How Medicare Saved $1 Billion

How Medicare Saved $1 Billion

REUTERS/Rick Wilking

Accountable care organizations (ACOs) are saving Medicare hundreds of millions of dollars, according to new data from the Centers for Medicare & Medicaid Services released Thursday.

ACOs are groups of health care providers that come together to coordinate patient care, with the goal of providing high-quality services while avoiding duplication of effort and unnecessary treatments. They were promoted as part of the Affordable Care Act, and according to the new CMS numbers, they are working better than expected.

Farzad Mostashari, who dealt with ACOs in the Obama administration, tweeted Friday: “ACOs have scaled rapidly across the country! In aggregate, the 472 ACOs were accountable for nearly 9 million Medicare beneficiaries and $95 Billion- that's a quarter of all fee for service, and almost half of the entire Medicare Advantage market. … So that means that the best guess for MSSP savings is actually $1.75B in 2017, with Medicare paying out $780M (45%)- not a bad deal for the taxpayer!!!”

Axios pegged the annual savings at roughly $1 billion.

Not all health-care organizations are interested in saving taxpayer money, of course. Medicare pays a group of hospitals that provide acute care for long-term needs at a special, higher rate, and a new report from economists at Stanford, MIT and the University of Chicago finds that billions of dollars spent on these facilities may be wasted.

According to their analysis, the roughly 400 long-term care hospitals (LTCHs) in the U.S. were paid $5.4 billion by Medicare in 2014, but the researchers say that the care could have been provided much more cheaply – and with similar or better quality – by skilled nursing facilities (SNF). The money wasted on the long-term hospitals in 2014 totals roughly $4.6 billion.

The researchers said that long-term care hospitals “may be primarily cost-increasing institutions. LTCHs are administrative – not medical – constructs. They are unique to the U.S. health care system, and, to the best of our knowledge, do not exist in any other country. LTCHs are reimbursed at substantially higher rates than other institutional PAC and run primarily by large for-profit chains.”

Shifting patients to high-quality nursing facilities would offer billions in savings, but such a change would not be easy to accomplish for political reasons. “The $4.6 billion of incremental spending generated by LTCHs every year may look like ‘waste’ to the health economist, but to the (largely for-profit) LTCH industry it might more accurately be referred to as ‘rents,’” the researchers wrote. “This suggests a large financial incentive on the part of LTCHs to preclude major regulatory changes, and may help explain their continued survival.”