The Centers for Medicare & Medicaid Services (CMS) recently released its much anticipated results from its year-long pilot program for accountable care organizations (ACOs). Although CMS deemed the results “positive and promising” in its official press release, a closer study of the results left most experts quite skeptical about the Medicare ACO model. Few health systems and physicians will be motivated to form ACOs on the basis of the study’s publicly reported results.

The pilot program, announced with much fanfare in 2011 by HHS Secretary Sebelius as part of Obamacare, was named the “Pioneer Accountable Care Model” and involved 32 ACOs with approximately 670,000 Medicare enrollees in 18 states. Enrollment in the Pioneer Model was limited to those health care organizations which were already involved in some level of care integration. Participating organizations varied from physician-led healthcare groups in rural areas to large urban systems with governmental hospitals.

As a general rule, ACOs are healthcare organizations incorporating a payment and care delivery system for defined healthcare populations and which link provider reimbursements to quality outcomes and reductions in the total cost of care. In the Pioneer ACO Pilot, Medicare agreed to reward the participating organizations on the basis of how significantly they are able to improve the health of their Medicare patients and lower their health care costs. Significantly, the Pioneer Program also incorporated a series of significant penalties for any ACO which failed to achieve its cost-savings target by a material margin.

The announced results from the first full year of operations for the Pilot were a mixed bag.  Overall, the ACOs achieved a small but measurable reduction in the growth of total Medicare spending when compared to the growth in the general Medicare population. For 2012, the spending for Medicare enrollees in the Pioneer ACO program grew by .03 percent while total Medicare spending grew by .08 percent. Most participating ACOs decreased hospital admissions and readmissions for their assigned population. In addition, all participating ACOs achieved the desired goal of reporting their performance in 15 key quality areas. In these 15 measurements, every ACO improved the quality of patient care in at least one area.

However, almost one-third of the participating healthcare organizations have chosen to disenroll in the Pioneer program and two entities (Presbyterian Healthcare Services in New Mexico and PLUS ACO in Texas) have decided to terminate their status as ACOs completely. Furthermore, 14 of the ACOs did not achieve their expenditure savings targets and generated increased costs for Medicare. Seven organizations are switching their participation to Medicare’s “Shared Savings Program” because of the degree of risk in the Pioneer Program. Two ACOs will have to pay Medicare penalties of more than four million dollars.

13 ACOs were successful enough in the program to generate bonus payments for themselves. Medicare will pay out a total of $76.1 million to these 13 organizations because of their ability to cut Medicare spending on their populations by significant amounts. The most successful programs include Montefore Medical Center in New York City with over 23,000 enrollees and Partners Healthcare in Boston with 52,000 enrollees.

Because the Medicare program for ACOs in general involves greater risk and more challenges than the Pioneer program, this study will likely not encourage more healthcare organizations to pursue Medicare ACOs. This is bad news for a program that was already burdened by bad regulations. The Medicare program does not allow ACOs to require that their enrollees only receive care from a defined list of providers and allows beneficiaries to disenroll from their ACO at will. More, the Medicare ACO is an expensive entity to set up and maintain with complex oversight by CMS. The results are more promising in the private payor sector where organizations have an easier time keeping track on just who has enrolled with a particular organization and which can incorporate meaningful penalties for patients going outside the network for more expensive care.

Colin Luke, a partner with Bradley Arant Boult Cummings, advises clients on a variety of healthcare matters and has served as the Chairman of the Alabama Bar’s Health Law Section.