Hospitals struggle with reconciling large investments in value-based care

September 25, 2014

CMS recently issued quality and financial performance results showing that Medicare ACOs have improved patient care and produced hundreds of millions of dollars in savings for the program. But when the numbers are broken down, only half of the ACOs in the two programs saw any return on investment.

The Centers for Medicare & Medicaid Services (CMS) recently issued quality and financial performance results showing that Medicare accountable care organizations (ACOs) have improved patient care and produced hundreds of millions of dollars in savings for the program.

These results are from CMS’ preliminary quality and financial results from the second year of performance for 23 Pioneer ACOs, and final results from the first year of performance for 220 Shared Savings Program ACOs.

ACOs in the Pioneer ACO Model and Medicare Shared Savings Program (Shared Savings Program) generated more than $372 million in total program savings for Medicare ACOs. Meanwhile, the ACOs outperformed published benchmarks for quality and patient experience last year and improved significantly on almost all measures of quality and patient experience this year.

While experts agree that providers in the Pioneer and Medicare Shared Savings programs are giving better care, there is now the question of whether or not they are getting paid properly.

According to CMS, providers generated more than $372 million in savings for Medicare and qualified for shared savings payments of $445 million. But, according to a Healthcare Dive article, when the numbers are broken down, it shows only half of the ACOs in the two programs saw any return on investment.

“Some hospitals struggle with reconciling a large investment in value-based care,” says Managed Healthcare Executive Editorial Advisor Doug Chaet, Independence Blue Cross senior vice president. “While they support the idea of improving quality and lowering costs, they understand that winning in a performance-based setting will typically result in lost revenues-that are almost impossible to make up in the short term.”

This may explain why historically most of the successful risk-taking provider organizations have been physician-led, according to Chaet.

“Physician organizations tend to be less conflicted as they don’t have to give up revenue in exchange for performance incentives-as most of the savings in a Medicare plan come from reduced hospital expense,” Chaet says.

According to a 2014 Hay Group Healthcare Compensation Study, stand-alone hospitals, the short-term emphasis on profit has dropped considerably over the last three years: 38% factored profit in their executives’ and senior managers’ annual incentives in 2014, down from 56% in 2013 and 67% (CEOs) and 68% (senior executives) in 2012. Hay Group’s independent hospital data includes input from 1,099 organizations covering over 569,000 incumbents.

Patient satisfaction continues to be a greater factor in annual incentives for executives than for front-line staff such as nurses and physicians. It’s a factor in 65% of hospitals’ short-term executive incentives, compared to 35% for nurses and 25% for physicians.

“Hospital boards make the connection from patient satisfaction to Medicare and commercial reimbursement rates, which puts a distinctively financial spin on the measure,” Jim Otto, senior principal at Hay Group. “We anticipate future increases in the emphasis on patient satisfaction for patient-facing job titles, particularly as more physicians are employed by hospitals and systems.”