.911$2.383$1.4720.14%
Aspirin use-$1.115$0.921-$0.194-0.02%
Blood pressure control-$8.781$2.271-$6.510-0.63%
Smoking status-$12.621$2.350-$10.271-0.99%
Hemoglobin level control-$2.086$2.791$0.7050.07%

Source: “A Simulation Shows Limited Savings From Meeting Quality Targets Under The Medicare Shared Savings Program,” November, Health Affairs (link)

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External links

Next-Generation Physician Payment and Delivery Models, American Medical Association (link)

“A Simulation Shows Limited Savings from Meeting Quality Targets Under the Medicare Shared Savings Program,” Health Affairs, November (link)

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