The movement away from fee-for-service medicine toward accountable care in Medicare may get a boost from fresh numbers from the Congressional Budget Office showing spending on the health insurance program for the elderly slowing dramatically.
The Congressional Budget Office last week issued a surprising report that showed spending on Medicare beneficiaries falling despite the rising number of aging baby boomers and the familiar scenario of increased spending on the budget-busting program year after year.
"On the basis of actual outlays through July, CBO now expects that the growth of net Medicare spending for 2014 will be slower than what the agency anticipated earlier this year," CBO said in "An Update To The Budget And Economic Outlook: 2014 to 2024."
"As a result, CBO has lowered its projection of spending for Medicare by $9 billion for 2014 and a total of $11 billion for the 2015-2024 period," the report adds. "Such revisions primarily stem from lower than expected spending for Part A (Hospital Insurance) services and Part D (prescription drugs)."
Translation: the forces of private health plans and forces integrated into the Affordable Care Act appear to be working. Or at least they aren't driving up spending.
There is evidence that hospital admissions have dipped due to a stagnant economy that caused consumers to delay or avoid elective surgeries. However, it also appears Medicare spending is slowing because of partnerships between the government, health plans, and providers of health care to seniors, as well as cost controls woven into the landmark health law.
Across the board, initiatives that place more risk on doctors and hospitals to perform better and generally include contracts with Medicare Advantage plans are generating savings for the Medicare program.
Earlier this year, for example, the Centers for Medicare & Medicaid Services reported that more than $380 million in savings had been achieved from various value-based arrangements, including "bundled payments" made to specific groups of providers to treat a population of patients or from accountable care organizations. Such ACOs and so-called Pioneer ACOs are umbrella entities that group providers together, rewarding doctors and hospitals for working together to improve quality and rein in costs.
The Obama administration acknowledged that not all ACOs will lower expenses each year, nor will they all save money. But it was pleased that in their first 12 months, 54 of 114 of the ACOs that began operating in 2012 had "lower expenditures than projected," the government said. The accountable care organizationss beat health quality benchmarks, which helped 29 ACOs generate shared savings of more than $125 million, according to the Centers for Medicare & Medicaid Services.
Health insurers that operate Medicare Advantage plans have been saying throughout this year on their earnings calls that they are escalating their contracts with ACOs. Thus, additional Medicare savings can be expected given that more than 5 million Medicare beneficiaries are receiving care through an ACO model and there are now hundreds of ACOs forming across the country, according to CMS' most recent numbers.
"When it comes to addressing critical patients issues – preventing hospital readmissions, increasing primary care visits, managing chronic diseases -- the research shows that Medicare Advantage is consistently delivering the better value for beneficiaries and the program overall," said Clare Krusing, director of communications for America's Health Insurance Plans, the health insurance industry lobby that represents big Medicare Advantage players such as Aetna, Cigna, Humana, and UnitedHealth Group.
On the readmissions front, hospitals have even more incentive to keep patients out of the hospital given increasing scrutiny on mistakes and errors and related poor quality.
In the first year that penalties were levied against hospitals, penalized facilities were ordered to pay more than $220 million, according to the U.S. Department of Health and Human Services.
This year, the readmissions criteria under Medicare broadened via additional of certain surgeries such as total hip and knee replacements were added, according to HHS. In 2013, the criteria only included readmissions for patients treated for pneumonia or heart-related problems which were penalized by the Medicare program.
If the penalties continue to be paid to the government or hospitals work harder to avoid readmissions, the Medicare program and insurers trying to avoid spending on inpatient care both win. And that's good for the bottom line of the insurance industry and something their investors should follow closely.
Bruce Japsen has no position in any stocks mentioned. The Motley Fool recommends UnitedHealth Group. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.